In 2020, in spite of the ripple effect the Covid-19 pandemic created throughout the global economy, the venture capital (VC) and private equity industry in South Africa surged forward, with 74 South African early-stage fund managers having invested more than R1.3-billion into 122 entities through 167 investment rounds.
This compares with the 69 early-stage fund managers that invested about R1.2-billion, combined, into new and start-up stage South African businesses in 2019.
These are some of the key findings from the 2021 Venture Capital Industry Survey, which was conducted by the Southern African Venture Capital and Private Equity Association (Savca).
These results come despite reporting that three out of the top five established fund managers prioritised supporting existing portfolios as opposed to making new investments.
Edge Growth Ventures investment principal Vuyiswa Nzimande commented that during the first three months of Covid, many businesses temporarily closed down.
“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,” she explained.
Her company also considered whether these businesses had the capacity to pivot and save themselves and jobs in the short to medium term.
However, she averred that the time between the onset of Covid-19 and now has given the company a chance to be more aggressive in terms of its investment capacity, adding that there is a perception that the risk appetite has increased towards small- and medium-sized enterprises (SMEs) since the onset of the pandemic owing to Covid funding initiatives and new funds.
The majority of funding in 2020 came from Cape Town-based investors with 51.5% of independent fund managers governing the largest number of active deals, marking an increase of 7.2% from 2019.
As it stands, the public sector remains a major investor, holding 28.1% of all active portfolios by value of deals, which is currently worth more than R1.7-billion.
Further, as Women’s Month approaches, the spotlight fell on gender equality across industries within the report.
The survey reported that 51.3% of respondents reported having female equity.
SME Fund CEO Ketso Gordhan stated that “there is 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.”
However, he added that the industry also needed 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.”
He explained that in the developed world – like in the US, for example – the industry is more mature and more attractive to institutional investors. South Africa, in comparison, has “some maturing to do” but Gordhan is positive that the country will eventually start seeing real, long-term results.
The largest sector by investment value in 2020, was agritech, 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.