Information and communications technology (ICT) continues to dominate SA venture capital investment.
The latest SA Venture Capital and Private Equity Association (Savca) industry survey shows the ICT sector accounted for 57c of every R1 in start-up and early-stage equity investments in 2021. That’s up from a long-term average of 38.2% of deal value going to ICT investments, largely at the expense of sectors such as energy, life sciences, and materials & resources.
Savca’s acting CEO and head of policy and regulatory affairs, Shelley Lotz, said the survey shows the importance of ICT sub-sectors such as financial technology (fintech) and education and training technology (edtech) to SA’s long-term economic development. That was underscored by fintech and edtech accounting for a quarter of all venture-capital (VC) deals concluded in 2021.
“Technology advancements in the education sector also offer many benefits, including the opportunity to reach previously underserved segments of society, improve efficiencies, and close skills gaps,” she said.
The Savca 2022 Venture Capital Industry Survey, which covers the 2021 calendar year, shows early-stage fund managers invested R1.31bn into 129 entities through 186 investment rounds last year. That’s was down slightly from the record R1.39bn invested in VC deals in 2020, though the number of receing the capital then was lower at 122.
Almost two-thirds of all deals (62.3%) were less than R5-million in investment value, while Gauteng and the Western Cape remained the preferred investment destinations. Though Johannesburg beat Cape Town in receiving the majority of early stage deals by number in 2021, the Mother City still has the biggest pool of companies in active VC portfolios over the long term.
Thiru Pather, investment principal at SA SME Fund, said more needs to be done to attract banks and institutional investors to the early stage investment sector to unlock its true potential for long-term economic development. To achieve this the VC sector, which is still a developing asset class in SA when compared with more developed economies, has to be de-risked to make it more attractive, she said.
“This could be achieved by introducing some form of subordinated funding, which will give institutional investors the confidence they need to invest in a more prudent manner by having the requisite downside protection,” Pather said.
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