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Located amidst the energetic bars and eateries of Cape Town’s vibrant Kloof Street, a repurposed warehouse has emerged as a central hub for one of the city’s most lively business ecosystems. Spanning three brightly lit and artistically adorned floors, Innovation City Cape Town offers an exclusive community where startups, corporations, entrepreneurs, and investors converge. With a mix of private and shared office spaces, communal areas, and beanbag-filled presentation theaters, this workspace is designed to encourage creative and unexpected collaborations by dismantling traditional boundaries between the startup arena and large corporate players in South Africa.
Kieno Kammies, co-founder and a notable businessman and radio personality in Cape Town, articulates that this initiative aims to foster unique partnerships, chance encounters, innovative ideas, and connections with venture capital (VC) investors. “In the past two to three years, we’ve built a brand that is deeply integrated into the innovation landscape. We’ve hosted visits from Harvard, and MIT has come to explore our initiatives – we are the continent’s first hub that aligns corporations with VCs in this manner.”
Leading companies in South Africa, including telecom giant MTN, financial powerhouse Old Mutual, and retailer Shoprite, have turned to Innovation City to forge new strategic alliances. “The real value is in connecting key players who need to collaborate to enhance their efforts, bringing together smaller enterprises and scaling companies with market access, while linking corporates with flexible partnerships that facilitate faster operations.”
A mixed picture for tech funding
South Africa’s technology sector is among the most active in Africa, with Cape Town at its center. The region’s appealing lifestyle has drawn about 60% of the national startup community to start their businesses in the Cape.
The national forecast is optimistic. In 2023, 60 South African startups acquired funding amounting to $512 million, a remarkable 55.4% increase compared to the previous year, according to Disrupt Africa’s African Tech Startups Funding Report. This funding accounted for 14.8% of the continent’s total for the year.
“As one of the continent’s most developed ecosystems, South Africa has experienced a fruitful year marked by heightened late-stage activity, culminating in its largest funding pool to date, despite broader economic obstacles,” the report emphasizes.
The fintech sector led the way, with 12 funded startups; the e-health sector followed with eight; and educational technology had five. The agritech, artificial intelligence, Internet of Things, and energy sectors each contributed four startups.
Despite South Africa’s strong performance, it contended with challenges in a tough global landscape, as total funding for African tech startups dropped to $2.4 billion in 2023, down from $3.3 billion in 2022.
“Undoubtedly, the global liquidity crisis affects many stakeholders due to the fragmented nature of circumstances and numerous parties exploring various avenues,” Kammies notes.
“We’ve observed that businesses are struggling to secure their second round of funding, as the expectations from some VCs have intensified, and their risk appetite has diminished.”
“Nevertheless, within this hub, we maintain connections with VCs like Norsken22, which has a $208 million impact fund for Africa; Launch Africa VC; and partnerships with organizations like E4E Africa, a Dutch-South African VC, along with others such as Endeavour and Knife Capital.”
Corporates seek startup spark
Bridging the agile startup community with the well-established corporations that have traditionally dominated South Africa’s business landscape could be an effective strategy to counter global funding challenges. Kammies indicates that Innovation City attracts corporates with an “innovation mindset” that “aim to explore solutions beyond their internal resources.”
“Many of these corporations often operate within echo chambers. By relocating their growth and innovation teams to environments filled with other creative and innovative minds from complementary businesses, transformative interactions can thrive.”
Some of South Africa’s largest companies have piloted internal “startups” to harness the energy and insights from the innovation ecosystem, with several of these teams making the transition to Innovation City.
“We initially connected with Iain Williamson, the CEO of Old Mutual Group… and shortly after, Old Mutual’s Next176 [which builds, invests in, and collaborates with startups and corporates] became one of our first tenants. Likewise, we connected with individuals at MTN, leading to Ayoba joining our community. Now, we host two listed companies in our space.”
MTN’s Ayoba, a free instant messaging “superapp,” became a tenant of Innovation City in 2022. Additionally, ShopriteX, the digital innovation hub of the supermarket chain, is a non-tenant member and holds events and discussions at the hub.
Digital nomad visas encouraged
While garnering the support of corporate South Africa has been crucial, securing government backing is equally important. Kammies highlights that the hub is fortunate to be located in the Western Cape, “which is undoubtedly the most business-friendly province,” but he suggests that the regional government could further enhance its innovative approach. “I suggested to the premier [of the Western Cape, Alan Winde] that if his innovation team spent time in environments like this, it could significantly inform their decision-making policies.”
According to Kammies, the national government, frequently criticized by businesses in the Western Cape, has also provided vital support.
“Despite facing regular criticism, when we reached out for assistance to navigate visa and ID issues, they offered us resources… We’ve formed connections with individuals who understand our needs and values, although some departments continue to be unresponsive.”
A primary aim for the startup community is to influence the government to introduce “digital nomad visas” that would allow startup entrepreneurs from around the world to live and work in South Africa with minimal bureaucratic obstacles. Kammies reports that the government is making encouraging strides towards realizing such visas.
“This process is underway: there are dedicated individuals working to make this a reality, though there is some resistance from the media. I don’t see it as a threat to any creatives or innovators. In fact, allowing skilled individuals to come to our country and building relationships to transfer those skills to South Africans could bring enormous advantages for all.”
This kind of mobility will further support South Africa’s tech firms in better connecting with both the continent and the global marketplace, according to Kammies.
“It’s not about ranking South Africa as number one, Kenya as two, and Nigeria as three – it’s about united efforts as Africans to improve skills development across the continent. How do we integrate into a global digital community that builds and exports our solutions to Europe? While we face numerous challenges, they also present opportunities that, if effectively pursued, could allow us to surpass progress in sectors such as payments, healthcare, and education.”
