Successful exits of companies from venture capital funds in South Africa delivered more than twice the capital invested and show that the country’s venture capital ecosystem is moving to a more mature investment market that can attract greater institutional capital, say South African venture capital organisations.

The 'South African Venture Capital: Exit & Performance Analysis' report shows that realised cash returns substantially exceeded invested capital, with capital-weighted realised returns ranging from 2.01-times to 2.45-times invested capital.

The study looked at 226 realised exits reported by South African venture capital fund managers between 2009 and 2026.

The study was conducted by venture capital companies the South Africa SME Fund and Endeavor South Africa and industry organisation the Southern African Venture Capital and Private Equity Association (Savca).

The report shows that local venture capital can deliver meaningful investor returns and broader economic impact.

South African venture-backed scale-ups are generating successful exits and the venture capital asset class is producing realised returns that are broadly consistent with more mature international venture capital markets, the organisations say.

The return characteristics are broadly in line with those observed in more mature markets, including the US, the UK, Europe and India, which provides evidence that venture capital is becoming an increasingly attractive asset class for long-term investors.

While the domestic market remains relatively young by global standards, the data points to a clear shift, with exits increasing in size, pathways to exits diversifying and several significant domestic and international transactions having taken place in the past two years.

“Fifteen years ago, the NYSE listings were dominated by manufacturing, and oil and gas companies and big banks. Today, it is dominated by technology companies that were venture capital-backed startups 20 to 25 years ago,” said SA SME Fund CEO Ketso Gordhan.

“Exits are the mechanism through which venture capital proves its ability to recycle capital, reward risk and attract new investment into the ecosystem. The study shows that the exit market is taking place across different pathways.”

The report identifies four main exit routes in the South African venture capital ecosystem, namely international mergers and acquisitions, domestic mergers and acquisitions, secondary transactions and initial public offerings.

International mergers and acquisitions have historically been the most common route, but domestic activity has gained traction, particularly in fintech with banks, insurers, retailers and listed technology businesses increasingly acquiring or partnering with scale-ups to strengthen their own digital capabilities.

Further, secondaries are emerging as an increasingly important liquidity route as larger scale-ups attract international growth capital.

The data showed that South African scale-ups were no longer only building for local relevance, said Endeavor South Africa MD Alison Collier.

The strongest companies in the study solved real market problems, used technology to scale efficiently and, in many cases, expanded into regional or global markets. It is this combination that makes them attractive to acquirers and investors.

“The missing piece in the South African venture story has been exits and we are now seeing evidence of this gap closing. Exits create confidence, return capital to investors, reward founders and employees and create the next generation of investors, mentors and repeat entrepreneurs,” she said.

During 2020 to 2023, South Africa realised more than double the successful exits it recorded from 2015 to 2020, and four times the number of exits realised in the early 2000s, she said.

“This figure is expected to double again in the next two to three years. This is good to see in the ecosystem and how our technology sectors grow,” Collier said.

The growth of these businesses is also adding to the economy. A sample of 20 South African venture capital-backed businesses that successfully realised an exit each employed about 230 people during the past five years, and had revenue growth of about five times over the five-year period.

The exit sizes in the report ranged from R1-billion to R30-billion, with the average being R1.6-billion. The returns have been strong in successful exits, with an internal rate of return of 54% or higher, she pointed out.

“It is very exciting to see, in a sector backed by private capital, these revenue and job creation figures. As the ecosystem grows, more international capital and foreign direct investment will come into the market.

“We are looking forward to seeing how pension funds and institutional investors respond to the figures in the report. They can be more active in venture capital to keep driving innovation,” said Collier.

Primary research and technology development was funded by the State and corporations at universities, science councils and technology agencies. Once a technology was ready for commercialisation, venture capital, seed capital and growth capital came into play, said Gordhan.

There were various funds established in partnership with universities and science councils to commercialise intellectual property. While there was some room for improvement, it was a growing asset class and one of the subsectors the SA SME Fund wanted to put more time and money into, he said.

The study findings provided important evidence for institutional investors assessing South African venture capital as an asset class. The ability to demonstrate realised exits was fundamental to the development of any private capital market, said Savca CEO Anusha Naidu.

“These studies show that South African venture-backed companies are beginning to deliver realised return characteristics comparable with more mature international markets, while also contributing to employment, innovation and financial inclusion.

“This provides important evidence for pension funds, family offices, development finance institutions and other long-term capital providers evaluating venture capital as part of a diversified investment portfolio,” she said.