SOUTH African venture capital continued to grow in the face of the Covid-19 pandemic, with 74 fund managers investing R1.39 billion into 122 entities through 167 investment rounds last year.
This was up from 69 fund managers investing R1.23bn in 2019.
By the end of 2020, the SA VC industry had R6.87bn invested into 841 active deals. Some 53.4 percent of the deals were invested into seed or start-up stage businesses, as was the case in 2019. This was 13.2 percent more in 2020 than in 2019, with two thirds reported as profitable. Most of the funding in 2020 came from Cape Town investors with 53.1 percent while 29.4 percent of the deals were in Johannesburg.
About half, 51.3 percent, of the fund managers reported having female equity within the fund.
Agritech was the largest sector by investment value last year.
Top 5 sectors by number of deals were in Software, Fintech up 71.4 percent year-on-year, Business Products and Services, Consumer Products and services, and Health.
The key findings from the 2021 Venture Capital Industry Survey, conducted by the Southern African Venture Capital and Private Equity Association (SAVCA), were unpacked in an online event that included a panel discussion exploring how the venture capital industry was impacted by the Covid-19 pandemic, last week. The webinar was moderated by Mosidi Modise, the managing director at Pivot Ventures, with comment from four industry experts.
The results come despite reporting that three out of the top five established fund managers prioritised supporting existing portfolios as opposed to making new investments.
Investment Principal at Edge Growth Ventures Vuyiswa Nzimande said that during the first three months of the Covid-19 pandemic, many businesses closed temporarily
“Some were still committed to paying salaries but, as a result, the turnaround time for their recovery post-Covid was prolonged. As an investor, we set aside funds to help these businesses where we could. We also considered whether these businesses had the capacity to pivot and save themselves and jobs in the short to medium term.
“The time between the onset of Covid-19 and now has given us a chance to be more aggressive in terms of our investment capacity, and there is indeed a perception that the risk appetite has increased towards SMEs since the onset of the pandemic, due to Covid Funding initiatives and new funds.”
Most of the funding in 2020 came from Cape Town investors, with 51.5% of independent fund managers governing the largest number of active deals (an increase of 7.2 percent from 2019). The public sector remained a major investor, holding 28.1 percent of all active portfolios by value of deals, which was worth R1.75bn.
As the country approached Women’s Month, the spotlight falls on gender equality across industries. As part of the panel discussion, those in attendance were asked to estimate the percentage of female equity in the venture capital industry.
Most of them answered, “3%”, a far cry from the actual figure and a microcosmic indication of the difference between public perception and the substantial steps that the nation has taken towards gender equality. As the 2021 Venture Capital Industry Survey reported that 51.3 percent of respondents reported having female equity.
SA SME fund chief executive Ketso Gordhan said there was room for improvement in terms of the country needing more women-controlled teams and funds.
“Having said that, our attitude towards diversity is improving and we need to recognise that.
“We also need to consider diversity from the vantage point of experience. We need a more equal distribution of new, emerging funds and funds that have years of extensive experience in the market. This will present more options and increase the confidence of institutional investors who have their eye on the South African venture capital industry.
“In the developed world, like in the US for example, the industry is more mature and more attractive to institutional investors. We have some maturing to do but, eventually, we will start seeing real, long-term results.”
The largest sector by investment value in 2020 was Agritech, which coincided with the latest stats from Tracxn which put the number of South African Agritech start-ups at 106, many of which concern the development of exciting innovations like drone-based farm monitoring, electromagnetic induction soil scanning and geographic information system mapping.
As part of the panel discussion, Mosidi Modise, dealt with South Africa’s township economy and how investors could develop a more inclusive lens to invest in unfamiliar territory in businesses that were providing solutions that addressed most South Africans’ needs
Matsi Modise, the vice-chairperson at industry-led start-up support initiative SiMODiSA, said the word “community” was key because it took a village to bring up a small venture.
“The biggest opportunity gap exists in nurturing start-ups from pre-revenue to post-revenue, to a stage where venture capitalists can do their part. For that, we need effective accelerators and incubators situated in townships that are committed to inclusivity above all and leverage their network to get behind real potential.”
Savca chief executive Tanya van Lill said the 2021 Venture Capital Conference would take place at Eureka Estate, Durbanville, Cape Town in November. It would be a hybrid format.
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