SA tech accelerator changes the game

Cape Town - A new-style South African start-up accelerator has changed the traditional business model by not taking any equity in new tech businesses.

"There are a number of reasons that we have decided to go with a no equity approach. First, it is a better deal for the entrepreneur," Paul Smith, co-founder and CEO of Ignitor told Fin24.

Traditional accelerators take up to 20% equity in start-ups as reward for investing in new businesses. They usually make profit when they sell their shares in subsequent rounds of funding.

But Smith said that their model reduced the potential for mercenary start-ups looking to exploit funders.

"There is really only an upside in getting involved in a programme and this means we can attract better quality entrepreneurs. With jobs being a major problem in this country, we believe that any accelerator that can consistently help launch successful companies will not have a problem finding sponsors."

Business profit

Standard Bank, First National Bank and Microsoft are major sponsors of Ignitor which attracted a large number of participants at a look-see phase of the programme.

"Over 400 entrepreneurs have attended our three day Bootcamp, which we use to select participants," said Smith.

Around 10% of the businesses that joined Ignitor have seen some success, he added.

"We have had a little over 40 businesses go through the accelerator and have helped 30 turn their ideas into profitable businesses: That is they are past breakeven and the founder is taking a salary."

Ignitor allows an exit after 12 weeks of coaching to find profitability in small businesses, but is open to continued support to help grow small companies.

"Our aim is to help entrepreneurs get to breakeven, or be on their way to breakeven, as well as, find a profitable business model that will allow them to keep growing after they exit the programme," said Smith.

Entrepreneurs are usually expected to sign exclusivity agreements when engaging with start-up accelerators. Recently, Cape Town group developed an audio widget that is intended to help the BBC disseminate its radio content in SA.

But that innovation is subject to a specific agreement that gives the UK-based news organisation rights to develop the technology exclusively.

"We require no exclusivity agreements with the businesses that we engage. The only requirement is that the companies keep in touch with us so that we can monitor revenue, profitability and job creation figures for reporting purposes," said Smith.

Johannesburg incubator applications close in June and July, while the next round for the Cape Town leg is yet to be confirmed.

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