Situated amidst the energetic bars and eateries of Cape Town’s vibrant Kloof Street, a revamped warehouse shines as a center for one of the city’s most dynamic business hubs. Spanning three well-lit and uniquely styled floors, Innovation City Cape Town functions as an exclusive community for startups, corporations, entrepreneurs, and investors. With a mix of both closed and open office layouts, collaborative areas, and presentation spaces filled with beanbags, this workspace aims to inspire innovative and unexpected partnerships while dissolving traditional divides between the startup ecosystem and leading corporate sectors in South Africa.

Co-founder Kieno Kammies, a well-known Capetonian entrepreneur and radio personality, shares that the initiative aims to encourage unconventional alliances, spontaneous meetings, fresh ideas, and connections to venture capital (VC) investors. “Over the past two to three years, we’ve established a brand that is deeply rooted in the innovation landscape. Harvard has visited us, and MIT came by to observe our work – we are the first hub on the continent to unite corporations and VCs in this manner.”

Major South African companies like telecom leader MTN, financial giant Old Mutual, and retailer Shoprite have utilized Innovation City to forge new strategic partnerships. “The magic is in connecting valuable contributors who require collaboration to enhance their efforts, merging smaller businesses and scaling firms with market access, while linking corporates with adaptable partnerships for quicker operations.”

A mixed outlook for tech funding

South Africa boasts one of the continent’s most vibrant tech industries, with Cape Town at its center. The region’s lifestyle advantages have drawn around 60% of the country’s startup community to establish their operations here.

The national forecast is optimistic. In 2023, 60 South African startups secured a total of $512 million in funding, reflecting a notable increase of about 55.4% compared to the previous year, according to Disrupt Africa’s African Tech Startups Funding Report. This funding comprised 14.8% of the continent’s total for that year.

“One of the continent’s most developed ecosystems, South Africa has experienced a successful year marked by heightened late-stage activity, resulting in its largest funding pool yet, despite broader economic challenges,” the report emphasizes.

The fintech sector leading the charge with 12 funded startups; e-health with eight; and educational technology with five. The agritech, artificial intelligence, Internet of Things, and energy sectors each contributed four startups.

Despite South Africa’s favorable performance, it has encountered challenges in a tough global environment, where total funding for African tech startups fell to $2.4 billion in 2023, down from $3.3 billion in 2022.

“There is no doubt that globally, with everything feeling so fragmented and many parties exploring various avenues, the liquidity crisis impacts numerous stakeholders,” Kammies notes.

“We’ve observed that businesses are struggling to secure their second round of funding, as some VCs have tightened expectations and reduced their risk appetite.”

“Yet, within this hub, we have access to VCs like the Norsken22 impact fund for Africa, which holds $208 million; Launch Africa VC; and partnerships with organizations such as E4E Africa, a Dutch-South African VC, along with others like Endeavour and Knife Capital.”

Corporates seek startup inspiration

Bridging the nimble startup community with established corporations that have historically dominated South Africa’s business milieu may serve as a viable approach to counter global funding shortfalls. Kammies notes that Innovation City attracts corporates with an “innovation mindset” that are eager to explore beyond internal solutions.

“The challenge for many of these corporations is that they often reside within echo chambers. By moving their growth and innovation teams to environments filled with other creatives and innovators from complementary businesses, that’s where transformative interactions unfold.”

Some of South Africa’s largest corporations have experimented with in-house “startups” to tap into the vitality and insights of the innovation ecosystem, with several teams transitioning to Innovation City.

“We first 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 initial tenants. Similarly, our discussions with MTN led to Ayoba’s presence. Now, we host two publicly listed companies in our space.”

MTN’s Ayoba, a free instant messaging “superapp,” became a tenant of Innovation City in 2022. Furthermore, ShopriteX, the digital innovation hub for the supermarket chain, is a non-tenant member and regularly holds events and discussions at the hub.

Digital nomad visas promoted

While securing support from corporate South Africa has been crucial, gaining government backing is equally vital. Kammies points out that the hub is fortunate to be located in the Western Cape, “which is undoubtedly the most business-friendly province,” but he suggests the regional government could further enhance its innovative initiatives. “I mentioned to the premier [of the Western Cape, Alan Winde] that if his innovation personnel spent time in environments like this, it could significantly influence their decision-making.”

The national government, often criticized by the Western Cape business community, has also stepped up to provide essential support, as noted by Kammies.

“While the government frequently faces backlash, when we reached out for help with issues relating to visas and IDs, they offered valuable resources… We’ve established connections with individuals who understand our needs and values, even as some departments remain unresponsive.”

A primary goal for the startup community is to convince the government to implement “digital nomad visas” that would permit startup entrepreneurs worldwide to live and work in South Africa with minimal bureaucratic hurdles. Kammies has indicated that the government is making positive strides toward enabling these visas.

“This effort is ongoing: there are dedicated individuals working to make this a reality, although there is some resistance from the media. I don’t view it as a threat to any creators or innovators. In fact, welcoming skilled individuals into our country and fostering connections to transfer skills to South Africans could yield significant advantages for all.”

This kind of mobility will further assist South Africa’s tech companies in better linking with both the continent and the global arena, according to Kammies.

“It’s not about ranking South Africa as first, Kenya as second, and Nigeria as third – it’s about our collective efforts as Africans to improve skills development across the continent. How do we become part of a global digital community that innovates and exports our solutions to Europe? We face many challenges, but they also offer opportunities that could allow us to leapfrog advancements in crucial areas like payments, healthcare, and education.”