Grace Ashiru
The technology sector is spearheading investment within South Africa’s start-up ecosystem, even amid challenging macroeconomic conditions.
This insight comes from the South African Venture Capital Association (Savca), which unveiled the findings of its 2023 Venture Capital Survey on Monday.
The survey indicates that South African start-ups secured R3.3-billion in VC funding last year, with an additional R2.1-billion raised through co-investors.
In alignment with the global trend towards VC-type investments, the ICT sector—encompassing dynamic subsectors such as fintech, edtech, software, e-commerce, and online markets—continued to dominate investment activity across various sectors, according to a statement by Savca on Monday.
Savca noted that “ICT as a primary sector nearly doubled in the number of investments compared to 2022, accounting for 87.6% of the total (up from 48.1% in 2022).”
Within the ICT sector, fintech maintained its lead both in terms of value (18.3%) and the number of deals (14.8%), followed by software, which constituted 9.8% of the total number of deals and 6.7% by deal value. E-commerce experienced a substantial increase from 2022 levels, underscoring the persistent growth in online shopping, a trend that accelerated during and after the Covid era, according to Savca.
Savca reported that the South African VC asset class has invested over R10.7-billion across 1,106 active deals since the inception of the survey. In 2023, 94 entities benefited from 184 investment rounds, with 72.8% of deals involving multiple investors.
Activity by the number of deals has remained stable, according to Savca, with a slight decrease in 2023 as the number of entities receiving funding slowed, and more investments went into the same companies. Despite a drop in the number of deals in 2023 (184 compared to 195 in 2022 and 186 in 2021), deal activity remained higher than the pre-Covid levels of 162 in 2019 and 167 in 2020, Savca noted.
“Across the continent, we have witnessed venture capital gaining popularity as an investment strategy. Our economy relies on this sustained investment into our entrepreneurs and innovative solutions that can help propel South Africa into a more competitive and inclusive economy,” said Savca CEO Tshepiso Kobile.
The report further reveals that independent funds dominated dealmaking in 2023, accounting for 66.2% of the total. Captive corporates followed with a 34.3% share of the total deals, while angel investors captured only 7.1% of deal traffic. Despite their smaller share, angel investors had a relatively high average deal size of R6.1 million, only slightly lower than the R7.5 million average for deals by independent funds.
Kobile mentioned that Savca has engaged with the government about creating the “most enabling working environment in which VCs can thrive and operate.”
The most significant development from these interactions, she noted, is the implementation of the remote visa. This visa allows individuals employed by foreign companies to work remotely in South Africa. According to her, this legislation will significantly drive growth and innovation, enabling foreign workers to share and impart knowledge through their interactions with South Africans.
“The next priority on the list,” she continued, “is the South African Reserve Bank’s exchange control regulations affecting technology and telecommunications companies. Essentially, Savca and its partners have been leading the call to relax these exchange controls to attract foreign investment into technology companies and expand the capital base available for venture capitalists. This engagement will continue, and we have high hopes of informing these and other regulatory reforms to mitigate any unintended consequences and ensure constructive direction,” said Kobile.
