Tech Company Founder Who Has Just Secured Foreign VC Has Advice for South African Startups
South African Tech startup, Xineoh, first grabbed attention in 2017 when it raised US$2 million in offshore venture capital as a small Bloemfontein-based start-up.
In February this year they managed to raise another US$1 .5 million in offshore VC funding.
The startup was founded by CEO Vian Chinner, a computer scientist who holds a B.Com Financial Management degree from the University of the Free State, together with Gene Anderson, co-CEO, and Bea Chinner, VP of Operations.
The Xineoh platform helps to predict consumer behaviour with artificial intelligence (AI) that can be implemented by clients, quickly, cheaply and with minimum complexity.
Now based in Johannesburg, the tech startup has been lauded for making AI solutions more accessible and cost-effective for SMEs.
Forbes reports: “By precisely predicting what products consumers will buy, Xineoh allows the SME to minimize unnecessary inventory, maximising the efficient use of working capital.”
Chinner says their platform addresses South Africa’s growing need for tech services. “It is impractical to get everything out of Silicon Valley. Something like AI requires some degree of consultation with the client. It is difficult to get this type of service from an operation that is a 27-hour flight away.
“At Xineoh, we have built a software platform for companies that might have unstructured, unclean data. It’s more robust and flexible and therefore more suited to the local market,” he adds.
The most important factors in obtaining venture backing are firstly having a business that is innovative in a real-world sense
VC Funding in South Africa
Xineoh was able to raise funding in what is South Africa’s still small formal startup scene and emerging VC industry. Chinner outlines the challenges they faced.
“It has been difficult for startups to get funding and to establish a Silicon Valley-type ecosystem in South Africa. To date, we’ve experienced a self-reinforcing cycle of limited venture capital and therefore limited startups, and vice versa,” said Vian Chinner.
Growing appetite for African startups
But this may be changing, and Chinner hopes it will mean other startups will benefit.
In 2017, tech start-ups in South Africa attracted venture capital of about US$137.7 million and in 2018, the sector concluded venture deals worth US$178 million.
“I believe the interest from investors such as Flemons could open the floodgates for tech start-ups. We may be breaking new ground now and venture capital, which has been relatively risk averse in the past, may be more open to investing in local start-ups,” says Chinner.
Other South African tech startups that have successfully raised foreign capital are the likes of fintech startup Yoco who raised an undisclosed sum from U.S.-based Quona Capital and Velocity Capital of the Netherlands. Followed by a Series B round is led by Partech, a venture capital firm based in Silicon Valley, Europe and Africa, with participation from Orange Digital Ventures, FMO (The Dutch Development Bank), South African-based FutureGrowth and existing Series A investors Quona Capital and Velocity Capital.
Fintech startup, Zoona, raised nearly US$4 million in funding from the Omidyar Network, Accion Frontier Investments Group and Sarona Asset Management Fund in 2016.
SME South Africa talks to Chinner about how they successfully secured funding, and the growing appetite for locally grown tech solutions.
This is your second time securing foreign capital – can you share a little bit about what the strategy was with regards to this? How easy or difficult was the process?
Valuations are higher on the North-American West-Coast than it is in SA, therefore it makes more sense to raise there if possible. We were fortunate enough to close the round in a relatively quick time.
I believe this is a testament to the success we’ve already achieved in the market, as well as the potential that our investors see in us as a world class deep-tech business.
How will this round be channeled in the business?
We have a laser-like focus on building our engineering team and will use a considerable portion of the funds raised to support this objective. We are also interested in exploring opportunities to expand our operations to Toronto, Canada, as there is a client and talent base deserving of our attention.
There’s a significant shortage of data scientists globally.
Beyond the funding, what other doors will this latest development open up?
We’re finding increased interest from both the local and overseas markets for our offering. We’re also finding an uptick in direct connections from talent from around the world, who are interested in working with us on delivering cutting-edge solutions.
What do South African tech startup founders still need to know about venture funding?
The most important factors in obtaining venture backing are firstly having a business that is innovative in a real-world sense and not just a rhetorical sense. The second factor is proving that you as an entrepreneur will be able to deliver this innovation to the market.
Any notable clients who make use of the software platform?
We’re currently under NDAs with all of them, but we can say that we’re working with some of South Africa’s largest retailers and an iconic hospitality brand (more on this in one of our next announcements.)
Where do you source your tech talent from – any challenges in this regard?
There’s a significant shortage of data scientists globally, with only between 5 000 and 22 000 data scientists able to operate at the standard and scale required by large corporates. The majority of these data scientists are already working within one of the Top 10 Silicon Valley firms. With such a scarce pool of candidates, we’ve had to open up our search globally.
What’s your take on why there is growing enthusiasm for South African tech startups?
We cannot speak for all South African tech businesses, but can comment from our own experience. We’ve managed to beat some of the world’s most well-known AI companies in challenging proof of concepts (POCs), which is why people would want to take a look at us.