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Gauteng rises in startup stakes

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The Western Cape might still be the most popular region in South Africa in which to run a tech startup, but the province is losing ground to the country’s richest province – Gauteng, reveals a new survey. In addition, the number of black tech startups is on the rise.

In the 2017 Ventureburn Tech Startup Survey powered by Telkom Futuremakers – which was released yesterday – 44% of the 260 founders surveyed said they operated in Gauteng (see below graph), behind the Western Cape’s 47%.

Among its other key findings the survey uncovered that:

  • The percentage of black startups has risen from 26% in 2015, to 50% this year.
  • Just three percent of black tech startups turn a profit, versus 16% of their white counterparts.
  • Over a quarter of startups plan to raise angel or VC funding, but only eight percent receive such funding.
  • Almost a third say they pay market-related salaries, but pay is the top reason for employees leaving.
  • Successful startup founders are most likely to be white males from the Western Cape.


1

The percentage is up from 29% in a 2015 Ventureburn survey of 197 founders (see below graph) and is just behind the 47% who reported in the latest survey that they operate in the Western Cape (59% in 2015).

2

The rise in Gauteng tech startups appears to be driven by the increasing number of tech entrepreneurs who are black (black African, coloured, Indian or Chinese South African) — and who now make up half (50%) of the country’s tech startup founders, up from 26% in the 2015 survey.

In addition, the majority of black startups (53%) list Gauteng as their base, with 42% saying Western Cape is their home.

3

Of the 260 founders quizzed in the latest survey, 46% list themselves as white, down from 66% in 2015 (see above and below graphs). Four percent chose not to reveal their race (eight percent in 2015).

4

The survey also reveals that while South Africa may have seen an explosion in venture capital (VC) deals of recent — with the value of such deals having increased by 134% in 2016 over 2015 (see this story) — just 10% of tech startups are turning a profit. This is down from 17% in in 2015.

Black startups struggling

Black tech startups in particular are struggling. While 16% of startups founded by white entrepreneurs are turning a profit, a mere four percent of black-owned tech startups are doing the same.

Most worrying is that 61% of black startups have yet to generate an income — because they are still working on their concept or are still in the seed stage — compared to 30% of white startups.

Furthermore, just nine percent of black-owned startups (and four percent of black African startups) generate a revenue of above R1-million — compared to 29% of their white counterparts. Three quarters (75%) of black startups generate under R100 000 (and 78% of black African startups).

In all, white startups accounted for 59% of all those startups that reported having tapped angel funding, while 24% of white startups reported having raised R1-million or more to fund their businesses, compared to just eight percent of black startups (and 2.5% of black African founders).

It suggests better resourced white startup founders who often have access to more capital, skills and experience and better networks are able to out perform black startups.

The survey also reveals that white startup founders are significantly older than black founders. Over a quarter (26%) of white founders are 40 years or older, compared to just 13% of black founders. Almost three quarters of black founders are aged 35 and younger, compared to 62% of white founders located in this age band.

This raises various questions as to what is driving more middle-aged white founders to start up their own business and whether employment equity is behind this or not.

In addition, it might also explain why so few black startups are making a profit compared to white startups. Older founders are usually more experienced, better networked and have more capital than younger entrepreneurs.

Out of touch in getting angel, VC funding

But back to angel and VC funding, where it seems startup founders are out of touch with reality.

5

Over a quarter (27%) of all SA tech startup founders believe they will grow their business by securing VC or funding from angel investors — yet only about eight percent report ever having been able to secure such funding, a new survey reveals (see the below graphs).

In a further hint that startup founders need a reality check, just nine percent of those looking for angel investing and just 20% seeking VC funding have firms that are growing or turning a profit.

The majority of SA tech startups use their own cash to fund the business (40%), followed by loans and grants from friends and family (23%).

6

When they are able to get funding, most startups tap very little. In all, 42% of startups reported getting less than R50 000. Only 16% received R1-million or more (the value at which angel investors and VC funding usually starts at). The remainder (42%) received between R50 000 and R1-million.

7

Findings from the survey also put into question whether South African tech startup founders really pay employees as well as they claim to. Close to one third (31%) that took part in the survey claim they pay their employees market-related salaries.

Yet the same founders list remuneration as the top reason for employees leaving their employ – 21% of founders list remuneration as the top reason employees leave.

8

This raises the question of whether startups are really in touch with market-related salaries or whether a good number of fibbing — particularly as 63% of founders surveyed said their startup generated less than R100 000 a year.

White founders in the Western Cape most successful

While just 10% of startups report making a profit, in all, 27% of startups can be termed “successful”, in that they are generating a profit or are growing.

So, who then runs the most successful startups (defined as those that make a profit and are growing)? Well, most are run by men. While 27% of startups run by men say they are successful, just 18% of startups run by women can say the same.

More white founders report being successful, with about two thirds of startups who say they are successful being white-owned firms. Taken by race group, 36% of white founders report being successful, compared to just 13% of black startups (and just 10% of black-African founders).

About 32% of startup founders in the Western Cape say they are successful — compared to 22% who are in Gauteng who list themselves as successful.

Most are over the age of 40 or between 30 and 35 years old (36% of startup founders in these ages groups say they are successful) and run a fintech or insurtech or a startup in the advertising and media business.

Those with a business partner and who have a startup that is already over two years old employing more than 10 people are also more likely to report being successful. B2B startups – those that serves other businesses (rather than consumers) and that tap the North American or European market.

Finally, are you more likely to be successful if you’ve run other startups before? In short, not necessarily.

Data from the survey reveals that 33% of founders who have run one or more startups previously report being successful with their current business — not overly different from the 30% who have never run a business before and say they are successful.

However there appears to be some correlation with the number of startups a founder has run as a predictor of success.

Though startup founders were not quizzed on whether their past firms had been a success, 50% of those who have run five or more startups report that they are successful with their current firm — compared to 29% of those that have run one to four startups before.

It may suggest that as the country’s tech startup ecosystem matures, the level of those reporting success is likely to increase. More critical however, will be to close the gap between less successful black tech startups and their white counterparts — this will not be easy.

*Note on the methodology the survey used: In all there were 298 respondents to the survey which was conducted using an online questionnaire, by data analytics firm Qurio. Of this number, 38 respondents were found to be employees of startups (rather than founders) and were excluded. The survey therefore sampled 260 startup founders. 

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Personal computing devices sales still decline in MEA

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The Middle East and Africa (MEA) personal computing devices (PCD) market, which is made up of desktops, notebooks, workstations, and tablets, suffered a decline of -7.3% year on year in Q2 2017, according to the latest insights from International Data Corporation (IDC).

The global technology research and consulting firm’s Quarterly PCD Tracker for Q2 2017 shows that PCD shipments fell to around 6 million units for the quarter.

“As forecast, the market followed a similar pattern to recent quarters, with the downturn primarily stemming from a decline in shipments of slate tablets and desktops,” says Fouad Charakla, IDC’s senior research manager for client devices in the Middle East, Turkey, and Africa. “This was the result of desktop users increasingly switching to mobile devices such as notebooks or even refurbished notebooks, while users of slate tablets shifted to smartphones. These trends translated into year-on-year declines of -21.9% for desktops and -15.7% for slate tablets in Q2 2017, while shipments of notebooks and detachable tablets increased 11.0% and 63.3%, respectively over the same period.”

“Market sentiment in the region remained low overall, although an aggressive push from some slate tablet vendors meant the market declined much slower than expected,” continues Charakla. “At the same time, heightened competition has also made it harder for certain players to sustain their slate tablet businesses and generate profits, causing them to lose interest in the slate tablet market altogether. Despite this, slate tablets are still the most popular computing device among home users in the region.”

Looking at the region’s key markets, IDC’s research shows that when compared to Q2 2016 overall PCD shipments were down -11.4% in the UAE, -8.9% in Turkey, and -6.7% in the ‘Rest of Middle East’ sub-region (comprising Iran, Iraq, Syria, Yemen, Palestine, and Afghanistan). South Africa and Saudi Arabia bucked this trend, recording year-on-year increases of 3.5% and 9.6%, respectively.

A massive education delivery in Pakistan acted as a key driver for notebook shipments in the region overall. Similarly, the education sector was the biggest driver of detachable tablet shipments, triggered by a huge delivery in Kenya, as well as two other deliveries in Pakistan and Turkey, which enabled this category to achieve the fastest growth of all the PCD categories.

“While a component shortage prevented market players from reducing their prices too much, the average price of consumer notebooks experienced a considerable year-on-year decline in Q2 2017,” says Charakla. “This played a key role in driving demand from the consumer segment, and was reflected in the growing popularity of lower-priced notebook models.”

Looking at the PC market’s vendor rankings, each of the top five vendors maintained their respective positions compared to the previous quarter, with the top four all gaining share.

Middle East & Africa PC Market Vendor Shares – Q2 2016 vs. Q2 2017

Brand Q2 2016 Q2 2017
HP Inc. 23.7% 27.6%
Lenovo 19.8% 21.5%
Dell 16.3% 16.7%
ASUS 8.7% 9.4%
Acer Group 5.9% 4.1%
Others 25.7% 20.7%

Although Samsung continued to lead the tablet market, the vendor rankings in the space saw quite a few changes, with Huawei catapulting itself to second place. Lenovo also climbed up a position compared to the previous quarter, causing Apple to drop to fourth place.

Middle East & Africa Tablet Market Vendor Shares – Q2 2016 vs. Q2 2017

Brand Q2 2016 Q2 2017
Samsung 20.5% 18.9%
Huawei 11.2% 15.8%
Lenovo 12.7% 9.8%
Apple 9.1% 8.8%
Alcatel 2.9% 5.0%
Others 43.5% 41.7%

“Looking to the future, the MEA PCD market is expected to decline at a faster rate than previously forecast for 2017 as a whole,” says Charakla. “Technological shifts are playing a pivotal role in deciding the future of this market, with demand for certain products shifting to other PCD products and beyond (i.e., smartphones). Accordingly, shipments of slate tablets are expected to continue declining over the coming years as demand is cannibalized by smartphones. Meanwhile, the ongoing shift to mobile computing will see growth in the desktop market remain close to flat throughout IDC’s forecast period ending 2021. Notebook shipments will experience very slow growth beyond 2018, while detachable tablets will remain the fastest growing PCD category, eating away share from other computing devices.”

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Gazer cyber-spies exposed

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ESET has released new research into the activities of the Turla cyberespionage group, and specifically a previously undocumented backdoor that has been used to spy on consulates and embassies worldwide.

ESET’s research team are the first in the world to document the advanced backdoor malware, which they have named “Gazer”, despite evidence that it has been actively deployed in targeted attacks against governments and diplomats since at least 2016.

Gazer’s success can be explained by the advanced methods it uses to spy on its intended targets, and its ability to remain persistent on infected devices, embedding itself out of sight on victim’s computers in an attempt to steal information for a long period of time.

ESET researchers have discovered that Gazer has managed to infect a number of computers around the world, with the most victims being located in Europe. Curiously, ESET’s examination of a variety of different espionage campaigns which used Gazer has identified that the main target appears to have been Southeastern Europe as well as countries in the former Soviet Union Republic.

The attacks show all the hallmarks of past campaigns launched by the Turla hacking group, namely:

  • Targeted organisations are embassies and ministries;
  • Spearphishing delivers a first-stage backdoor such as Skipper;
  • A second stealthier backdoor (Gazer in this instance, but past examples have included Carbon and Kazuar) is put in place;
  • The second-stage backdoor receives encrypted instructions from the gang via C&C servers, using compromised, kegitimate websites as a proxy.

Another notable similarity between Gazer and past creations of the Turla cyberespionage group become obvious when the malware is analysed. Gazer makes extra efforts to evade detection by changing strings within its code, randomizing markers, and wiping files securely.

In the most recent example of the Gazer backdoor malware found by ESET’s research team, clear evidence was seen that someone had modified most of its strings, and inserted phrases related to video games throughout its code.

Don’t be fooled by the sense of humour that the Turla hacking group are showing here, falling foul of computer criminals is no laughing manner.

All organisations, whether governmental, diplomatic, law enforcement, or in traditional business, need to take today’s sophisticated threats serious and adopt a layered defence to reduce the chances of a security breach.

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