The Southern African Venture Capital and Private Equity Association (SAVCA) is a non-profit industry association, representing over 200 members in Southern Africa, who collectively manage in excess of 3bn (ZAR) in assets.
SAVCA promotes Southern African private equity and venture capital by engaging with regulators and legislators on a range of matters affecting the industry
BTA spoke with SAVCA CEO, Tshepiso Kobile about recent developments in the Venture Capital (VC) and Private Equity (EE) environment and received some thought provoking responses.
The state of VC and PE in Southern Africa:
On the state of the VC industry Tshepiso is quietly confident that despite challenges the market will continue to grow. Globally she says that the VC market fund raising is quite low at present with Africa also being hit with low levels of VC activity and SAVCA has seen another year of declining activity, with around 400 unique investors abandoning investments on the African continent in 2023. However, the long-term average of activity still remains positive.
According to Kobile, most investments are being funneled towards follow-on investments rather than into new ventures. This is apparently also visible in the PE markets where investors are favoring larger, more established fund managers and are more risk averse than in the past.
Where Southern Africa has set itself apart is in its resilience and that more value is flowing with R3 billion invested in 2023, which is higher by far that what has been seen in the past. Another positive outlook is that they are seeing more foreign investments as co-investments with other local corporates.
While the volume of R3 billion is higher, the actual number of entities benefitting from the investments was 94, with 72 funds involved in the funding I 2023.
Risk-off Caution Causes:
I asked Tshepiso her view on what was causing the risk aversion and she says that “My sense is that it has mainly been driven by the global economy”. There seems to be a definite risk-off sentiment in the global economy around investments and particularly your alternative investments.
There are also some regulatory conditions that she says could definitely be addressed to improve the ease of investments.
“VC in SA is unique” Kobile adds, in that it focuses mostly on the growth stages of a company rather than on turn-around’s and restructuring as much and focusses on good value quality creation and not on highly leveraged deals with high interest. This does make our VC market resilient and worth investing in longer term and this is a key for future growth
How to create a more diversified VC landscape?
Much VC investments have been concentrated within the Fin-Tech sector and I asked why this is when there seems to be so much opportunity for broader investments into lucrative areas such as bio-tech and agri-tech and even manufacturing.
Tshepiso makes the case that with the good ITC infrastructure in Southern Africa, and while there has been a large number of fin-tech investments, there is still scope of more products within subsectors of fin-tech such as loans and insurance, where there have been some very innovative developments. “We probably now are at a point where we need to say, how do we intervene to promote creating a more diversified VC landscape in the future so that we don’t just see activity focussed in one sector. She believes that this is where SAVCA and government agencies needs to work closely with policy makers to help remove substantial constraints that start-ups still face, so that we can see more capital flowing into VC funds from institutional investors who currently do not invest at all despite the potential of higher returns.
Policy needed to Drive VC Investments
“We don’t have policy that is driving VC investments into sectors that can ultimately grow the economy and the workforce, and this needs to change”, “what we need, is for consolidated investments to be enabled and focussed within critical development areas Kobile states.
“We have seen successes in focused sectors such as the energy sector where we had multiple rounds of fundraising that drove private sector investment with more than 40% of the funds invested in VC being invested in the energy sector. That success was due to the work that was done to make it conducive to private sector investments. She concludes