Southern Africa’s ICT sector attracted the largest rand value of investments from venture capital (VC) firms and fund managers in 2021.
This is according to the SAVCA 2021 Venture Capital Industry Survey, released by the Southern African Venture Capital and Private Equity Association (SAVCA), conducted in collaboration with research partner VS Nova consultancy.
The annual survey provides a snapshot of the state of the VC and funding industry, across 16 sectors in Southern Africa – identifying key insights, challenges and trends that are shaping the VC sector in the region, based on their insights and experience.
Some of the categories of venture capital surveyed in the research include seed capital, start-up capital, later-stage financing, growth capital, buyout capital, rescue/turnaround and replacement capital.
According to the report, investment activity by value of deals decreased slightly from R1.39 billion in 2020 to R1.31 billion in 2021. However, there was an 11.4% increase in the number of deals, with 129 entities receiving VC investment in 2021, an increase from 122 in 2020.
There were also fewer fund managers investing in 2021, with various fund managers focused on supporting existing portfolios, it notes.
The ICT sector (excluding fintech and software) scooped the largest amount of funding deals in rand value, with R138 million (20%) deals concluded within the year, notes the report.
While fintech had the most number of deals concluded, in terms of rand value, the sector had the second highest funding value, with 15.2% of the overall number (R298 million). This was followed by the software sector, which saw 13% (R165 million), and the edtech sector with 8% (R67 million) of the overall deals.
Other sectors surveyed include healthcare services, agriculture, consumer product and services, food and drink, and construction.
“The numbers in this report reiterate the fact that the VC industry is growing year-on-year, with more early-stage businesses receiving funding and strategic guidance from VC fund managers,” says Shelley Lotz, acting CEO and head of policy and regulatory affairs at SAVCA.
“The report shows that a significant proportion of all deals (or 62.3%) were less than R5 million in value, with 56.2% of all active deals being seed or start-up stage businesses, which has been a consistent feature of the SA VC asset class as recorded in previous surveys.”
According to the report, new deals accounted for most of the funds under management (66.1% of all capital) in the overall active portfolio, amounting to 73.1% of all active deals on record by number of deals concluded.
“The majority of investments targeted opportunities for growing new businesses, with less than 3% of all active deals used for buyout, rescue, turnaround and replacement capital. This is also reflected in growth capital taking up the largest share, representing 40.3% of all active deals.”
At the end of 2021, the South African VC asset class had R8.13 billion invested in 1 021 active funding deals. This increased substantially compared to the figures at the end of 2020, when R6.87 billion was invested in 841 active deals.
Growth in investments by independent fund managers continued an upward trend seen in recent years, now accounting for 57.8% of all deals in the active portfolio of VC investments. This increase is reflected in the number, as well as the value of active deals done by independent fund managers, growing by 20.6% from R2.97 billion in 2020 to R3.58 billion in 2021, says the report.
This represents an increase of more than 97.5% in the share of active deals by independentfund managers, compared to the pre-COVID-19 period.
The largest share of active deals by independent fund managers involved transactions between R1 million and R5 million (36.6% of all active deals). Around 10% of all active deals entailed individual rounds of more than R20 million.
“The overall portfolio of active deals increased by 21.4% from that held at the end of 2020, despite less than half of the number of fund managers polled in 2020 reporting any investment activity for 2021.
“This can be attributed to a relatively small number of exits reported for 2021 (24), as well as a few fund managers doing a disproportionate number of new deals in 2021,” says the report.