The Spike at #SiliconCape

Silicon Cape
08 Oct 2009

Signing off. Been a fascinating day, and an interesting way to cover it.

#SiliconCape, as I’ll always call it, has been a tremendous day. Important. We’ll remember 8 October 2009. I’m a born cynic, but I now have goosebumps. Justin Standford and Vinnie Lingham have started a very big thing here.

Nominations for 10-member steering committee for the Silicon Cape Initiative being solicited, and the community will vote on its membership. They will drive the discussion, and the issues and proposals that were raised.

12:28 I’ll keep on this. I’ll get more involved. I’ll tweet more than I do. I’ll help build this. African. [Another standing ovation. i’ve got goosebumps. She’s very, very good at this.]

12:26 Zille: I see my job as removing barriers to access. Not only for entrepreneurs, but also for the most important factor of all, education. Justin and Vinnie said we’re at the start of a 15-year dream, and they’re right. That’s what it takes.

12:24 She says that provinces don’t have enough power to make free economic zones possible, but that the discussion is important, and involving the right people (like Mamphela Rhampele) in this discussions is equally important.

12:22 Zille: When Andrea Bohmert poured cold water on Vinnie and Justin’s enthusiasm, I thought: “Good. Problems enthuse me. Obstacles get me going.”

12:20 Zille: So, what do we need to do policy-wise? That is the conversation that this kind of meeting drives, and facilitates, across all kinds of barriers, and all kinds of political boundaries.

12:18 It’s our job — that’s why politicians are actually quite important — to make sure that the conditions exist where everyone can take advantage of the benefits of a viable, established democracy.

12:16 Zille: It’s not surprising that places like Sillicon Valley happened in established democracies. There they have all the facilities and benefits that are taken for granted in established democracies. But our democracy is also still a startup.

12:15 Zille: If we want to take our people out of poverty, then we’d better treat our intellectual capital very well. You have to keep and develop your skills, and your people. Especially in the knowledge economy, this is crucial. We have tried to do that, mostly in the Western Cape, and I’d like to think that is a part of the reason why you’re having this conversation here, today.

12:13 Zille: This event gives us an opportunity to have an intelligent conversation about how we can change the rules, and take it out of the political domain of party politics. You heard Johann Rupert’s concern about party politics. It doesn’t have to be that way, and it shouldn’t be that way.

12:11 Zille: We heard a lot about the geeks, and the VCs, but very little about the politicians. And that is because we’re usually regarded as a necessary evil. We heard about constraints and problems in the ecosystem. And every one of them are problems and constraints that can be changed through policy and positive action. We have the capacity to change the rules, change the policies, to enable an environment where people feel attracted to put their capital at risk and do business.

12:09 “When we look back in ten years time, this will have been an historical gathering. It’s not often that I get the real buzz that I had today.”

And finally, Helen Zille, after attending from early morning, is up on stage.

12:06 I want TIA to be the enabler of technological innovation that it can be. [Standing ovation from the crowd. The talk was short, but very well received.]

12:05 On BEE: “If I look at the entrepreneurs here, it appears that patronage has been an inhibitor to innovation.” We need to get people back to South Africa by recognising and celebrating their contribution. We must do that.

12:02 There’s a misalignment between what government wants to do and what it does do. Example: bandwidth. Government should take the lead on our skills problem, for example: our school system is not delivering, and neither is our higher education system. Government can also play a role, through TIA, in developing partnerships.

12:00 The most important thing, says Ramphele, the most important thing is that government must create an enabling environment, and tackle the regulatory barriers. “I can’t believe that we can’t sell to people who pay in dollars. How stupid is that? How can we grow our economy?”

11:58 Mamphela Ramphele: I’d just like to say how proud I am to be South African. What happened here this morning is an affirmation of what we’re capable of when we just dig a little deeper and make an effort.

Next up, Dr Mamphela Ramphele, the highly-qualified and very experienced chairperson of the Technology Innovation Agency (TIA), on how SiliconCape and the TIA could be together.

The view that entrepreneurs are second-best to corporate professionals is being developed, too. Vinnie mentioned it as part-explanation for the fairly pale complexion of most of them. Justin Spratt notes that entrepreneurs should be considered rockstars, despite failure.

Proposal has just been made from the floor for angel funders to meet during lunch break to set up an angel funding network. [Given the number of entrepreneurs here, it will have to be a very secret conclave, I suspect.]

The Twitter interaction with this event is amazing. They’re all part of the panel discussion.

@EranEyal asked on Twitter for all the entrepreneurs at #SiliconCape to please stand up. They just did. It turned out to be well over half of the audience.

VC panel discussion

More points:
* Build something that is great and makes money fast. Don’t rely on making money only in three years, because the VC might not come. Move fast, and bootstrap as long as you can.
* A point about typical white-male representation was raised, via twitter. [Personally, I’m not sure what can be said about it. It’s not like this was an invitation-only event, and only white males were invited.] Vinnie Lingham notes that the phenomenon of white entrepreneurialism is partially the result of black empowerment. He’d like to see this change: that startup business isn’t just what you do when you can’t get a corporate job.
* The social ecosystem around entrepreneurs is important. In successful startup areas, they work together, but also go to dinner together, and go skiing together.
* Entrepreneurs here often give away large, even controlling stakes, in their businesses, far more than in the US. The answers to the question how much they should offer are vague, however. Funny chirp, though: “If you’re going to build the next Twitter, you might as well give away 100%, because it’s not going to work.” More generally: don’t go for the first deal you are offered, don’t lock out future funding possibilities by giving away too much too early.
* It is trivial for a 19-year-old in the Netherlands to start trading over the internet. Here, it requires Reserve Bank approval. This is a huge obstacle to local entrepreneurs, because the local market simply isn’t big enough. You have to go global.

The discussion, including questions from the audience, is gravitating along two themes:
* A key issue is the different stages of startup funding, which is something that not even many entrepreneurs understand: angel funding, followed by seed funding, followed by one or more tranches of venture capital funding. Each needs an exit opportunity, and none can exist without the prior stages. Angel funding is the missing ingredient in SA. Justin Spratt says 86% of US startups are angel-funded.
* Execution, and development of the commercial skills — project management, product management, market research, marketing, and so on — is lacking, and makes VCs risk averse. This needs to be developed, not only in a SiliconCape-style initiative, but all the way down to school level.

State of VC funding in the Western Cape?

* One problem is nobody — entrepreneurs, at least — knows who the VCs are.
* Acceptance of failure in SA is low. VCs are very (and probably too) risk averse, compared to VCs in other successful locations like Israel or Silicon Valley.
* There’s not enough clarity on the different types of funding: angel, seed, first- and second-tranche VC, and so on. If even one of them is missing, the system breaks down.
* There *is* a fair amount of VC around, but the challenge is to match it with entrepreneurs, and to match expectations on both sides, in order to create the success that everyone needs.
* The state of VC is terrible in South Africa.
* The problem is in the gap between product ideas and execution on getting it to market. There’s a lack of these skills, because corporate South Africa sucks up that talent. But this will change, and this is the start of it.
* Startups beget startups. It takes time. (Example given of Clicks2Customers spawning a whole lot of current startups.

How do you get VC? Networking. Geek dinners, events like this, social events, those are very important. Surround yourself with the people that are going to be important to your business, or who know people who will be.

[I don’t have a good enough view of the panel to ID all the speakers. Will highlight important statements and discussion items, but without attribution. Also, starting now, I’ll put my own comments in square brackets, since I just realised there’s an ambiguity problem if I don’t.]

Panel discussion on venture capital to follow, chaired by Laurie Olivier.

10:53 Rupert pays tribute to previous generations’ innovation, but notes today’s challenges, including ecological and socio-economic. “You’re going to have to invent ways to solve them. Given the right solutions, we’ll be there to back you up. Good luck.”

10:50 I’m glad to see the premier here, Premier Zille. I’ve already discussed this notion with senior ANC people: Let’s create a tax-free zone in the Western Cape. [Loud applause.]

I had to explain to my daughter, who’s a bit of a socialist: in order to good, you have to do well first. In order to give away money, you have to make it first. Government cannot create jobs. They just tax people and move the taxes around.

Because people who own the intellectual property are mobile, they get to choose where they live, and they’ll choose to live where their intellectual property is most highly valued. That’s where they will create economic growth. In the Western Cape, if we create the proper economic incentivisation, there will be money.

10:45 China will be a challenge to the US economy in 10, 20 or 30 years. When they do, they will also have to change their policies, and protect their intellectual property. And one significant difference is that you can’t just move a steel mill, but you can move (even without broadband) intellectual property. I’ll repeat: the all-powerful state will not be as powerful when property resides in people’s heads. The Chinese have a saying: never scare the donkey that carries the china. Societies that do not protect and encourage the creation of intellectual property WILL become poorer.

10:42 The magic ingredient is brainpower. This works in multiple ways: technology, brand power, or sometimes both. Compare the price and weight in pounds of a Pentium 4, a Viagra tablet, gold, a silk scarf, a Mercedes Benz, or an iPod, and compare it to coal or hot-rolled steel. We cannot survive in our society if we rely on export of raw materials. Companies that are net exporters of intellectual capital are the countries that are going to survive.

(Just a note: when I don’t attribute something, it’s a direct quote or reported speech from the current speaker, in this case, Johann Rupert. My own comments I’ll preface with a personal pronoun.)

10:40 The weight of US economic output is about the same as it was 100 years ago. But their population increased from 76 million to 300 million, and their income per capita increased five-fold. They did this without increasing their output of physical things, and use 75% less material inputs.

10:37 In the past, it didn’t much matter where you lived in the world, you’d be equally wealthy everywhere. This is no longer so. The reasons some countries have succeeded, while others have not, has everything to do with the rules by which we organise our lives. Respect for and free transfer of property, flexible labour markets, valued entrepreneurship, democracy, free speech, honesty & transparency in government, the rule of law. These are the countries that went from agriculture through industrial to the information or knowledge economy. Best example is East versus West Germany. Exactly the same gene pool, but vastly different results. Korea, North and South, is another example.

10:33 Johann Rupert expects taxes to go up “radically” in the Anglophone world. He strikes an ominous tone.

Blueberry crumpets with honey and butter. This place rocks. Rotunda at the Bay Hotel, Camp’s Bay. We’re back, with Johann Rupert, chairman of Richemont. If you don’t know him, he’s a friend of Justin Stanford’s.

Smoke break. A few people are even having tea and cookies. Will return!

10:00 “Believe in miracles. I’m amazed by the creativity of South African entrepreneurs.” … “What Vinnie and Justin want to achieve is not only to change their own world, but to change the world around them.” … “They’re creative risk-takers. Let us not go into thoughtless caution.” And finally, quoting Robert Noyce: “Look around at who the heroes are. They’re the guys who start the companies.”

9:59 Draws parallels with Israel’s YOZMA programme, which increased VC funds from 1 to 60 in 1992 to 2002. Government was involved, but took the role of an enabler, not an investor. They also lowered entry barriers, so second-time returnees from Silicon Valley could start businesses in Israel. The Israeli model is very possible in South Africa. You start, like with Yola (Vinnie’s company, of which Olivier is chairman, and in which his VC fund, Veritas, invested) on both sides — local and global — and focus on a global exit.

9:54 Olivier shows map with dozens of labels indicating other attempts to replicate Silicon Valley, some successful. He analyses the phases of Silicon Valley’s own development, and the reasons for its success, and notes that unlike anywhere else, the key thing Silicon Valley had that nobody else had — a sense of local networking and community — is the first thing SiliconCape has. “Surely, technology and money is not enough.”

9:50 My impression of Olivier: Even when he’s talking bromides about the flat world, the pace of change, the power of collaboration, and so on, he is excited and energised. He loves this crowd. He loves what’s happening here.

9:46 Quoting Vinod Khosla: “Launching a startup is not a rational act. Success only comes from those who are foolish enough to think unreasonably.”

9:43 Take Choc-kits biscuits. You have to love them. The people here are like the chocolate in the middle. The one biscuit is the VCs, and the other biscuit is the product or technology, but I prefer the chocolate in the middle.

9:42 One of the purposes of Silicon Cape is to create an attractive environment to bring people back from overseas, to realise their dreams here. But having a lot of South Africans overseas is not all bad. With Israel, there’s a diaspora, and this is a big reason for many of the entrepreneurial successes there: the international network. The mobility of South Africans gives them the best of both worlds. Being overseas has another benefit: it makes us appreciate South Africa more than the locals appear to do. There’s a reason for all the “South Africa” shops overseas.

9:37 Laurence (“Laurie”) Olivier: “I attended a similar event as this one in Israel in 1990. Most of the people there are now multi-millionaires.”

Next up, Laurence Olivier, legendary venture capitalist who left SA for America. Feels he would like to contemplate some solutions to the challenges Bohmert mentioned. (#SiliconCape apparently trending on Twitter. Cape Town rocking the globe today!)

9:32 Nice ending from Bohmert: “The one thing I haven’t mentioned is passion and commitment. That’s one thing that most certainly IS here.”

9:30 My thoughs: Bohmert’s presentation is very tough, but realistic. She’ll no doubt be called names, but if SiliconCape is to have any chance, these realities (and perceptions) need to be recognised and tackled. Some by entrepreneurs and VCs, but many also by government.

9:28 Skills is a problem, but consider patents. In 2008 SA registered only 10766 patents, of which 7166 were filed by foreigners. How many success stories do we have? And how easy were they to find? We either need people to come forward and talk about them, or we need to generate more, because there simply are not enough of them. Investors: Silicon Valley has 500. SA has 6 or 7 active VC funds.

9:25 Is entrepreneurship really a respectable business in SA? Or do kids get told it’s what they do if they can’t get a job, or get laid off? Being an entrepreneur isn’t about just becoming a billionaire. It’s about failing, admitting it, learning from it, and doing it again, better this time. It’s hard work, mediocrity isn’t good enough. SA needs a truly entrepreneurial culture to make something like SiliconCape happen.

9:22 Legal and regulatory environment. This is the crux. And this is what most of us cannot change. (Ms Premier, you’re an exception who can do something about it.) Vinnie and Justin mentioned this too. Can foreigners get work permits? Can they get bank accounts? Can they move money and IP in both directions across borders? Can they hire and fire employees? This is one of the key issues that needs to be addressed. Everything hangs on this.

9:20 The investment environment makes SA a hard sell, she says. Can you take your money back out? Can you move IP around, globally? These are critical barriers, and they suggest to investors that they’re rather place their money somewhere else. Infrastructure, in other markets, isn’t even mentioned, because it is taken for granted. In SilliconCape, it’s also a no-brainer, and we know that it’s being worked on, but it’s an important issue.

9:15 Bohmert’s litany is familiar, and sobering: You need anchor corporates. They’re a good training ground for management. Does South Africa have enough of them, and are they willing to take enough risks? Skills. Have you tried to hire ten high-level techies lately? They’re rare, and they come at a price. Many are overseas, and many of those who come back only return because they want to retire comfortably. Professional services, and preferably not those who charge big-corporate fees for big-corporate services. Angel networks. Most cities worldwide have ways to get angel investors together and facilitate investments. They’re critical for the ecosystem. In Sillicon Valley they invest as much as later-stage VCs. But here in SA, they do exist, but they seem to be very good at hiding.

9:10 Bohmert: “Nobody has ever mentioned a South African university to me as a top global research university. They may be wrong, but if they are, universities are South Africa’s best kept secret.”

9:08 It’s not as easy as they make it sound, says Bohmert (a foreigner herself). You cannot ignore international perception of South Africa. You cannot ignore your distance from other hotspots, where you can’t just quickly fly to. You cannot ignore that Cape Town, unlike Johannesburg, is cliquey. A lot needs to happen, in terms of people, regulations, marketing, and conditions, both real and perceived.

9:03 Andrea Bohmert, of Hasso Plattner’s investment venture, up next. She says Vinnie and Justin came to talk to her about “just an idea”, and they didn’t disclose that they’d pull together a 500-person event like this. “They make it sound so easy.”

9:01 This could be the future of our country’s export revenue one day. We’re far away from the rest of the world, so exporting IP takes advantage of that weakness. SiliconCape can happen. Let’s make it happen. [Applause]

9:00 SiliconCape is a 5-, 10-, 20-year dream. But we’ll see the makings of it in the next five years. It won’t happen overnight, but it can happen, if all of us here work together to make it happen. We’ve seen it happen. There are people who work in Silicon Valley, or elsewhere in the world, who want to come back. Local companies are announcing funding: SpringLeap, Skyrove… These are the sorts of ingredients that form the basis for SiliconCape. (Justin)

SiliconCape is a movement, a platform, a community-owned brand. It’s not an organisation, or an incubator, or a VC fund. It’s an umbrella brand. It is what Ghandi described: “be the change that you want to see in the world” (Vinnie)

8:55 Vinnie: Startups also create opportunities for employees, who when a company is successfully founded, developed and sold, often go on to become founders themselves. The secretary of Netscape got $1 million with Netscape’s IPO. The only story like that in SA is Mark Shuttleworth’s Thawte. But one story in ten years just isn’t good enough.

8:51 SiliconCape needs to be investor friendly. This means capital and payments must be able to move freely across borders. These regulations, as well as onerous regulations designed to protect consumers should be reviewed with an eye on making it easier to do business in SA. The same goes for IP: investors need to know that when a liquidity event like a foreign acquisition occurs, they can move the IP. We don’t permit that, even though it is the liquidity events that are the reasons why investors buy into entrepreneurs in the first place. If we don’t address these laws (Justin says) we will become a net exporter not of IP, but of talent.

8:45 Some discussion about the intellectual property environment, as well as the tax environment. Israel and Jersey cited as examples, where IP incentives and tax incentives have attracted a lot of investment and entrepreneurial activity.

8:42 Barriers are dropping. Bandwidth isn’t an impossible obstacle to overcome. You can host anywhere in the cloud. Vinnie: “It’s not ideal. We’re lagging. We’re way behind. But it’s not enough to be a showstopper.” Justin: If we can get internet in the hands of the average South African, there will be a startup explosion.

8:40 Vinnie: It’s possible to build global companies and take them to profitability or exit from SA. The cost of doing so is much lower in SA, making your dollars or euros go much further. Justin: what you pay for your apartment in SanFran would buy a mansion in Camps Bay, for example.

8:38 Justin: What happened in Silicon Valley is that the first wave of startups, 15 years ago, starting out of the semiconductor industry, ended up providing mentorship and funding for the next wave. You need startups to create startups. It’s happening already, but only in isolated pockets. There’s not an efficient marketplace of startups and VCs. But “the ecosystem WANTS to happen”.

8:35 Justin: the geek crowd doesn’t want a blank, featureless place to live. They want character, environment, everything that Cape Town has. Vinnie: of all the places I’ve been to, Cape Town is probably the best, and I’m looking forward to the day I can come back (from San Francisco). But I want to come here for commercial reasons and lifestyle reasons, not just lifestyle reasons.

8:33 Justin: the Cape has those specific ingredients and elements. Vinnie: a lot has been written about what made Silicon Valley successful, and Cape Town has most of that. Justin, quoting Paul Graham: it’s about people, not buildings. You don’t construct it. The question is who are the right people, and how do you get them to move here?

8:30 Vinnie has seen a lot of Silicon Valley. Has pictures up of iconic “anchor tenants”. Justin says he and Vinnie independently had the idea that the Cape has the potential to become a Silicon Valley for Africa. A high-tech innovation up that attracts and nurtures innovators and investors. Vinnie: it’s not just about building a local version; the market just won’t support that. But fostering innovation is possible. Justin: it’s an ecosystem, consisting of a few core elements…

8:30 Introducing Vinnie Lingham, CEO of Yola (formerly Synthasite), and got rounds of funding of $5 million and $25 million that took him to Silicon Valley. Justin Stanford, founder of 4Di Capital.

8:30 Quotes Ferial Haffajee: “Half South Africa is tweeting, while the other half is not eating.” There’s a lack of entrepreneurs, and #SiliconCape needs to solve that. It needs to be a social network, and a resource centre, and a place where entrepreneurs can find VCs, and vice versa. It also needs to be a link with universities. Stanford is one of the big reasons for the success of Silicon Valley. Links with government, for investment, marketing, tax incentives, and international trade relations, are also key.

8:26 There’s a reason why so many of these entrepreneurs and companies are in Cape Town, even though it has a huge lump of cellphone interference in the middle.

8:25 Buckland says SA is a significant market. Though we often under-sell ourselves, there’s a great deal of potential and room for improvement too. He expects boomtime for the internet, with new cables, more devices and a lot of successful entrepreneurs and companies.

8:20 Buckland: “Here to day, history is being made. There are some powerful and influential people in the room. Today we have the opportunity to raise the profile of our industry, city, country and continent. It’s not a competition between cities, but it’s about an idea. The idea to create a centrifugal point for technology, inpiration and aspiration. A concept creates momentum and it encapsulates something we can all gather around. This is how it starts.”

8:15 Matthew Buckland opening the day. Impressed not only with the turnout, but that a tech crowd made it here this early. Lots of out-of-towners, and even a few Johannesburg spies.

8:10 I get the impression it would be more effective to tweet organiser announcements at this event. Everyone, please take your seats, proceedings are about to start. Justin Standford and Vinny Lingham looking like proud fathers: excited and a little awed.

07:50 Morning. It’s just before eight in Camp’s Bay, and the Rotunda at the Bay Hotel is filling rapidly. It’s buzzing. Lots of familiar faces, and a great deal of excitement in the air. Very impressive setup, dominated by a huge twitter screen over the main stage. We media junkies, being special-needs types, have a special table reserved for ourselves alongside of the main seating. Very convenient.

I’m not new to blogging, nor to taking notes at events, but combining the two will be a new and fun (albeit slightly dangerous) experience.

I guess the best way to do it is to time-stamp entries and keep it all in one post, so look back for updates here every once in a while.