A week ago, I attended in Cape Town, South Africa, the launch of the Southern African Venture Capital Association (SAVCA)’s 2019 Venture Capital Industry covering the 2018 calendar and its investment activity across South Africa. Since 2017, this is the association’s third consecutive year of publishing the survey, in previous years, the results would published every two to three years, which means that means that more growth is occurring in the industry and that coherently, more data has become available. Let’s unpack the landscape a bit, and understand what continues to make South Africa one of the primary hotspots for early stage investing in startups across the continent.

A total of 181 new deals were recorded in 2018, increasing by 13.8% from 2017; with the top five industries owing to deals invested mainly by value in manufacturing at 14.2% and food and beverage coming in 12.3%, medical devices and equipment at 10.5%, with energy at 10.2% and just missing the ten percentile at 7.2% is the business products and services sector. Manufacturing and energy still dominated in the market share of deals invested by number of deals, with consumer products, software and fintech specific portfolios joining them in the top five industries invested in. If anything, this shows the large investment opportunity in diversification of sectors outside digital and e-commerce, and also, brings to light the conversation around the harsh imbalance in and opportunities for other sectors like biotechnology and agriculture to break through.

 

The Western Cape headquarted investees dominate the pie at 48.2% of deals, with Gauteng coming in second at 42.5% and followed by Kwazulu-Natal at 6.8%, which has grown its activity and share in the ecosystem immensely since 2017. The rest of South Africa and non-South Africa firms total the transactions at 2.5%. The incremental growth that Kwazulu-Natal has shown, is a positive indicator of the diversification of location, from R13 million in 2015 of total deal investments to R71 million in 2018. Although the volume and value of deals increased in 2018 from the previous year, the distribution of equity preferences over the years is quite the opposite narrative. Expectantly so, due to the new deals being made, 74.5% of investors hold a 0-25% stake in these startup ventures, an increase in 2017’s results at 54.3% in equity. The second category of equity sits between 25-50% which has also subsequently decreased at 10.6% in 2018 as compared to 25.5% in 2017. The results owed to this data could either result in exits, new fund management firms created, new startup entrants who have no follow up funding and/or investors seeding a volume of investments in ventures that require much more startup and growth capital than other forms of capital post the growth stage – it’s also reported that a total of 79% of deals concluded in 2018 were for investments R10 million or less, with an average deal size of R8.3 million.

 

With the bigge deals concluded by Captive Government (funds primarily sourced from a government department or public body) and Captive Corporate (funds primarily sourced from a corporate entity such as a listed company) investors and amounting to R492 million (more than the five biggest deals in 2017 which totalled R315 million) who combined, make up 48.4% of fund management types. The rest of the types of management are fund sourced from family offices, independent funds and the smallest fund management makeup are angel investors at 4.2%. The composition of fund management also highlights something that the data doesn’t show, the gender and race that I’ve no doubt, through mechanisms like the introduction of the Section 12J tax incentive to introduce more players in the industry. As transparent and apparent as the situation of parity is in the ecosystem as investors and investees is, it’s important to highlight so as to better inform decisions made by the investors, as well as government’s role in introducing policy to level the playing field.

 

There’s much opportunity to diversify the industry, with not only location and sectors but also race and through gender as with the curated list that I created showcasing the data and campaigns geared towards listening to the gender of higher Return On Investment (ROI) in their capital. Repeat investments are a great indication of good faith in business, industry must afford transparency through these transactions beyond high-level number of exits and different types of investment activities that are great for panel-lead conversations, however, in order to bring true transformation, supporting the formation of firms like Dazzle Angels, AlphaCode and Africa Trust Group and SAVCA’s Fund Manager Development Programme are the kinds of mechanisms that we need to drive and actualise the opportunities that are untapped in the market.

 

Here’s to looking forward to results of accelerated and diversified growth of South Africa’s VC industry in 2019!

                                           

 

Read 419 times Last modified on Wednesday, 25 September 2019 21:08

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My name is Vuyolwethu Dubese and I am 23 year old Girl in Media and Technology, exploring Innovation, Intelligence, Inclusion and Entrepreneurship. With a focus on African technology and entrepreneurship, the intent is to be a part of the ecosystem and organisations driven to develop the African lives and the narratives that are shape shifters in how Africans and the world perceive the continent.

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