Despite a decline in the value of venture capital (VC) deals in 2022 compared to the previous year, South African VC fund managers committed over R1 billion in early-stage investments for the fifth consecutive year.
This comes from the Southern African Venture Capital and Private Equity Association (SAVCA), which recently released the findings of its Venture Capital Industry Survey, tracking investment activity for the 2022 period.
The total value of deals in 2022 amounted to R1.12bn, down 14.5% from R1.31bn in 2021, and 19.4% from the all-time high of R1.39bn in 2020.
Despite this decline, the number of deals increased by 4.8%, with 70 entities receiving VC investment in 2022.
SAVCA’s research highlights the consistent attractiveness of the ICT sector to VC investors over the past three years.
In 2022, the ICT sector was by far the most active, accounting for 48.1% of all deals (compared to 56.8% in 2021). Notably, healthcare, the second-largest sector for VC deals in the same year, accounted for 18.8% of investments.
Moreover, the tech sector represented 40.6% of deals held in active fund manager portfolios at the end of the 2022.
The association notes in the report that a low-growth economy, high unemployment and the ongoing energy crisis have impacted both the local startup sector and the venture capital industry.
SAVCA CEO Tshepiso Kobile says the survey confirms that while ICT is not immune to these challenges, the business case for it remains strong and it continues to attract investors.
Top-performing sub-sectors within ICT-related investments by value were fintech (12.3%), software (8.9%), telecoms (4.0%), agritech (3.9%), and electronics (2.3%).
“Of relevance is the fact that the fintech category overtook the food and beverage category this year – a testament to the sector’s ability to leverage technology to address the mass market and existing inefficiencies in delivery of services,” said Kobie. “While fund managers and institutional investors within the VC sector remain steered by the commercial viability of deals and fiduciary duties, the ICT sector also holds promise as a bedrock for social development as evidenced in areas such as education, by providing much-needed access to information and e-learning resources.”
Kobile is encouraged by the general findings of the survey, including funds under management – the total market value of all financial assets controlled by an individual or institution, overall investment activity and exits. She has high hopes for early-stage investments heading into the new year.
“This part of the economy is expanding, despite the lower capital invested in this survey year, with the more telling data point being an increase in the number of deals done. The expectation is that this will continue,” Kobile says.
“Considering recent positive regulatory changes to the Visa dispensation, work being put in by the StartUp Act movement, fundraising quantum as high as R1bn by the SA SME’s Fund of Funds, and evidence of growing interest in VC by institutional investors, I am really confident that VC is set to continue to grow as an asset class, and in terms of the impact it has in our society,” she says.