ICT-focused start-ups received the highest number of venture capital (VC) deals in 2023, as South African VC fund managers committed over R3.28 billion to early-stage investments.
This is one of the key insights to emerge from this year’s SAVCA VC Industry Survey 2024 – an annual research initiative by the Southern African Venture Capital and Private Equity Association (SAVCA).
The findings were released last week at an event in Cape Town, revealing that 2023 saw total capital flow to South African start-ups reach over R3 billion for the first time since the launch of the survey 14 years ago.
Holistically, since inception of the survey, the South African VC asset class had R10.73 billion invested in 1 106 active deals, it says.
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 (repeat investments).
Notwithstanding the decrease in the number of deals, activity in 2023 remained higher (184 compared to 195 in 2022 and 186 in 2021) than the pre-COVID levels of 162 in 2019 and 167 in 2020, it says.
Speaking at the launch, SAVCA CEO Tshepiso Kobile noted the VC industry continues to play a pivotal role in supporting high-growth start-ups and early-stage businesses, while also enabling innovative solutions to SA’s unique challenges.
“Across the continent, we have seen VC gain popularity as an investment strategy. Our economy depends on this sustained investment in our entrepreneurs and innovative solutions that can help leapfrog SA 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, notes the study.
ICT dominates
In line with the global trend for VC-type investments, the ICT sector, which combines several active sub-sectors − such as fintech, edtech, software, e-commerce and online − continued to outweigh the investment activity in other sectors, according to the latest SAVCA survey.
ICT as a primary sector almost doubled in the number of investments compared to 2022, amounting to 87.6% (48.1% in 2022).
Fintech remained the front-runner sub-sector 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).
E-commerce 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, it says.
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 captive corporates at 34.3%, with angel investors making up a small proportion of active deals at 7.1%.
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, which currently equates to R7.47 million, states the research.
Stephan Lamprecht, founder of VS Nova, SAVCA’s long-standing research partner, commented: “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 is available to entrepreneurs in South Africa.”
However, there is still much work to be done, in terms of the number of businesses receiving capital, which sat at 94 in 2023, he cautioned.
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