The technology sector is leading the charge when it comes to investment in South Africa’s start-up ecosystem, despite the rough macroeconomic environment.
This is according to the South African Venture Capital Association (Savca), which published the results of its 2023 Venture Capital Survey on Monday.
According to the survey, South African start-ups benefitted from R3.3-billion in VC funding last year, with a further R2.1-billion raised from co-investors.
“In line with the global trend for VC-type investments, the ICT sector, which combines several active subsectors such as fintech, edtech, software, e-commerce and online markets, continued to outweigh the investment activity in other sectors,” Savca said in a statement on Monday.
“ICT as a primary sector almost doubled in number of investments compared to 2022, amounting to 87.6% (48.1% in 2022).”
According to Savca, fintech remained the frontrunner 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 saw a significant jump from 2022 levels: testament to the continued uptick in online shopping that was seen and rapidly developed during and after Covid era, it said.
Savca said the South African VC asset class has invested more than R10.7-billion in 1 106 active deals since the inception of the survey. In 2023, 94 entities benefited from 184 investment rounds, with 72.8% of deals involving two or more investors.
Activity
Activity by number of deals has remained stable, said Savca, with a slight decrease in 2023 as the number of entities receiving funding slowed, with more investments going into the same companies. Despite a decrease in number of deals in 2023 (184 compared to 195 in 2022 and 186 in 2021) deal activity remained higher than the pre-Covid levels of 162 in 2019 and 167 in 2020, said Savca.
“Across the continent, we have seen venture capital gain popularity as an investment strategy. 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,” said Savca CEO Tshepiso Kobile.
The report also shows that independent funds dominated dealmaking in 2023 at 66.2%. Captive corporates followed with a 34.3% share of total deals with angel investors capturing only 7.1% of deal traffic. Despite their smaller share of the pie, angel investors had a relatively high average deal size of R6.1-million, only slightly lower than the R7.5-million average for deals by independent funds.
Kobile said Savca has engaged with government about creating the “most enabling working environment in which VCs can thrive and operate”.
The most significant development from these interactions, she said, has been the implementation of the remote visa, which allows individuals employed by foreign companies to work remotely in South Africa. This legislation will go a long way towards driving growth and innovation as well as allowing foreign workers to impart and share knowledge through their interactions with South Africans, she said.
“The next priority on the list is the South African Reserve Bank exchange control regulations that apply to technology and telecommunications companies. In essence, Savca and its partners have been paramount in calls for relaxing of exchange controls to attract foreign investment into [technology] companies and to grow the capital base available for VCs. That engagement will continue, and we have high hopes that we can inform these and other regulatory reforms to help minimise any unintended consequences and ensure constructive direction,” said Kobile. – © 2024 NewsCentral Media