Far From Silicon Valley, A Disruptive Startup Hub

Starting a business is tough anywhere.

But when you live in a place where many people lack basic services, such as electricity and toilets, it's even harder.

These are the obstacles facing new business owners in South Africa's townships — sprawling communities designated for nonwhites during apartheid. Apartheid may be history, but two decades into democracy, townships remain overwhelmingly disadvantaged.

Internet service and office space are difficult to come by. There are few sources of investment from within the community, and if you manage to interest a potential funder who is an outsider, you have to hope you can manage to travel to a meeting.

Despite these obstacles, entrepreneurs across the country's townships are forging ahead. And while starting a business in a township remains difficult, it may be getting a little easier — thanks in part to a growing company called Hubspace. Cropping up in cities around the world, communal offices like Hubspace offer small businesses a place to work — and network — with other entrepreneurs.

'A Cool Space'

A sprawling township about 20 miles outside central Cape Town, Khayelitsha is home to roughly a million people. More than half live in shacks. It's here, on the second floor of a two-story brick building, that Hubspace opened the country's first township entrepreneurship hub in 2013.

Hubspace Khayelitsha has a tidy boardroom and plenty of tea and coffee. There's also a shared landline and a street address. In a township like Khayelitsha, these simple office perks can be game-changing for a fledgling business.

On a recent afternoon, Ayanda Cuba sat at computer inside Hubspace Khayelitsha, showing a friend what Slinch looks like. Concocted by Cuba and a partner after discussions with paramedics, Slinch is a fabric sling that fits on a stretcher and immobilizes injured children.

Like many in the room, 25-year-old Cuba has been an entrepreneur since a young age. Last year, he and a group of friends put together an online newspaper, the Times of Ulutsha, to share stories of Khayelitsha.

When a friend first brought Cuba to Hubspace, he was hooked.

"Damn," he remembers thinking during his first visit, "this is a cool space."

Not far from the computer where Cuba pulled up the design for Slinch, two other young men leaned back on a couch nearby, typing on laptops near a stack of business magazines. Music from a Detroit hip-hop group floats quietly from speakers through the room, muffled by large canvases on the walls with spray-painted words like "GROWTH" and "PROFIT."

Seated at a table in the middle of the room is Melilizwe Gqobo, Hubspace Khayelitsha's 28-year-old founding director. Gqobo has been busy pitching the idea that startup hubs like this one can succeed in townships.

"I'm just aggressively hitting the market and trying to sell what's happened for the past 15 months," he says. "Hopefully we can find a partner that can run with us and take this nationally."

From the inside, Hubspace Khayelitsha looks a lot like other office hubs, but glance out the window and the view of modest one-story homes offers a stark contrast from the financial district of a city teeming with startups.

According to the 2011 census, only 35 percent of Khayelitsha residents have piped water inside their homes. In the informal settlements that make up Khayelitsha's poorest neighborhoods, many people rely on rows of enclosed toilets at an edge of their neighborhoods. At night, some of them use buckets inside their homes instead.

The widespread poverty feels a world away from the gleaming buildings of downtown Cape Town. For two decades, government officials and nonprofit organizations have tried to address the systemic problems left behind by apartheid. Today, South African cities remain some of the world's most unequal.

To the people at Hubspace Khayelitsha, that underscores the importance of a space that allows entrepreneurs to try out their ideas.

"Nobody else is going to do what we're doing besides us right now," says Gqobo, who lives in Khayelitsha. "It has to come to a point by just taking a stand and saying, 'No, we're just going to fix our own problems.' "

Building Better Entrepreneurs

The first Hubspace opened in 2012 in Woodstock, a Cape Town neighborhood that has drawn comparisons to Brooklyn. The man behind the space, 48-year-old social entrepreneur Peter Shrimpton, envisioned the Woodstock hub as just the first in a wide network, reaching cities and townships across the country.

Shrimpton ran an asset management company for a decade. After a life-changing cancer diagnosis about a dozen years ago, he left to start Heart Capital, a social investment firm.

In a country that remains deeply divided by decades of minority rule, Shrimpton hopes Heart Capital can play a role in bridging a deep opportunity gap.

Still, Hubspace is a business, not a nonprofit. In townships like Khayelitsha, Shrimpton sees a real chance to make investments at the ground level. For angel investors and firms looking to invest in South Africa's townships, a startup hub makes it easier to determine which businesses they want to take a chance on.

"What we were really after is creating the honey pot that attracts all of the young entrepreneurs," Shrimpton says.

Hubspace charges entrepreneurs for use of the space, offering daily rates, boardroom rentals and lifetime memberships. Lifetime memberships currently cost 2,000 Rand, nearly $200, and Hubspace tries to find outside sponsors to front the cost as an initial investment in a township entrepreneur.

These fees won't bring in enough revenue to cover the costs of opening a Hubspace branch, Shrimpton acknowledges. Instead, Hubspace looks for angel investors to sponsor a Hubspace branch in exchange for ownership of that particular franchise. Over time, as the entrepreneurs and their businesses gain visibility, the franchise value will increase. The angel investor can then sell the franchise to another interested sponsor for a profit.

For the entrepreneurs who come to Hubspace Khayelitsha, the hub offers a chance to access amounts of capital difficult to raise in a township.

A wide variety of businesses operate out of Hubspace Khayelitsha. On a couch near Gqobo sat 25-year-old Wandisile Nqeketh, who runs the 18 Gangster Museum. The museum employs former gang members as guides, showing tourists through exhibits explaining the notorious gang culture in South Africa's townships.

Nqeketh also helps Sizwe Nzima, recently recognized as one of Forbes' Africa's 30 Entrepreneurs Under 30, with the Iyeza Express, a bicycle delivery service for HIV medication in Khayelitsha.

If the spirit of entrepreneurship is instilled in South Africans growing up in townships, so too is a sense of shared responsibility for the community, Hubspace entrepreneurs say. They refer often to ubuntu, a word that can be loosely translated as "human kindness."

The word comes from a phrase in Zulu, explains Ayanda Cuba, the Slinch co-founder. "Umuntu ngumuntu ngabantu," Cuba recites. "You're not just a person on your own, but the people around you make you who you are."

Gqobo, Hubspace Khayelitsha's founding director, says the spirit of ubuntu extends to how the entrepreneurs share the space. Everyone pitches in on communal tasks, such as keeping the coffee and tea well stocked, he said. Even snacks are shared.

"I cannot buy a packet of chips or a packet of sweets and just eat them alone in my corner," he says. "It's just fundamental."

Two new Hubspace locations, both in townships, are slated to open in May.