The venture capital (VC) industry in South Africa is still snowballing, with early-stage fund managers putting R1.31 billion into 121 companies over 186 investment rounds.
This is what the Southern African Venture Capital Association’s (SAVCA) newly released 2022 Venture Capital Industry Survey says.
Stephan Lamprecht talked about the survey results and said that they showed that two-thirds of all deals were for investments worth less than R5 million.
Even though fewer fund managers did active deals during the survey period, these results showed that investment activities in 2021 were similar to those in 2020.
According to the survey findings, the information and communications technology (ICT) sector was responsible for 57% of all venture capital deals in South Africa in 2021. This finding is consistent with the trends observed in more developed venture capital markets such as the United States and the United Kingdom.
Deals involving financial technology (also known as “fintech”) and education and training technology (also known as “edtech”) account for a combined quarter of all deals completed during the year (25%). However, fintech continues to maintain its leadership position among investors because it has attracted the most deals.
Together, deals in financial technology (“fintech”) and education and training technology (“edtech”) make up a quarter (25%) of all deals done during the year, with the most deals being done in fintech, which continues to be the most popular among investors.
Fintech (15.9%), edtech (9.1%), consumer products and services (7.9%), ICT (7.9%), and software (6.7%) were the five areas in South Africa where the most deals were made in 2021. Together, these five sub-sectors accounted for 44.7% of all capital invested in 2021.
Shelley Lotz, the acting CEO and head of policy and regulatory affairs for SAVCA, says that both Fintech and EdTech are important subsectors for South Africa. She also says that although South Africa’s financial system is well-developed and competitive internationally, financial inclusion is still a pressing issue.
Technology improvements in the education sector also have many benefits, such as reaching parts of society that haven’t been served before, making things more efficient, and closing skills gaps.
Fintech also got investments worth R298 million, which was second only to the food and beverage industry, which kept its top spot from the previous year.
Gauteng and the Western Cape are still the most popular places for venture capitalists to invest, with Johannesburg getting more deals than Cape Town in 2021. But the largest number of companies in the active portfolios of VC fund managers are still based in Cape Town.
The survey also shows that independent fund managers make most new deals.
To talk more about what needs to be done to get more fund managers to work in South Africa, Thiru Pather, the head of investments at the SA SME Fund, said first, we need to admit that venture capital (VC) is still a developing asset class in our country, especially compared to more developed countries.
“Consequently, the industry requires support on all fronts to realize its full economic growth potential. From a macro point of view, more needs to be done to bring institutional investors, like banks and pension funds, into the asset class.
She went on to say that the asset class needs to be made less risky to attract these big investors. “This might be accomplished by instituting some form of subordinated finance, which will give institutional investors the confidence they require to make more astute investments by providing them with the essential downside protection.
When talking about how fund managers can help entrepreneurs, panelist James Tagg, founder, and CEO of Quicket, says that as a company that sells tickets for events, they were hit hard by the Covid-19 pandemic.
“After events were banned, we lost 95% of our income in the first week, and it didn’t look like we would be able to stay in business.
We thought about closing down the business, but when we talked to our fund manager, Knife Capital, they assured us they would help us through this time of financial and operational uncertainty.
This stability, guidance, and help allowed us to find new ways to deal with the pandemic. We developed a niche streaming product that gave event planners and entertainers a way to start interacting with their audiences from a distance.
We now have a wide range of verticals and products, which helped our business get back on its feet. Quicket might have shut down without the constant help and direction from the venture capital sector and our fund manager.
Lotz ends, noting the critical role that venture capital may play in assisting entrepreneurs on their path to growth and constructive economic development: We have reason to believe that the young industry will continue to develop and flourish, which will enable it to attract more institutional money and, as a result, invest a greater number of fledgling enterprises and entrepreneurs in South Africa and the region.