BRYAN SILKE: SA must staunch the bleeding of innovators and entrepreneurs

“Capital goes where it is welcome and stays where it is well treated.” — Walter Wriston, former Citigroup CEO.

It is no secret SA has a chronic problem retaining its best and brightest. A culture of entrepreneurial stagnation, driven by a lack of venture capital funding, has pushed some of our most promising innovators to seek greener pastures abroad.

We often marvel at the success stories of SA-born entrepreneurs on the global stage — Elon Musk, Roelof Botha, Vinny Lingham, Mark Shuttleworth, Patrick Soon-Shiong, Pieter de Villiers — without acknowledging a fundamental truth: SA was not the launch pad for their success. Rather, they had to escape a funding ecosystem that has historically been hostile to early-stage risk-taking. 

Venture capital is the lifeblood of innovation. It fuels high-growth businesses, accelerates technological advancement and creates jobs. The US, China and even smaller economies such as Israel, have built entire industries on the backs of a robust venture capital culture. In contrast, SA’s investment landscape remains fixated on traditional asset classes — mining, real estate and legacy financial institutions — while dismissing the high-risk, high-reward nature of tech entrepreneurship.

The consequence? SA haemorrhages talent. Instead of developing the next Silicon Valley or Tel Aviv, we watch as our brightest minds take their ideas elsewhere. Musk left Pretoria as a teenager to seek opportunity in North America. Today, he leads some of the most transformative companies in history. Would Tesla, SpaceX or OpenAI have found a home in SA? The answer is self-evident. 

Mark Shuttleworth, founder of Thawte Consulting, built one of the world’s first internet security companies, which he sold to Verisign for $575m in 1999. Patrick Soon-Shiong, a medical entrepreneur, developed groundbreaking cancer treatments and became one of the wealthiest figures in biotech after moving to the US. Pieter de Villiers cofounded Clickatell, a global leader in mobile messaging, only after relocating his business to Silicon Valley. These examples highlight a troubling reality: SA is a fertile ground for talent but a barren wasteland for venture investment. 

I recently did a roadshow for a Norwegian fintech company operating in Africa to private and institutional investors in SA. The experience was illuminating — and frustrating. Despite developing a proprietary platform, a scalable business model and clear alignment with the continent’s financial inclusion goals, generating interest was an uphill battle.

The prevailing sentiment was one of scepticism, not curiosity. The hesitancy to invest in disruptive innovation is precisely why SA’s fintech sector lags behind peers in Kenya and Nigeria, where mobile payments and digital banking have seen explosive growth. 

The lack of a risk-taking culture in SA investment circles is a self-inflicted wound. Without adequate venture capital, we create an ecosystem where: 

• Innovators go elsewhere. We cultivate entrepreneurs only to export them. South Africans have a global reputation for ingenuity, yet we refuse to back them at home. The best ideas leave, and take their intellectual capital with them. 
• Economic growth suffers. The tech sector is a proven economic multiplier. In the US venture-backed firms account for more than 40% of public market capitalisation. In SA the absence of this engine of growth results in stagnation and an overreliance on legacy industries. 
• Foreign investors see opportunity before locals do. In many cases African and SA start-ups gain traction thanks to capital from London, New York, and Dubai before receiving local backing. Why must our home-grown entrepreneurs first prove themselves abroad before we take them seriously? 

If SA is serious about becoming a leader in the fourth industrial revolution we must overhaul our approach to venture capital. Government, the private sector and institutional investors must take deliberate steps to foster a culture of innovation. 

For instance, the government needs to incentivise venture capital investment through tax incentives, co-investment schemes and regulatory reforms. Countries with thriving start-up ecosystems — Singapore, Israel and the US — support venture capital investment with policy frameworks designed to encourage risk-taking. 

Pension funds and asset managers need to rethink their conservative approach to tech investments. Globally, institutional capital plays a significant role in venture funding. SA’s institutions, by contrast, remain largely absent from the space. The risk profile may be higher, but so are the potential rewards. 

Large SA companies should look beyond in-house innovation and invest in external start-ups through corporate venture arms. This is standard practice in leading economies, where corporations acquire early-stage stakes in disruptive businesses rather than waiting to be disrupted themselves.

SA has a tendency to look to Europe and North America for investment opportunities while neglecting Africa. Yet African fintech, e-commerce and digital infrastructure start-ups are attracting billions of dollars in investment. It’s time SA capital played a leading role in this growth. 

Without a shift in mindset SA will remain a training ground for talent that ultimately enriches other economies. We must create an environment in which entrepreneurs are empowered to build world-class companies at home. 

The question is not whether we have the talent — South Africans have proven their capabilities on the world stage time and again — it’s whether we have the vision, the risk appetite, and the collective will, to ensure that the next Elon Musk doesn’t have to leave to succeed. 

• Silke is associate partner at Hudson Sandler Invicomm.