One of the reasons the Silicon Valley model is difficult or even impossible to reproduce is because it has a built-in culture where the failure of a start-up is not seen as a negative outcome but more of a learning process.
It is irrefutably the entrepreneurial Shangri-La of our time. Failure and risk-taking are encouraged as the best minds push the boundaries of conventional ways of conceptualising, creating, developing, learning and producing new technology.
Quite often, economic advisors, politicians and policymakers from all over the world see it as the answer to many of their country’s challenges, especially on innovation, technology or as a long-term approach to government policy. Trying to reproduce Silicon Valley’s success has never been achieved. We know this because one of the world’s leading universities – Harvard – has countless articles to this effect by leading scholars in its Harvard Business Review magazine.
Much like the major tech companies based there, Silicon Valley has proved to be a unicorn. It begs the question, at least to me, why after years of others trying and failing to replicate it, would any government attempt to do so?
We have known for some time now that in South Africa the Fourth Industrial Revolution (4IR) has replaced Radical Economic Transformation (RET) as the political rhetoric of the moment.
On July 5, President Cyril Ramaphosa addressed the first South African Digital Economy Summit, saying how “the digital revolution calls on the state itself to be a risk-taker; to be entrepreneurial.
“The digital revolution is an opportunity to build an entrepreneurial state, where government’s own appetite for risk and innovation inspires large-scale entrepreneurship and unlocks economic potential.”
Did you also rub your eyes in disbelief after reading that quote? Doesn’t it read like government is now saying it is following the Silicon Valley route? It does!
It should concern us when government appears to be all over the place – is economic growth not a priority? Is it not practical and urgent to focus on priorities that clear the path for investment to flow into the country? Then strengthen it with policies that are going to enable growth that is complemented by job creation – including modifying those policies that could hinder the process (see my column Labour market change is necessary, and it needn’t hurt).
Government’s ‘appetite for risk’
The president didn’t stop after declaring government’s appetite for risk and innovation in the hope that it will inspire and unlock economic potential: “Therefore, an entrepreneurial state should not only provide funding but should also have capacity to determine the strategic direction of entrepreneurship. An entrepreneurial state should have strong venture capital as one of its elements.”
Such aspirations, to me, infer a state that sees itself as an investor in high-risk entrepreneurial projects.
It is useful that Google was mentioned in that speech; the odds of discovering something similar locally are miniscule. Most of all, venture investors are aware of the risks and more so the unlikelihood of getting some of their capital back, if any at all.
I for one am curious to know if the state will drive this? It is known that there are three significant stages in venture capital. The seed stage – where the investor’s capital is used to get the business started, much like planting a seed and caring for it until it germinates, then ensuring that it survives past the seedling stage.
However, it doesn’t end there. Now comes the early stage of increasing the capital invested in the start-ups that survived the seed stage. Again, an investor’s work will not be done because simply putting in more money won’t do. This stage is about ensuring that the start-up stays on the path and keeps growing.
Finally, the growth stage: this means the start-up has become a successful company generating millions in income over a sustained period. This is when the venture investor uses their capital to take the company to a higher level.
In all of this, the time, skill and expertise required varies and so does the amount of invested capital.
This means an entrepreneurial state with strong venture capital elements is a high-risk state.
Some would even say an all-in kind of risk – unless this was one of those occasions where politicians say one thing and then continue to avoid turning their words into actual deeds.
If not, this mimicry of Silicon Valley and treading into venture capital waters seems to be a leap from the hot coals of black economic empowerment into the inferno of high-risk, big-capital ventures with uncertain outcomes. This is the riskiest type of enterprise to embark on.
Surely it cannot be the case. Can the state’s purse, its backlogs and the country’s economic reality afford to attempt to become such an entrepreneurial state?
There is, however, a possible light in all of this. That sort of undertaking might work if it is sponsored by that R1.3 trillion cash reserve that has been accumulated by the South African private sector.
Wouldn’t that be finding the light in pursuit of common vision and goals? I think it is.