SA sees increase in deal activity in the venture capital space despite COVID-19

The South African venture capital and private equity industry association has released the results of its 2020 survey, revealing an increase in deal activity despite the challenges posed by the COVID-19 pandemic. Tanya van Liel, the CEO of the association, shared some insights in an interview with CNBC Africa. According to Tanya, the venture capital industry in South Africa is still in its nascent stage but showing signs of growth. In 2016, the number of deals per year stood at just over 100, while in 2020, it has climbed to 167, with a total investment of 1.39 billion rand, marking an increase from the previous year. This growth is particularly significant considering the impact of the pandemic on the global economy. Tanya highlighted that the top sectors attracting these investments include health, consumer products, business products, fintech, and software solutions. Fintech, in particular, has shown promise in adapting to changing market dynamics, driven by shifts in consumer behavior due to COVID-19. Despite South Africa not being among the top countries in fintech investments on the continent, there is potential for growth and scalability by exploring regional markets. Tanya emphasized the importance of looking beyond South Africa-specific solutions and tapping into regional opportunities to attract more investments. Deal sizes in 2020 ranged between 20 to 50 million rand, depending on the industry and stage of the company. While IT-related companies witnessed smaller check sizes due to lower capital requirements, sectors like manufacturing and retail demanded larger investments for early-stage projects. To further fuel growth in the fintech space and attract institutional investors, Tanya emphasized the need for supportive policies, a conducive business environment for entrepreneurs, and success stories that showcase the returns on investments. There is a call for more institutional capital to flow into venture capital projects in South Africa to help local entrepreneurs scale their businesses and potentially create unicorn startups. Despite being perceived as high risk, the venture capital industry in South Africa aims to establish itself and gain the trust of institutional investors. Tanya's poll among members identified the top priority for the VC industry as the need for more institutional capital to flow into venture capital. Currently, corporates, high net worth individuals, and family offices are the main drivers of the VC sector in South Africa. However, to foster economic growth and innovation, it is crucial to attract more institutional money to support local fund managers and entrepreneurs. By investing in homegrown talent and solutions, South Africa can pave the way for the emergence of unicorn companies and position itself as a hub for venture capital investments.