Great post – love the graphic too! Your post dovetails nicely on my Silicon Cape post previously (http://www.vinnylingham.com/silicon-cape.html) – we should produce a comprehensive thesis . Looking forward to helping to solve the problems you mentioned and many others!

Cheers
Vinny

The VC funding gap will begin to narrow when you reach a critical mass of entrepreneurs who believe and can build R500M businesses in 3 years with R5M to R10M in funding … and only one in a hundred of these proposals might actually get funding!

My understanding of a true incubator is providing new businesses/start-ups with early support to get their business off the ground.

Can you provide any examples of where 20Fourlabs or Vodacom labs have done so? Or at least have set aside specific budgets to do so? These brands may carry the “labs” title, but are focused on their own development needs only.

Until that changes, it’s that inward thinking and behaviour that does nothing to close the gap you refer to.

From my perspective there are a few things that people in SA seem to be battling with (my focus is on web based software / products):

1. the SA market is very small to build a software business for, unless you have a service with a very clear revenue model that can scale enough to pay the bills from very early on. I have seen very very very few of these.

2. SA folks don’t seem to have a lot of experience in developing products for the global market; or doing localisation for global markets.

3. definite shortage of product / dev / agile skills to facilitate the above.

So even with funding, there is still a huge mountain to climb…

Then, with funding, I don’t think that anything smaller than a years cash for one or two people (at minimum in classical y Combinator model) is going to be enough to make enough progress. Bootstrapping IMO is a good idea as it lowers risk for everyone, and I think is a process every budding entrepreneur should go through as it enforces reality

My take is that we don’t need incubators as much as we need a deal flow for angel and seed investors to exit with, which is what would make raising money feasible. This of course assumes that we’re building something from scratch.

Do you think that a Y Combinator model could work here? (That is, investing $5000 + $5000 per founder into a small company in exchange for 6% and then run a 3-month “workshop”).

Would love to hear some of the pros & cons!

I’d certainly agree with you on local capital being risk averse. There seem to be a number of options open for “seed” funding, but little available at the “bootstrap” stage – not surprising though – if it was my money, I’d likely be as cautious. Unless (as Henk Kleynhans of Skyrove was able to prove recently – http://www.geekrebel.com/2009/07/raising-money-in-a-recession.html ) you have people with money who trust you, you almost need to prove that you don’t need the money before a VC will commit.

As far as Product Dev & Management go, having spent the better part of the last decade in that, I’d say “maybe”. There are people who have good ideas & products, and price & position them quite well. I think what is often lacking is the ability to define a clear strategy to gain market share, focus on one clear, tangible advantage (not a whole mishmash) and the ability to convert a plan into reality day by day.

Too many SA small business owners spend no time working on their business as opposed to working in it. They also seem to lack the ability to at the same time take risks but apply uncommon sense to their decisions. There is a poor culture in our youth of investing in “assets” which generate income vs “liabilities” which don’t – if there is one thing I’ll drum into my kids if it kills me it is that! We’re also in too much hurry to reap benefits from a company instead of being patient, earning less than we could and plowing it back to potentially reap more later. Drive a Citi Golf for a few years more when you could buy that 320i dammit!

A few proven Cape based incubators worth a mention:
BandwidthBarn (http://bandwidthbarn.org/), CITI’s flagship project
& Mambaven (http://www.mambaven.com/) a small, but successful private incubator.

A mix of available funding at all stages of development plus mentoring is vital! I’m pleased to see Max Kaizen giving mentoring some focus (http://maxkaizen.com/2009/08/23/gathering-some-jedi-masters-the-magic-of-mentorship/) as too many of us have had too little.

Personally, I’ve told my kids I’d like to see them start at least two businesses (and preferably have at least one of them fail) before they leave school – definitely before they leave varsity. What better time to chase big audacious dreams and take risks, getting a “real” education without too much pain.

You get to my age, you fret over opportunities lost in the past and the stress of winning the daily bread while trying to convert dreams into reality day by day.