A low-growth economy, high unemployment and the mounting pressures posed by the ongoing energy crisis have continued to weigh heavily on start-ups in Southern African over the past year. Early-stage investors likewise reported that these challenges have had a material impact on the local venture capital industry, with an overall decrease in the value of deals during the 2022 period. The local information and communication technology (ICT) sector, spearheading efforts to digitise the South African economy, has retained its position of attracting investor interest and confidence, despite the subdued investment climate.
This was one of the key findings to emerge from the 2023 Venture Capital (VC) Industry Survey, published by The Southern African Venture Capital and Private Equity Association (SAVCA). Speaking at the annual launch of the survey was SAVCA CEO, Tshepiso Kobile, who believes that the results of this year’s survey reflect that the sector is indeed experiencing trying times, yet the business case for it remains strong, with some attractive opportunities for investors.
In a country that has no shortage of successful entrepreneurs, she believes that the role played by venture capital (VC) in supporting high-growth, early-stage businesses has not only become more pronounced but has also become an effective approach and means to address deepening socioeconomic challenges.
Of notable interest was the fact that although the value of VC deals concluded during the survey period (2022), showed a 14.5% contraction from the year prior, the 2023 survey marked the fifth consecutive year that the industry has attracted over R1 billion in early-stage investments. At 48.1%, South Africa’s ICT sector represented the largest combined sector by number of deals in 2022.
Furthermore, the overall allocation of capital based on the primary sectors of the economy, showed an abundance of ICT deals in active portfolios (37.7% by value, 40.6% by number of deals). This was followed by deals involving Consumer Products and Services (18.0% by value, 14.1% by number) and Business Products and Services (13.3% by value, 15.4% by number).
The 2023 survey found that investment sectors involving education technologies (or ICT EdTech) featured prominently in the 2022 investment year but makes up a small percentage of the overall portfolio allocation as it has only recently been introduced as an investment sub-sector.
For Kobile, these findings are indicative of the high level of innovation that exists within Southern Africa’s entrepreneurial ecosystem. “Of particular relevance is the fact that the FinTech category overtook the Food and Beverage category this year – a testament to the sector’s ability to leverage technology to address the mass market and existing inefficiencies in delivery of services.
While fund managers and institutional investors within the VC sector remain steered by the commercial viability of deals and fiduciary duties, the ICT sector also holds promise as a bedrock for social development as evidenced in areas such as education, by providing much-needed access to information and e-learning resources”.
Startups in the portfolios of South African VC fund managers pursue advancements in healthcare, governance and various industries through technological solutions. As a driver of innovation and efficiency, the sector can position South Africa on the global stage – attracting investment and fostering international collaboration.”
To view the complete 2023 SAVCA Venture Capital Industry Survey, please click here: SAVCA-VC-Survey-2023-Electronic.pdf
