South African venture capital (VC) firms and fund managers invested R1.5 billion channelled towards South African startups in 2018.
This is according to SAVCA 2019 Venture Capital Industry Survey released by the Southern African Venture Capital and Private Equity Association (SAVCA), conducted in collaboration with research partner Venture Solutions.
Gauteng businesses received the largest share of VC money in 2018 (R658 million), up 38% from 2017. The Western Cape saw an increase in 2018 of 14% in VC investments amounting to R433 million. Kwazulu-Natal (KZN) backed VC business have in 2018 seen a significant increase in activity in comparison to 2017, with R71 million invested in 2018.
The rest of South Africa (deals outside Gauteng, KZN and the Western Cape) have also seen an increase of 28% of deal activity year-on-year.
Venture Capital (VC) is financing that investors provide to businesses, in the start-up and early growth phases, that they believe have long term, high growth potential. These are deals predominantly funded by equity. For start-ups without access to capital markets, venture capital is an essential source of funding. Risk is typically high for investors.
Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that it is especially encouraging to see this continued industry growth in the face of a tough economic climate.
“The continued expansion in VC activity over the past decade is evident when comparing the average of 129 deals per year from 2014 to 2018, to the average number of deals per year from 2009 to 2013, a meagre 26.”
Van Lill highlights that, of all the new deals reported in 2018 (by value), 41% were categorised as start-up capital.
“If taken by a number of deals, this proportion jumps to almost half of all deals reported (47%),” she adds.
“Likewise, the total number of active deals invested through seed or start-up capital amounts to almost 60% of all deals to date. This highlights the increasingly important role that venture capital continues to play in South Africa as an essential source of funding for scalable start-ups.”
At the end of 2018, the Southern African VC asset class had R5.37 billion invested in 665 active deals.
The average deal size of new investments (R8.3 million) in 2018 remained the same as 2017.
By value in 2018, 47% (2017: 57%) of VC deals were categorised as Seed Funding and Start-up Capital.