22 On Sloane: Africa’s ecosystem can learn from Global Start-up Ecosystem Report
JOHANNESBURG – The highlights of the Global Start-up Ecosystem Report (GSER), published by Start-up Genome and the Global Entrepreneurship Network (GEN), included the rankings of the top 40 ecosystems in the world and the top 100 emerging start-up ecosystems; a detailed look at the global start-up landscape in 2020; insights into how Covid-19 has harmed start-ups; and an in-depth policy analysis of how to effectively support start-ups.
Value creation by ecosystems remains concentrated with about 74 percent of all value produced being in the top 10 performing cities globally. Sadly, the top 40 ecosystems in the world featured no African city or country.
In this regard, most start-up founders ask themselves, where do I have the best chance to build my company into a global success?
So a friend and I debated whether South African-born Elon Musk would have been as globally successful if he had launched his company at home. The jury is still out…
The GSER also analysed companies in the billion-dollar club – exits or private companies in technology with more than $1 billion (R17bn) in valuation. From 2013 to 2019, only four ecosystems produced unicorns or billion-dollar exits. Today, 80-plus ecosystems have done so, yet is any of them indigenous to Africa?
A major beneficiary of the democratisation of tech is the Asia-Pacific region, which went from having 20 percent of the top ecosystems in 2012 to 30 percent today.
The Covid-19 pandemic has even made emerging ecosystems more vulnerable. The reality is that once the virus is gone, the top start-up ecosystems will keep performing.
Places such as Silicon Valley, New York, London and Beijing will continue to produce tremendous innovations and create astounding value, because they have depth of talent, experience and capital in the ecosystem – which might retract, but will remain there after the Covid-19 crisis.
That is not the case in emerging ecosystems, where failures now will leave deep scars. Talent that is laid off might start working for big corporates, or move to another city. The same is true for founders who might have to close shop. Ecosystems must invest now or risk losing the progress made in the past 10 years.
The GSER listed seven success factors that the top 40 ecosystems have in common and from which African ecosystems can learn.
- Ecosystem value – a measure of the economic impact of the ecosystem, calculated as the total exit valuation and start-up valuations over two-and-a half-years.
- Exits – the number of exits over $50 million and $1bn, as well as the growth of exits.
- Start-up success – how much start-ups succeed in the ecosystem. Measured in early-stage success (ratio of Series B to Series A companies), late-stages success (ratio of Series C to A companies and the number of billion-dollar club start-ups), and speed to exit (both to initial public offering and other exits).
- Access – a function of early-stage funding volume and funding growth.
- Quality and activity – a combination of the number of local investors, investors’ experience (average years of experience and exit ratio), and investors’ activity (percentage of active investors in the first quarter of 2020, and the number of new investors).
- Global leading companies – a function of scale-ups and unicorns in the ecosystem. Measured in the ratio of companies valued over $1bn (number of unicorns + $B exits to GDP), ratio of $B exits ($B exits to GDP), and large exits to funding (exits over $50m to Series A rounds).
- Local reach – size of local markets, proxied as a function of country gross domestic product.
- IP commercialisation – an indicator of how much the policy environment encourages the commercialisation of tangible IP, measured at the country level.
- Local connectedness – a function of the number of tech meet-ups in the ecosystem.
- Infrastructure – a life sciences-focused measure of accelerators and incubators, research grants and R&D anchors in the ecosystem (for example, top research hospitals and corporate R&D labs).
- Access – the percentage of engineers and growth employees with at least two years of start-up experience at the time of hiring.
- Quality – a function of the number and density of top developers on GitHub, English proficiency, and historical exits, as well as a proxy for experienced scaled teams in the ecosystem.
- Cost – average software engineer salaries. More expensive salaries lead to lower scores.
- Research – based on the H-Index, a measure of publication impact, this metric looks at the production of life sciences research at the country level.
- Patents – the volume, complexity, and potential of patents in life sciences created in the ecosystem.
So where to now?
Policymakers must ensure that resources are channelled into the start-up space promptly and that these networks are supported with crucial funding and swifter access to markets. They also desperately need better infrastructural assets to create and retain value and market worth. Ultimately, we must make sure their business journeys are as bulletproof as possible. In closing, the list of companies founded during the Great Recession is impressive. It includes Facebook, LinkedIn, Palantir and Dropbox – all based in the Bay Area.
Just like the resurgence of both London and New York on the heels of the 2007 to 2009 recession, when they diversified from a reliance on their traditional strengths in finances, the post-Covid-19 recovery will see new ecosystems rising.
Kizito Okechukwu is co-chairperson of the Global Entrepreneurship Network Africa: 22 on Sloane is Africa’s largest start-up campus and was recently appointed board vice-president of Digital Africa.