Tech start-up stock exchange to fund the unfunded

By Wesley Diphoko Time of article published May 16, 2021

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THERE’S a young person in a South African township somewhere who has a game-changing technology concept and idea but will never gain access to funding.

What makes this possible is the system of funding technology start-ups which is led by venture capitalists who are biased.

As the government struggles to close the gap, South Africa is missing out on innovations that could come from some of the ignored groups of people in the tech entrepreneurship ecosystem.

There is, however, a different intervention that should be considered to create more tech start-ups by young people who emerge from townships, and who are not part of the exclusive and privileged club of the tech entrepreneurship ecosystem.

A technology start-up stock exchange is one of the interventions that should be considered to unleash unseen African innovations.

Beyond enabling better access to funding, such a stock exchange should be principle-based and consider tech start-ups that are addressing major challenges in society.

Eric Ries, an American entrepreneur and author of The Lean Start-up, a book on the lean start-up movement, realised that stock exchange companies did not address current realities.

Having identified that current stock exchanges had a short-term focus and tended to create companies that were just profit-driven, he set out to create a stock exchange with a long-term focus and one that embraces purpose-driven companies.

He established an alternative stock exchange called Long-Term Stock Exchange (LTSE).

It is an entity that understands that modern companies measure progress over decades, not financial quarters.

Investors who invest long-term want to know not just how companies plan to produce value, not just in the next quarter but for years to come.

LTSE embraces the notion that employees, customers, suppliers, and communities count on companies to uphold their commitments and to do right by society.

The South African business community should learn from the Eric Ries approach and consider local conditions by establishing a tech start-up stock exchange that will take care of local issues.

One such issue is who gets to be funded. Such a stock exchange would have to be deliberate about funding people who are shunned by society due to their background, economic status and association.

Beyond addressing diversity and inclusion such a stock exchange should also close the gap that the stock exchange is not addressing. The JSE was created for different types of companies.

Businesses that are emerging are focused on the Fourth Industrial Revolution and they should be valued differently.

The current stock exchange does not have a greater appreciation of tech companies in most instances with no physical infrastructure to value.

When Eric Ries was creating the LTSE he understood the value of an alternative stock exchange for the modern age.

He understood that it would reduce short-term pressures and encourage a steady cycle of innovation and investment in long-term value creation.

This should be the preoccupation of people who care about innovation and the creation of purpose-driven companies in South Africa.

No one knows what kind of innovations could come out of townships if everyone was given an opportunity to be funded.

As long as this is the case, tech innovations that come out will always reflect one side of society instead of the full spectrum of what is possible. We are starting to see tech start-up companies coming out of Africa, especially in the fintech sector – think of Flutterwave and Paystack.

It’s interesting to note that the growth of these companies is mainly funded or acquired by US-based companies. The African tech start-up ecosystem should strive to build global tech companies that will remain on the continent. Currently, there are only a few companies on the JSE that truly reflect diversity in society.

Even those that are there are attacked by the establishment.

To achieve this, how tech start-up companies are funded has to go beyond usual suspects.

A tech start-up stock exchange should be on the list of things to do by leading organisations in the tech ecosystem.

Wesley Diphoko is the editor of BizTech.


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