Category Investments

SA venture capital industry grows despite tough economic climate

19 September 2019 SAVCA

The emerging South African venture capital (VC) industry continued to experience robust growth in 2018, with 181 new VC deals reported – an increase of 13.8% from the 159 deals reported in 2017. This is according to the newly released SAVCA 2019 Venture Capital Industry Survey, which also shows a substantial increase in the overall value of all deals, up from the R1 billion invested in 2017 to just over R1.5 billion in 2018.

The report, which provides valuable insights for fund managers, investors, entrepreneurs and policy makers about the South African VC landscape, was carried out in collaboration with research partner Venture Solutions, and features data gathered from 56 fund managers as well as other industry investors.

Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that it is especially encouraging to see this continued industry growth in the face of a tough economic climate. “The continued expansion in VC activity over the past decade is evident when comparing the average of 129 deals per year from 2014 to 2018, to the average number of deals per year from 2009 to 2013, a meagre 26.”

Figure 1: Investments per year, by value (ZAR million) 

Figure 2: Investments per year, by number

Van Lill highlights that, of all the new deals reported in 2018 (by value), 41% were categorised as start-up capital. “If taken by number of deals, this proportion jumps to almost half of all deals reported (47%),” she adds. “Likewise, the total number of active deals invested through seed or start-up capital amounts to almost 60% of all deals to date. This highlights the increasingly important role that venture capital continues to play in South Africa as an essential source of funding for scalable start-ups.”    

Figure 3: Contribution by stage of the deal; by number of deals, all deals still invested

As in previous years, Independent VC fund managers comprise the largest share of active portfolios (35.1%), with Captive Government Funds and Angel Investors increasing investment activity fuelling the growth of early stage investments, notes Van Lill. “As the industry starts to mature, we may see more fund managers opting to specialise in specific industries, or new funds being established as new sources of capital become available from institutional investors looking to capitalise on early stage investments.

“This year, for example, we’ve seen a significant surge of deals in the energy and financial services sectors, which could indicate that VC investors are already starting to specialise in certain sectors,” she notes.

From a geographic perspective, the majority of investments are still mainly in the Gauteng and Western Cape region, but Kwazulu-Natal-backed VC businesses saw a substantial increase in 2018 with investments amounting to R71 million. “Excluding these three regions, the rest of South Africa has also seen an increase of 28% year-on-year. This is a positive indicator of VC activity not only diversifying across sectors, but regions as well.”

Although there has been a healthy increase in the number of deals concluded, Van Lill notes that the number of exits reported in 2018 declined in comparison to 2017. “A total of 15 exits were reported in 2017, and only 11 exits were reported in 2018.

“However, we remain encouraged by the significant growth of VC investors and early stage deal activity, as this suggests an overall positive outlook of the industry,” Van Lill concludes.

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