Sep 25, 2012
Venture capital picking up steam in SA – surveyBack
Cape Town|Johannesburg|Pretoria|Africa|Business|Fundamo|Health|System|Technology|Africa|South Africa|Energy|Local Venture Capital Asset Class|Venture Capital|Venture Capital Transactions|Malcolm Sega|Savca|Segal|Communications Technology
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
Creamer Media Senior Researcher and Deputy Editor Online
To subscribe email firstname.lastname@example.org or click here
To advertise email email@example.com or click here
Other Economy News
Recent Research Reports
Automotive 2016: A review of South Africa's automotive sector (PDF Report)
Creamer Media’s Automotive 2016 Report provides an overview of South Africa’s automotive industry over the past 12 months. The report provides insight into local demand and production, vehicle imports and exports, investment and competitiveness in the sector, as well...
Energy Roundup – April 2016 (PDF Report)
The April 2016 roundup covers activities across South Africa for March 2016 and includes details of a North Gauteng High Court Judge’s dismissal of a court application to postpone the 9.4% electricity tariff increase, which the National Energy Regulator of South...
Electricity 2016: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2016 report provides an overview of South Africa’s electricity sector, focusing on State-owned power utility Eskom and independent power producers, electricity planning, transmission, distribution and the theft thereof, besides other issues.
Energy Roundup – March 2016 (PDF Report)
The March 2016 roundup covers activities across South Africa for February 2016 and includes details of the Department of Energy’s plans to announce the preferred bidders for the first tranche of the coal independent power producer procurement programme; the Council...
Steel 2016: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2016 Report examines South Africa’s steel industry over the past 12 months. The report provides insight into the global steel market and and particularly into South South Africa’s steel sector, including production and consumption, main...
Construction 2016: A review of South Africa's construction industry (PDF Report)
Creamer Media’s Construction 2016 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; key participants; local demand; geographic diversification; corporate activity; black economic...
This Week's Magazine
The two spent-fuel pools at Eskom’s 1 800 MW Koeberg nuclear power station, in the Western Cape, will be full by 2018, increasing the urgency on the State-owned utility to begin pursuing alternative storage options. Koeberg has, over the past 32 years, accumulated a...
South Africa lacks the skills necessary to implement the government’s plan to build 9.6 GWe of new nuclear energy capacity, warns nuclear-qualified Quality Strategies International CEO David Crawford. “Apart from the concern about the affordability of the programme,...
Cybersecurity multinational Check Point has released its latest 700-series cybersecurity systems for small businesses, which draw on its international threat intelligence to provide up-to-date cybersecurity, says Check Point South Africa country manager Doros...
Daimler Trucks and Buses Southern Africa (DTBSA) saw a marked slip in new-vehicle sales in 2015 compared with 2014, with sales dropping from 5 897 units to 5 300 units. The decline came as the South African new truck and bus market declined from 31 558 units in 2014...
Group of 20 (G-20) economies threatened to penalise havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. The G-20 will consider “defensive measures” against financial centers and...