SA startups secure unprecedented R3bn in VC funding

Source: Unsplash

The local information and communication technology (ICT) sector once again captured significant investor interest, reinforcing its leadership in economic development and innovation.

This insight was highlighted in the Savca VC Survey Launch 2024, an annual research initiative by the Southern African Venture Capital and Private Equity Association (Savca).

The state of VC in South Africa

This year saw total capital flow to startups reach over R3bn for the first time since the launch of the survey 14 years ago. Holistically, since inception of the survey, the South African VC asset class had R10.73bn invested in 1,106 active deals.

Activity by number of deals has remained stable, 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 number of deals in 2023 (184 compared to 195 in 2022 and 186 in 2021) deal activity remains higher than the pre-Covid levels of 162 in 2019 and 167 in 2020.

ICT dominates capital flow

In line with the global trend for VC-type investments, the ICT sector, which combines several active sub-sectors such as fintech, eddech, software, e-commerce and online market, continued to outweigh the investment activity in other sectors.

ICT as a primary sector almost doubled in number of investments compared to 2022, amounting to 87.6% (48.1% in 2022).

Fintech remained the front-runner 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 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.

An expanding and diversifying fund management pool

In terms of the types of fund managers engaging in active deals, independent funds led the charge in 2023 at 66.2% of the total number of deals in the active portfolio of VC investments – 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%.

Interestingly however, the average deal size of VC transactions by angel investors amounted to R6.15m – a relatively large value when compared to the average deal size coming from independent funds, which currently equates to R7.47m.

A new feature in the 2024 survey was a look at the composition of Funds Under Management and teams, depicting that 70.8% of respondents reported being rated B-BBEE Level 4 or higher, notwithstanding the very lean investment teams (average team size of five or fewer professionals), one in five of the respondents had a female CEO, and 41.7% of the respondents had at least one Black founder.