The value of venture capital (VC) deals concluded in South Africa last year mushroomed by 134% over 2015 - more than doubling, from R372 million ($26m) to R872m ($62m), data from the Southern African Venture Capital and Private Equity Association (Savca) reveals.
The data, revealed in a report released last month by Savca, also shows that the number of investments increased from 93 in 2015 to 114 in 2016 - an increase of 23%. The number is also the highest since Savca began tracking the sector in 2000 (see the below graphs drawn from the report).
Savca CEO Tanya van Lill (pictured above) said in the report that the introduction and improvement of Section 12J tax deductible investments had driven greater flow of capital to VC and from a broader base of individual investors (see this earlier post).
The SA Revenue Service (Sars) recorded R1.8 billion raised by 49 investment vehicles registered for the tax incentive, having already invested into 56 qualifying companies. Not all of these Section 12J investment vehicles focus on VC as an asset class.
“Through Section 12J, more VC investors, not limited to high net worth individuals, are willing to participate in the VC eco-system. Data from SARS informs that the uptake of individual investors into Section 12J VCs at February 2017 totalled 892 investors,” she said.
By value of deals concluded in 2016, seed funding and start-up capital totalled 42% (2015: 53%) - roughly the same split as VC investments in the US in 2016 (44%) shows a US report.
The average deal size of new VC investments in South Africa increased from R4m ($300,000) in 2015 to R7.6m ($540,000) in 2016.
However this is still at over one 50th of the average deal size concluded in the US - where the average deal size in 2016 was $30.4m - or about a 10th of that in Europe ($5.5m) or Brazil ($4.4m).
Deals involving the ICT sectors account for the largest portion of investments (30% of all deals concluded by number of deals and about 17% by value of deals),
The report also revealed that there were 14 exits in 2016 compared to eight in 2015. In all 38 exit events were reported to have taken place between 2012 and 2016 – about 55% of which were exited profitably (see the above graph from the report).
At the end of 2016, 53 fund managers (up from 36 in 2015) managed R3.5 billion in 461 VC deals. Three state-managed funds accounted for R1.28m or 39% of the value of all deals and invested in just under a quarter of all deals.
Angel investors invested about R44m in 2016 from 33 deals, slightly down from R45m from 30 deals invested the previous year.
The number of deals concluded between 2007 to 2016 - at 538 for a total investment of R3.6bn ($260m) - may be dwarfed by the 8,136 deals valued at $79bn concluded in the US in just 2016, but things are hotting up.
It comes even though the economy in the last year and half has slowed to under 1% growth.
Yet following a decrease in VC investment activity after the financial crisis in 2008, the VC sector saw growth in investment activity towards the end of 2013. And venture capital investments could be set for an even better year in 2017.
Speaking this week at the launch of Savca publication of 20 recent VC success stories, venture capitalist and co-founder of Knife Capital, Keet van Zyl, says 2017 has been "a hell of a year" so far.
"I tell you when I sit and have my G&T at the Breede River at the end of this year it is going to taste like no other G&T has tasted before," he said.
Yet with the VC investments having grown so dramatically of recent, policymakers will wonder what the jobs and revenue potential is of the sector. Sadly the report does not reflect this.
Better data on this may convince the state to co-invest with the private sector as other countries such as Chile, Malaysia, Brazil, Israel and the US has done (see this earlier post). This could propel the sector to new heights.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a