Venture capital inflow doubles
Venture-capital investments more than doubled in 2016 to R872m, as improvements to the section 12J tax incentive led to a spike in new funds, while established managers poured more into existing portfolios.
“Section 12J was a major contributor to the increase, opening up new channels of fund raising and the establishment of new funds,” said Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (Savca).
New fund managers, not active before 2015, invested R312m in 2016. Established managers invested R291m in follow-on investments.
Increased investment by venture capital companies is welcome while business confidence is at its lowest level in 32 years as political and economic uncertainty weighs on private sector investment.
Savca’s 2017 Venture Capital Survey, covering 2016, found that early stage deals, which are the riskiest as they involve seed funding and start-up capital, accounted for half of all deals done by value.
Entrepreneurs who had been beneficiaries of venture capital funding were starting venture capital companies themselves, said Van Lill. There are now 65 12J venture capital companies that have been approved by the South African Revenue Service (SARS). The revenue authority introduced the incentive in 2009 to promote investment in early stage businesses.
Investors can claim 100% of their investment, provided they hold it for longer than five years. This is especially attractive to taxpayers who are taxed at the marginal rate.
There were 892 individual investors in 12J venture capital companies at February 2017, SARS data shows.
“We want to start educating institutional investors about the potential of venture capital in SA. The majority of investment into this asset class comes from private investors,” Van Lill said.
The total number of venture capital investments increased from 93 in 2015 to 114 in 2016, managed by 53 fund managers, compared with 36 in 2015.
Most of the deals were in information and communications technology, followed by business products and services, and manufacturing.
Government funds, such as the Industrial Development Corporation, accounted for 39% of the value of 2016 deals, followed by independent funds at 35% and corporate funds at 15%.