One of South Africa’s most successful and respected tech startup exports, Vinny Lingham, has been back in town lately. Lingham – who rose to fame and fortune by founding companies including Yola, Clicks2Customers and the mobile gift card firm, Gyft – has lived in the US for some time, but was in South Africa for the Bitcoin Conference earlier this month. His latest venture is Civic, which has just raised $2.75m in seed funding and will launch an identity protection product later this year.
Aside from his track record as an entrepreneur, Lingham is also a canny investor (he was an early backer of SweepSouth and one of SA’s Dragon’s Den line-up on TV) and, as co-founder of the Silicon Cape Initiative he’s an active supporter of the SA tech scene. While in South Africa, he stopped off at Silicon Cape, SEED Academy, the IAB Digital Summit and more, dispensing advice and insights to hopeful young things in the startup community here.
We caught up Lingham’s presentation in Joburg to the folk based out of SEED Academy. Here’s the highlights of what he said.
Find some free time
One of the key challenges for South African startups is finding space to think about stuff. It’s relatively easy for Elon Musk to make big bets on the future, Lingham says, because he’s got a comfortable buffer of cash to take care of his day-to-day needs. It’s not just about money, though. Living in South Africa carries other pressures that aren’t felt overseas: when he first moved to the US, Lingham says he had to see a psychiatrist to help him adjust to life without burglar bars and the daily threat of muggings and car jackings.
“It’s hard to get self-actualisation when you’re worried about these other things,” Lingham says, “As an entrepreneur it’s hard to think about business when you’re worried about putting food on the table… When you’re worried about that sort of thing how do you think about the long term vision?”
SA startups have to turn a profit
The problem with solving your personal needs is that there are no investors waiting to drop millions of rand into your venture so you can focus on long term planning. There’s much more pressure on South African startups to turn a profit quickly than their international peers.
The cruel truth is that Facebook, Amazon, Uber and almost every other tech firm you know of wouldn’t exist if it had had to turn a profit in its first few years. You are very unlikely to have that luxury as investors here are much more risk averse. Part of that is simply because there’s much more money swimming around Silicon Valley, and investors will bet on a spread of companies in the hope that one delivers massive returns. But it’s not just that.
“You have to understand why that is [from an investor’s point of view],” Lingham explains, “The existential risks of living and investing here are much higher. Investors are looking for their exit. Where do investors get exits from? In Silicon Valley you can sell WhatsApp for billions before it’s made a penny in profit, because Zuckerberg is thinking long term.”
South African firms, meanwhile, only attract big buyouts if they’re turning a profit already.
But there are advantages to investing here…
South African startups do, however, have one good story to sell investors. It’s much cheaper to invest here than in the US. An SA startup can survive on tens of thousands of dollars a year, where a Silicon Valley one would need tens times that. And investors much prefer making lots of small bets than staking everything on one or two potential ‘unicorns’.
Investors still want to make a profit, though, and will always be thinking of their exit: don’t overvalue your company and undervalue the input an investor can offer beyond cash. The bigger a stake an investor takes, the more likely it is that they’ll be able to sell for a profit.
“There’s no formula I use for valuing a company and investing,” Lingham said, “It’s what I think I can sell for in a few year’s time. The best investments are made at low valuation prices, and people are generally happy to undervalue their business if they can get me on board to help them scale.
“Too many entrepreneurs come with a business plan and R20m valuations but no revenue.”
Keep things simple
Be good at one thing, Lingham says, and don’t build potential feature creep into your business plan from day one.
“Don’t go after the grandiose long term views unless you can afford to get there,” he says.
Lingham’s own big success story, Gyft, succeeded in the mobile voucher world even against competition from Google and Samsung. Lingham believes that’s because he was focussed on getting on thing right, nd wasn’t just a small business unit in a corporate giant.
(Learn from SweepSouth)
Treat this as your bonus tip, number 4.5. One of Lingham’s favourite current SA startups is SweepSouth, in which he was an early investor.
“They are model entrepreneurs for SA,” he says of the founders, “They gave up good salaries, sold their house and car, moved to Cape Town – they gave up everything and made very little money in their first year. But they were focussed on one thing.”
Don’t think for a minute investors will put money into your business for you to draw out again as wages, either.
“You cannot expect investors to sustain your lifestyle,” Lingham says, “If you want a lifestyle that you get in corporate, you should stay in corporate. That’s why I like investing in young people, they’re used to living on R5 000 a month.”
It’s not just about the financial considerations, he argues. Things don’t necessarily get easier for entrepreneurs, and as your company grows, so do other responsibilities.
“If you can’t handle this phase, you won’t be able to handle the rest. Like when you have to lay off staff, for example.”
Don’t outsource your code
One of the biggest issues that came up during Lingham’s presentation was that of outsourcing development. In a word, don’t. At least not if you expect investors to come knocking at your door.
“Don’t touch outsourced code,” he says, “When I’m giving you R300K, and you pay R250K in dev costs, someone else is making money and I’m losing as an investor. Founders work 80-90 hour weeks for small money, for years. Outsourcers are taking an hourly rate.”
There’s other considerations too.
“When you outsource to a dev shop they have other clients. They have a queue of work and you won’t be at the top of it.”
Think big, be different
“Don’t like going into markets that are crowded – I like ‘blue water’ strategy. If you’re taking the risks of starting a business, you should have the aim of being a R100m business.”
And if you do make it big, take a chance on those who follow in your footsteps.
“Entrepreneurs that have successes who aren’t helping to fund those who are failing their peers,” he says, “The ecosystem fails and it gets very selfish.”[Main Image – Copyright Seed Academy/Trevor Sachs Photography]