The South African Venture and Private Equity Association (SAVCA) recently released a survey which found that South Africa’s Venture Capital Industry currently manages R2-bn worth of assets. As publications such as Ventureburn have highlighted, a number of exciting investments have occurred this past year in this industry, from Silvertree Capital investing over R20 million during the first half of 2015, to radar startup iKubu exiting to Garmin in January, amongst many others. In order to comprehend the true meaning of these deals to the local ecosystem, however, requires quantitative research that will shed light on the true value and state of South Africa’s venture capital environment.
The survey SAVCA released reveals that between the years 201[?] and 2015, 21 public and private venture capital fund managers and angel investors managed to complete 168 new deals. The total value of these deals amounted to R865 million. During July 2015, the total number of venture capital assets under management was valued at R1,87 billion from 187 deals. This is great news for the South African Venture Capital scene as the players in this environment are usually criticized for not playing a more active role within the startup industry. SAVCA CEO, Erika van der Merwe states that these results depict the continuous expansion within South Africa’s VC industry, which is consistent with the increase in entrepreneurial high-tech activity in the market. Some of the factors she credits as having played a role in this expansion include a deepening pool of skills and experience, growing exit track records and lower barriers to entry for VC-type deals especially for those targeting businesses that involve the use of digital technology.
A negative characteristic highlighted by the results of this survey was the decrease in deal sizes. The average deal size has declined by 22% during recent years. The decline is said to be on par with international trends as leaner approaches to starting businesses have become more prominent. SAVCA also suggests a root cause of this decline being the declining deal activity by public fund managers and public-funded entities, which historically, have conducted larger transactions compared to the private sector managers.
The survey also shows that 56% of fund managers had exited from at least one investment during the 2011 and 2015 survey period with the average rate of return on investment, for all declared deals that were exited, being 20% compound annual growth rate.
The amount declared as write offs over the survey period made up a total of R187 million whilst the total value of profitable exits totaled of R438 million.
The survey also found, which is consistent with Ventureburn’s Startup Survey conducted earlier within the year, that the Western Cape shows the most amount of Venture Capital activity in South Africa, followed by Gauteng. Erika van der Merwe states that the overall trends highlighted in this survey are positive as it mirrors a growing South African economy.
The one factor that should be concerning is South Africa’s lack of public-sector VC funds, which, in countries like Israel, have yielded impressive results. Stephen Lamprecht of Venture Solutions’ comment on this was a statement emphasizing the critical role public-private support plays in fast-tracking this sector. He stated that; “Without visionary and consistent government backing for VC, the industry will continue to grow at average and organically-driven rates, subject to market pressures and high risks associated with being an emergent asset class.”
Other highlights from the survey include 31 fund managers being recorded and documented in 2015. This is up from 22 in 2012. The survey also found that independent fund managers have primarily driven new deals and angel investors concluded 55 transactions, which amounted to R42,55 million. Personal networks are also seen as the preferred way to source viable deals and early-stage/ start-up businesses account for 51% of the deal activity. The ICT sector accounts for almost half of all deal activity including software (26%), e-commerce (10%), electronics (4%) and media and entertainment (7%). This is more than double the numbers found in the previous years’ survey. The deals in the other sectors such as financial services, business and consumer services are also driven by technologies involving information and communications technologies.
The future seems bright for this industry!