Sep 25, 2012
Venture capital picking up steam in SA – surveyBack
Cape Town|Johannesburg|Pretoria|Fundamo|South Africa|Local Venture Capital Asset Class|Venture Capital|Venture Capital Transactions|Malcolm Sega|Savca|Segal|Communications Technology
© Reuse this
In its ‘Venture Capital Survey’ report, which surveyed 11 fund managers recording 103 venture capital transactions between 2009 and July 2012, Savca stated that venture capital in South Africa was an active, albeit emergent, asset class.
Data from the survey also showed that the asset class was picking up steam, both in the number of transactions and in the number of fund managers. South Africa's high-growth entrepreneurial system is also producing notable exits.
“With only R830-million invested in venture capital, however, the asset class is substantially smaller in size compared with the funds under management by the South African private equity industry which is in excess of R100-billion, or in comparison to the market capitalisation of the JSE,” the report stated.
Savca executive consultant Malcolm Segal said that this raised questions about the role and impact of venture capital in stimulating the growth and development of the South African economy. "But the real figure may be as much as double the stated one because we know that there are numerous investors in the local venture capital asset class that did not participate in the survey as a result of our strict parameters, including angel investors, corporate investors, enterprise development initiatives and well-known entities such as business partners," he noted.
Meanwhile, the report stated that the largest portion of transactions concluded in the period was in the early stage of investments. Both start-up and growth capital attacked 37% each of the available funding while development capital accounted for 22% of investments by value and seed capital only 4%.
This showed a healthy appetite amongst investors in early stage and start-up transactions, despite a substantial decrease in the number of transactions by the public sector (normally executing early stage seed and start-up transactions) compared to the 2010 survey.
The biggest recipient of venture capital money has been information and communications technology, which attracted 35% of investment, followed by life sciences (health, pharmaceutical and medical devices) attracting 25% of investment over the period under review.
"Energy has not previously been a significant venture capital attracter because of its substantial capital requirements but over the research period the sector attracted 15% of total investment, making it the second-largest single sector recipient of venture capital funding," added Segal.
Over the survey period, 12 full exits and four partial exits were recorded. While fund managers were still reluctant to report exit information publically, each of the major venture capital fund managers surveyed reported having concluded exits during the survey period.
Segal noted that corporate merger and acquisition activity was mostly not reported publicly. “A notable public exit during the period was credit firm Visa's acquisition of Fundamo - a $110-million transaction."
The report noted that a lack of skilled entrepreneurs, lack of suitable management for venture capital invested businesses and a lack of exit mechanisms were seen as the greatest inhibitor to the success of venture capital funds.
In addition, fund raising, especially from institutional sources was reported as an “extremely difficult” process although some fund managers claimed to have received unsolicited interest from European venture capital family offices seeking investment opportunities in emerging markets.
"At Savca we intend that this survey would stimulate more in-depth analysis to create a clearly defined strategy for the development of the venture capital asset class in the country," Segal said.
Edited by: Mariaan Webb© Reuse this Comment Guidelines
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Mitsubishi Motors South Africa (MMSA) has introduced a 4x2 derivative of its Pajero Sport sports-utility vehicle (SUV), which will give it access to a substantial slice of the full-size SUV market, where it will compete with the likes of the Ford Everest, Chevrolet...
South African Energy Minister Ben Martins has affirmed that the government wants the country to be globally competitive in the nuclear sector. "Our responsibility has always been ... to ensure that, in nuclear energy, South Africa can compete with the rest of the...
Mercedes-Benz South Africa (MBSA) president and CEO Dr Martin Zimmermann describes the new S-Class as “a special place to be”, with the car creating a sense of “wellness” once you are seated inside the German brand’s flagship model. It is difficult to argue...
Water scarcity and water-quality issues are broadly recognised and understood in most political, business and civil organisations in South Africa, but solving water issues will require wide and continuous action in catchments and municipalities by organisations and...
Work is well under way on the R212-million Imvutshane dam, 30 km north-west of Stanger, in KwaZulu-Natal, which is a key link in supplying people in rural Maphumulo with a reliable source of safe drinking water.