Last year was already a very good year for South African startups in terms of funding, with businesses from the country proving the most attractive to investors.
According to the findings of the Disrupt Africa African Tech Startups Funding Report 2015, 36 per cent of African startups that raised funding in 2015 were based in South Africa, with companies taking home in excess of US$54.5 million over the course of the year.
A strong showing, putting South Africa at the top of the pile across the continent. But could 2016 be an even better year?
New year, new funds
Events in the first two months of 2016 have given rise to hopes funding levels will only continue to grow. New funds are springing up left, right and centre. First, Disrupt Africa reported venture capital (VC) firm Grovest is looking to raise ZAR200 million (US$12.8 million) to invest in highly scalable, post-revenue South African tech startups, with the strategy to “buy, build and flip”.
The fund – which has its initial close in mid-February – has a minimum target of ZAR50 million (US$3.2 million), but Grovest non-executive director Clive Butkow told Disrupt Africa the company was targeting four times that figure and was “bullish” on the chances of success.
This was followed by the news Cape Town-based Silvertree Internet Holdings plans to invest US$10 million in South African tech startups during 2016. The company operates an owner-operator model, focusing on scaling tech and commerce companies across small, fast growing niches. It invested US$5 million in company acquisitions and business building in 2015.
And just this week, Knife Capital announced the launch of KNF Ventures, a ZAR100 million (US$6.4 million) fund dedicated to investing in innovative startups with proven traction. The fund is a SARS-approved section 12J Venture Capital Company (VCC), which means investors can deduct the full amount of their investment from taxable income.
The targeted investment capital is ZAR100 million, but Knife Capital said initial closing will be smaller in order to start taking advantage of impending investment opportunities.
Solid track record
The new SARS regulations undoubtedly help when it comes to attracting investors, but there are other reasons why South Africa is the base for more funds than ever before. Tech startups in the country have a proven track record of success that is perhaps lacking elsewhere. Acquisitions of the likes of iKubu have whetted the appetite, and investors believe there are more to come.
Silvertree and Knife Capital have seen for themselves the benefits of pumping in money, which accounts for their increasing willingness to invest more. Silvertree recorded 330 per cent year-on-year growth to more than US$10 million in revenue, and through portfolio companies that include Click n Compare, Cyber Cellar, and Healthcart reached 25 million unique consumers across the continent, an increase of around 50 per cent on the previous year.
Knife Capital saw similar growth. The company released figures from its second Grindstone accelerator programme, saying 12 scale-up companies saw an average of 64 per cent increase in revenue and created 70 jobs over the course of 2015.
Entrepreneurial leadership programme Grindstone recently concluded its second intake, with the participating companies experiencing strong business growth. Upon intake, the average Grindstone SME had been running for 6.5 years, and employed 12 people. Participating companies, aside from the year-on-year revenue growth and the addition of employees, added a total of ZAR65 million (US$3.9 million) in revenue, and doubled their number of key customers.
Figures such as these, and the presence of a strong local entrepreneurial ecosystem boosted by the likes of Silicon Cape and a host of incubators and accelerator programmes, will only encourage further investment.
The establishment of funds such as these – and there will be more – is another positive step for the local ecosystem. They also create hope there will be bigger funding rounds available for startups.
Though South Africa ruled the roost in terms of the total amount of funding received by tech startups, the average amount secured by each business was actually significantly lower than the averages in Nigeria, Kenya, Tanzania and Egypt. The country has long had a solid angel investor scene, far stronger than elsewhere on the continent, characterised by the likes of Vinny Lingham, Justin Stanford, Daniel Guasco and Wayne Gosling. Funds like these, however, may mean larger amounts are more obtainable for scalable local startups.
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