VC puts R3bn in
SA startups

Capital flow to South African startups reached over R3-billion for the first-time last year, according to the new SAVCA Venture Capital (VC) Survey.

Since the launch of the survey 14 years ago, the VC asset class in the country had R10.73-billion invested in 1,106 active deals.

In a display of the level of resilience that has become synonymous with the industry, the performance of the VC sector defied a downward trend in annual deals seen since 2020. Local information and communication technology (ICT) stole the show, capturing investor interest and reiterating the sector’s position as a frontrunner in economic development and innovation.

This was one of the key insights to emerge from the 2024 SAVCA VC Survey, an annual research initiative by the Southern African Venture Capital and Private Equity Association (SAVCA).

SAVCA CEO Tshepiso Kobile said the VC industry must continue to play a pivotal role in supporting high-growth startups and early-stage businesses, while enabling innovative solutions to unique challenges as a country.  

She said: “When we launched this survey in 2010, we opened with the question: ‘is there opportunity for VC in South Africa?’” 

“The need to continuously reflect on this question and keep a close eye on the development of the sector is why research like the VC survey is so critical. Today, equipped with the most recent data, I am proud to answer that yes, VC is alive and on a positive trajectory in South Africa – both in terms of active and sizeable deals.”

The state of VC in South Africa

Activity by number of deals has remained stable, with a slight decrease in 2023 as the number of entities receiving funding slowed down, with more investments going into the same companies. Notwithstanding the decrease in number of deals in 2023 (184 compared to 195 in 2022 and 186 in 2021) deal activity remains higher than the pre-Covid levels of 162 in 2019 and 167 in 2020.

“Across the continent, we have seen VC gain popularity as an investment strategy,” said Kobile. “Our economy depends on this sustained investment into our entrepreneurs and into innovative solutions that can help leapfrog South Africa into a more competitive and inclusive economy.”

Similar to the previous year, a noticeable feature was the growth in co-investment activity, demonstrative of corporations and foreign investors investing alongside early-stage fund managers.

In line with the global trend for VC type investments, the ICT sector, which combines several active sub-sectors such as Fintech, EdTech, Software, eCommerce and Online Market, continued to outweigh the investment activity in other sectors. ICT as a primary sector almost doubled in number of investments compared to 2022, amounting to 87.6% (48.1% in 2022).

Fintech remained the front-runner by value (18.3%) and number (14.8%) of deals, followed by Software at 9.8% of the total number of deals (6.7% by deal value). eCommerce made a significant jump from 2022 levels – a testament to the continued uptick in online shopping that was seen and rapidly developed during and after the pandemic years.

In terms of the types of fund managers engaging in active deals, independent funds led the charge in 2023 at 66.2% of the total number of deals in the active portfolio of VC investments – up from 61.8% in 2022 and 57.8% in 2021.

This was followed by corporates at 34.3%, with angel investors making up a small proportion of active deals at 7.1%. However, the average deal size of VC transactions by angel investors amounted to R6.15-million – a relatively large value when compared to the average deal size coming from independent funds, at R7.47-million.

Stephan Lamprecht, founder of VS Nova, SAVCA’s research partner, said: “The results of the survey clearly show how far VC has come over the last decade. In 2014, the industry saw a total investment of R273 million. Now – 10 years later, we’re seeing a total investment of R3.28-billion, which is a significant upward curve.

“This kind of data allows us to continue answering the important question of whether VC capital is available to entrepreneurs in South Africa. The answer is definitely yes, but in terms of the number of businesses receiving capital which sat at 94 in 2023, there is still much work to be done.”