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Venture capitalists trim SA tech start-up investments

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 31 Jan 2022

While SA’s tech start-up funding scene performed well in 2021, with 89 start-ups raising a combined $336.4 million, the industry saw a considerable reduction in funding compared to previous years.

SA’s e-commerce investments showed the largest drop in the sector, despite the COVID-19 pandemic driving more consumer traffic to local e-commerce sites.

This is according to the seventh edition of the African Tech Start-ups Funding Report 2021, compiled by tech start-up publication Disrupt Africa.

The report provides an overview of the tech investment ecosystem across seven African countries, including SA. It provides the full list of 564 funded tech start-ups from across Africa, detailing location, sector, when funding was secured and, where possible to disclose, the investors and approximate amount raised.

According to the report, although more South African ventures are gaining backing each year, the country’s overall proportion of funded start-ups compared to the rest of the continent is on the decline, with a larger proportion of the investors turning their attention elsewhere on the African continent.

In 2021, SA was home to 15.7% of African start-ups which received funding. In 2020, this figure was 20%, and in 2019 it was 25.4%. Nevertheless, SA still ranked third in the top four premier investment destinations on the continent, alongside Nigeria (1), Egypt (2) and Kenya (4).

In 2021, 89 South African start-ups raised a combined $336.4 million. In 2020, SA’s tally of 26 rounds of investments was the highest number on the continent. In 2021, Nigeria and Egypt both outstripped SA, with 55 and 43 rounds over the $1 million mark respectively, with Kenya racking up 35 rounds. This serves as further evidence of the increasing turn by investors towards other markets around the continent, according to the report.

While the fintech space far outstripped any other sector in 2021, e-commerce sector investments took a nosedive, according to the report.

“There was a notable lack of e-commerce funding in South Africa in 2021, particularly so given that in the previous year, e-commerce was the most funded sector. In 2020, it contributed over $41 million – 28.8% of the year’s total amount. This figure was boosted substantially by the year’s standout round of $30 million, which went to Skynamo,” notes the report.

Last year saw 28 fintech start-ups (31.5% of SA’s backed ventures) raise almost $206 million – accounting for 61.2% of the country’s total funding. Two of the standout rounds of funding in this space were fintech firms – Yoco and Planet42, contributing 54.9% of fintech investment.

Beyond fintech, there was activity across a range of sectors.

“The e-health space ranked second, with 14 companies (15.7% of country total) raising $62.3 million, of which $47 million went to LifeQ. The artificial intelligence (AI) sector performed well in South Africa, with eight ventures backed (9% of funded companies), to the tune of almost $10 million. The e-transport and edtech spaces saw fewer start-ups funded than AI, but to higher amounts, with these two sectors receiving almost $15 million and $11 million, respectively.”

The three standout rounds in SA in 2021 were Yoco, bagging $83 million; e-health venture LifeQ, securing $47 million; and fintech platform Planet42, raising $30 million.