The biggest share of South Africa’s venture capital over the past three years has gone to the information and communications technology (ICT) sector. This is according to a survey by the Southern African Venture Capital and Private Equity Association (Savca).
Venture capital is funding for hi-tech, potentially high-growth businesses, typically provided by private equity companies.
The survey results, released yesterday, showed that ICT absorbed 35 percent of the total, while 25 percent went to the life sciences sector, which includes health, pharmaceuticals and medical devices.
Stephan Lamprecht, the chief executive of Venture Solutions, said: “Substantial existing biotech investments are still on the books of primarily publicly funded investors – for example universities or other research institutions.”
But he said there was “virtually no new funding in the (2009-2012) survey period”.
In contrast energy, which attracted little venture capital before 2009, according to Savca, received nearly 15 percent of the funds since then.
The survey of 11 investment funds engaged in venture capital between 2009 and July this year showed cumulative investment worth R830 million.
Presenting the report, Lamprecht noted that the scope of venture capital activity in South Africa was far broader than the numbers in the report.
Many investors known to invest in this asset class did not take part in the survey, he said. They included angel investors, corporate investors, enterprise development initiatives and “well-known entities” such as Business Partners. The latter is a specialist risk finance firm for small and medium enterprises in the formal sector.
“Corporate investment fuelled by M&A [mergers and acquisitions] appetites and enterprise development is under-represented in the data as most such transactions are not reported officially. Certain corporate investors who participated in the survey interviews opted not to supply transaction data as a result of internal public disclosure policies.”
Moreover, private investors, corporations and not-for-profit organisations did not always have “the processes and systems with which to record the information required for a full review of the asset class”, Lamprecht said. Lamprecht said it was not possible to quantify total venture capital transactions for these reasons.
Surveys over the past 12 years showed a spike to 56 transactions in 2008. Thereafter, the numbers fell and progress has been patchy with 37, 25 and 26 transactions in the following years. This year to July there were 15 deals.
Lamprecht said the recent slide was partly due to the onset of the global recession “but more because investors who raised money between 2006 and 2008 had invested the majority of their funds between 2006 and 2008”.
The survey showed Gauteng is the largest base for venture capital transactions.
Notable developments in the period included Visa’s $110m (R903m) acquisition of South African venture capital-funded Fundamo. Also of note was the formation of the Angel Hub and the opening of local offices for international players such as Omidyar Network and Google’s Umbono.
The number of transactions in South Africa “is significantly lower than in Israel and Australia and substantially lower than in India”.