- High-tech startups abound in South African city of vistas
- Private-equity funding shifts from financial hub Johannesburg
The sight of an elderly man wobbling on a bicycle sparked the idea. Airplanes have it, even some cars, so why not have a radar on two wheels?
The Varia bike radar, helping riders avoid vehicles approaching from behind, was developed by iKubu Pty Ltd. in Stellenbosch, a town about an hour’s drive east of Cape Town that’s better known for its wineries than innovative engineers.
“Three to four years ago, there was zero appetite for risk in the consumer electronics space,” iKubu co-founder Franz Struwig said by phone. “We did a crowdfunding campaign in the U.S. to make some noise, we stuck to our guns and fought all the way.”
His persistence paid off. Garmin Ltd., a GPS technology manufacturer based in the Swiss city of Schaffhausen, bought iKubu for an undisclosed sum earlier this year. Other recent venture-capital deals involving companies operating in the Cape Town area include the purchase of data-protection company Attix5 by Redstor Ltd. of the U.K. and the 59 million rand ($4 million) sale of the Kapa SA genetic project, which was partly funded by Wilmington, Massachusetts-based Kapa Biosystems Inc.
Cape Town’s sparkling bays, Table Mountain vistas, four universities and vineyards spreading east have attracted venture-capital managers, entrepreneurs and wealthy business leaders to the country’s second-largest city as state funding declined in other regions. Three quarters of the country’s startup deals took place in Western Cape province this year, according to the Southern African Venture Capital and Private Equity Association.
“Professionals and good engineers who have mobility choose to work in the most beautiful place in the country,” Struwig said from Stellenbosch, where he leads R&D at Garmin Southern Africa. “Migration has really fed the talent pool out here; the core of our team is from Pretoria and Johannesburg.”
Venture-capital funding in Stellenbosch gets a boost from the presence of wealthy business leaders, Riaan Conradie, chief executive officer of medical device maker HealthQ Technologies Pty Ltd., said in an interview. Patrons include the families of Johann Rupert, the billionaire founder of the world’s largest jewelry maker, Cie. Financiere Richemont; De Beers Chairman Nicky Oppenheimer; and Shoprite Chairman Christo Wiese, Conradie said.
Venture-capital spending in South Africa is on track to reach 146 million rand this year, according to the industry association. That’s up from 142 million rand in 2014 and 109 million rand in 2013. The average deal size dropped to 3.4 million rand this year because new technology companies require less money to start, a survey released last month showed. Software has replaced telecommunications with the most deals at 26 percent, it said. About half of deals are for startup capital and 40 percent are for growth, figures showed.
“Venture capital flocks to Cape Town because this is where the innovation-driven entrepreneurs are,” Keet van Zyl, co-founder of Knife Capital Pty Ltd., said by e-mail. “It’s Africa’s biggest startup hub.” Knife Capital invested in iKubu.
The ascendancy of Western Cape over Gauteng province, where financial-hub Johannesburg is located, is also due to funding shifts and cuts by the government’s Industrial Development Corp. and Technology Innovation Agency, according to Stephan Lamprecht, head of Pretoria-based startup consultancy Venture Solutions.
“Although many of our investments are not made in exchange for equity, they still target and enable” companies and projects that aren’t yet generating revenue, Pontsho Maruping, executive for innovation funding at TIA, said in an e-mail.
Since iKubu starting selling the bike radar in July, Time magazine has named it one of the top 10 gadgets of the year. Sports stores from Johannesburg to London are now targeting Christmas shoppers to boost sales of the radar, Struwig said.