Tech-related startups – particularly software-based ones – in South Africa have been cashing in on the bulk of venture capital funding lately. That’s where most funders have been spending their cash according to the South African Venture Capital and Private Equity Association (SAVCA) 2015 Venture Capital Industry Survey.
The survey studied transactions by conducting interviews and questionnaires with funders in the country from January 2011 through to July 2015, as part of a series of surveys.
R146 million was made in investments this year, up from R143 million in 2014.
Of the 18 industries surveyed where investments were made in 2015, software stood head and shoulders above the rest at 26%, up from 13% in 2012, followed by ecommerce (10%) and health (9%) in the top three.
Telecommunications, energy and medical equipment saw the biggest drop in investment, going down 15%, 11% and 115 respectively.
“The survey results confirm that the South African VC industry continues to expand in line with the increase in entrepreneurial high-tech activity in the market, a deepening pool of skills and experience, a growing exits track record, and lower barriers to entry for VC-type deals, especially for those that target businesses that involve the use of digital technology (e.g. online, e-commerce and new media) to expand service offerings,” said SAVCA CEO Erika van der Merwe
In terms of which stage of business VC funders turned most of their attention towards, early stage and growth stage startups were the top contenders, having received the 51% of the total investment between 2014 and 2015, compared to seed (1%) and and development stage companies (8%).
Between 2011 and 2015, 21 public and private VC fund managers and angel investors were involved in 168 new deals worth R865 million. There’s also been a growth in the number of deals done, going from 11 2012 to 43 in 2015. Private VC funders overtook government and now stand as the primary source for funding, having accounted for 81% of the recorded deals recorded in the survey period.
And when it came to where the startups which received the most funding are based, the Western Cape overtook Gauteng to become the main beneficiary, with 75% of the startups’ headquarters based in the province, followed by Gauteng (20%) and KwaZulu-Natal (3%).
“This partly is a reflection of the number of entrepreneurs, angel investors and independent fund managers having set up in the Western Cape, which is contributing to a preference for, and availability of, suitable deals from Western Cape-based businesses,” the survey indicated.
“An additional contributor could be that angel investors based in the Western Cape are more forthcoming with data (the majority of angel transactions recorded in this survey were supplied by angel investors based in the Western Cape) compared to their peers based elsewhere in South Africa,” it added.
The level of confidence among VC funders looks healthy as two thirds of respondents reported that they anticipated to begin seeing profits in the next year and that they expected to receive between two and five times their money back. Almost all respondents indicated a willingness to wait up to three years for a profitable exit.[Source – SAVCA, Main image – CC 2.0 by Rocío Lara]