ICT Sector Thrives in Latest South African Venture Capital Survey
In the face of an economy battling low growth, high unemployment rates, and the effects of an ongoing energy crisis, the venture capital (VC) industry in Southern Africa has felt the pinch, with a decline in the value of deals over the 2022 period. However, the information and communication technology (ICT) sector continues to shine, demonstrating resilience by attracting significant investor interest and confidence, even within a challenging investment environment.
These insights were unveiled in the 2023 Venture Capital (VC) Industry Survey conducted by The Southern African Venture Capital and Private Equity Association (SAVCA). The survey highlighted that despite the macroeconomic difficulties hampering the broader market, the ICT sector has been pivotal in driving the digital transformation of South Africa’s economy, thereby retaining its attractiveness to investors.
Tshepiso Kobile, CEO of SAVCA, pointed out during the survey’s unveiling that the sector, although facing trying times, still presented lucrative opportunities for investment. The venture capital ecosystem plays a crucial role in nurturing high-growth, early-stage enterprises. This support is not just vital for economic growth but also addresses the socio-economic challenges deepening across the region.
Notably, the survey recorded a 14.5% decrease in the value of VC deals from the previous year. Despite this contraction, the year 2022 marked the fifth consecutive year where the industry secured over R1 billion in early-stage investments. The ICT sector loomed large, accounting for 48.1% of all deals by number, affirming its dominance in the venture capital space.
Investments within the ICT sphere were notably diversified across various sub-sectors, including FinTech, which took the lead, followed by Software, Telecoms, AgriTech, and Electronics. This spread underscores not only the breadth of innovation within the sector but also points to areas of growing investor interest.
The survey also shed light on emerging trends, such as the rise of education technologies (EdTech), which, though still forming a small proportion of total investments, demonstrates the sector’s evolving nature and its potential for future growth.
The prominence of FinTech over traditional sectors like Food and Beverage underscores a paradigm shift towards leveraging technology for mass market solutions and enhancing service delivery efficiencies. The ICT sector’s potential for generating social impact, particularly in education through e-learning and information access, was also noted as a significant advantage.
Kabelo Themane, Senior Investment Associate at Edge Growth, during a panel discussion, highlighted the importance of investment impact. Themane emphasized the need for investments to address foundational societal challenges, such as unemployment and financial inclusion, beyond just financial returns or meeting environmental, social, and governance (ESG) criteria.
The enthusiasm for venture capital investment in the ICT sector and the broader VC industry’s prospects remain high, with a trend of increasing follow-on funding into existing portfolios noted for 2022. This underscores a sustained interest in scaling existing successes and exploring new ventures with potential for high impact and profitability.
In reflection on the 2023 SAVCA VC Conference, the industry remains committed to advancing discussions on the future of venture capital in Southern Africa. These gatherings, attended by a diverse mix of investors, entrepreneurs, and policymakers, signify an ongoing collective effort to harness the full potential of the VC sector in fostering innovation and driving economic development.
