KIZITO OKECHUKWU | JULY 6, 2020
The highlights of the Global Startup Ecosystem Report (GSER), published by Startup Genome and the Global Entrepreneurship Network (GEN), included the rankings of the top 40 ecosystems in the world and the top 100 emerging startup ecosystems; a detailed look at the global startup landscape in 2020; insights into how COVID-19 has harmed startups; and an in-depth policy analysis of how to effectively support startups.
Value creation by ecosystems remains concentrated, with about 74% of all value produced being in the top ten performing cities globally. Sadly, the top 40 ecosystems in the world featured no African city or country.
In this regard, most startup founders ask themselves where do I have the best chance to build my company into a global success? So a friend of mine and I debated whether SA-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 analyzed companies in the billion-dollar club – exits or private companies in technology with over US$1 billion in valuation. From 2013-2019 only four ecosystems produced unicorns or billion-dollar exits. Today, a cumulative 80+ ecosystems have done so. Yet are any of them indigenous to Africa?
A major beneficiary of the democratization of tech is the Asia-Pacific region, which went from having 20% of the top ecosystems in 2012 to 30% today. The COVID-19 pandemic has even made emerging ecosystems more vulnerable. The reality is that once the virus is gone, the top startup ecosystems will keep performing.
Places like 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 post this COVID 19 crisis. That is not the case in emerging ecosystems, where failures now will leave deep scars. Talent that gets laid-off might start working for big corporates, or move to another city altogether. 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 which the top 40 ecosystems have in common and that African ecosystems can learn from.
Ecosystem Value — a measure of the economic impact of the ecosystem, calculated as the total exit valuation and startup valuations over a two-and-a-half-year time period.
• Exits — the number of exits over $50 million and $1billion, as well as the growth of exits.
• Startup Success — how much startups 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 number of billion-dollar club startups), and speed to exit (both to IPO 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 $1 billion (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 GDP.
• IP Commercialization — indicator of how much the policy environment encourages the commercialization of tangible IP, measured at the country level.
Local Connectedness — a function of the number of tech meetups in the ecosystem.
• Infrastructure — a Life Sciences-focused measure of accelerators and incubators, research grants, and R&D anchors in the ecosystem (e.g., top research hospitals and R&D corporate labs).
• Access — the percentage of engineers and growth employees with at least 2 years of startup 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, whereas 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 startup 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 as opportunities are unlocked for companies, they are too for ecosystems. The current crisis has rapidly accelerated the digitization of the offline economy, making tech companies more relevant than ever before. The actions of ecosystems today will determine their positioning on the global stage tomorrow. At the same time, this is an opportune moment to rebuild our economic communities with a lower negative impact on the environment and a stronger focus on inclusion and fair access to the precious value that tech ecosystems create.
Just like the resurgence of both London and New York on the heels of the 2007-2009 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 the co-Chair of the Global Entrepreneurship Network Africa: 22 On Sloane is Africa’s largest startup campus and was recently appointed Board Vice President of Digital Africa.
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