Capital to SA start-ups hits R3bn

Capital flow to SA start-ups in 2023 reached more than R3bn for the first time, driven by investment into local technology businesses, according to a new report by the Southern African Venture Capital and Private Equity Association. 

The body’s venture capital survey, which covers the state of the 2023 venture capital ecosystem in SA, found that this was the highest total capital flow to start-ups since the launch of the survey 14 years ago.

Since the association began tracking these investment flows, holistically, SA’s venture capital asset class had R10.73bn invested across 1,106 active deals.

Activity by number of deals has remained stable, it says, with “a slight decrease” in 2023 as the number of entities receiving funding slowed down, with more investments going into the same companies.

Notwithstanding the decrease in 2023, deal activity remains higher than the pre-Covid levels of 162 in 2019 and 167 in 2020. Last year saw 184 compared with 195 in 2022 and 186 in 2021. 

Start-ups in the information communication technology (ICT) sector continue to dominate investor interest in line with global trends. Areas such as fintech, edtech, software, e-commerce and online market were the most favoured subsectors.

ICT deals almost doubled in the year amounting to 87.6% of activity, compared to 48.1% in 2022.

Within this, fintech remains the front-runner by value - 18.3% of the pie and number of deals - followed by software at 9.8% of the total number of deals.

The largest capital raises in recent times for local start-ups have been R579m for local payments platform Peach Payments, led by Apis Partners; $120m for Jumo, led by Fidelity Management & Research, with a $400m valuation; $48m for Ozow, led by China’s Tencent; and $83m for Yoco. All three are fintech firms. Insurance technology platform Naked recently raised $17m in a third round of funding. 

The Southern African Venture Capital and Private Equity Association noted that 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.

Independent funds led the charge in 2023 at 66.2% of the total number of deals, 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%.

As in the previous year, growth in co-investment activity was noted demonstrated by corporates and foreign investors investing alongside early-stage fund managers.

“Across the continent, we have seen VC [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 SA into a more competitive and inclusive economy,” said Southern African Venture Capital and Private Equity Association CEO Tshepiso Kobile.

According to Stephan Lamprecht, founder of VS Nova, the association’s long-standing research partner, “the results of the survey clearly show how far venture capital has come over the last decade”. 

“In 2014, the industry saw a total investment of R273m. Now, 10 years later, we’re seeing a total investment of R3.28bn, which is a significant upward curve.

“This kind of data allows us to continue answering the important question of whether venture capital is available to entrepreneurs in SA. The answer is definitely yes, but in terms of the number of businesses receiving capital, which sat at 94 in 2023, there is still much work to be done,” he said.

gavazam@businesslive.co.za