Challenge? Not SA’s economy...
The future for local start-ups and those willing to fund them are bright.
As venture capitalists must identify possibility and opportunity, they are, by nature, an optimistic crowd.
It was nevertheless remarkable that at the recent launch of the Southern Africa Venture Capital and Private Equity Association (Savca) 2019 Venture Capital Industry Study, no panellist raised the state of SA’s economy as a challenge. All speakers were decidedly positive about the industry’s prospects.
Venture Solutions senior management consultant Stephan Lamprecht said: “If you look at the rate at which new funds are coming into the sector, that is happening a lot faster than it used to.”
Taking off
Venture capital (VC) is still a tiny part of SA’s financial services industry. According to the Savca study, there’s R5.4 billion invested in VC projects, across 665 deals.
However, it’s growing rapidly. Last year, 181 new VC deals went through (2017: 159).
The funding for VC and the number of people seeking out opportunities is also expanding every year.
“When I started working in this industry 10 years ago, there were maybe two or three fund managers involved, but now there are many more. The banks are now involved, and insurers are getting interested. We have also seen a lot of international investors come in,” says Bowmans partner Joshua Janks.
Local advantage
This obviously wouldn’t be the case if local start-ups had no meaningful prospects. In fact, SA’s particular challenges are often opportunities for them to exploit.
“There are certain nuances that will always emerge here relative to other countries,” says Havaic managing partner Ian Lessem. “A simple example is security. One of the first things you think about in the morning is turning off the alarm. In the US, that level of security is not as high up on the hierarchy of needs. So it makes sense that we should be innovating around security technologies in a more rigorous manner than someone who isn’t in the same situation.”
Lamprecht has similar sentiments. “We are an economy that is focused on solving challenges. And we want all the players around the table, including academics, VC and the business sector to focus on and crack those challenges.”
One of the biggest opportunities for local VC, Lessem therefore believes, is for funding development technologies out of the local reality that can find global application.
“This is the model in Israel, where what they have done incredibly well is to create technologies that can play globally…. We have to look at how we can serve international markets.”
Survivors
Lessem says there are parallels between what’s being achieved locally and what took place in the Israeli VC space 10 years ago.
“Just like Israel, we have a small economy on a relative basis, a small population, but we are very innovative and headstrong.
“Our ability to export talent and skills, and to leverage off our competitive cost base and access to resources, information and technology, places us in a very good position to follow their lead in terms of supplying our products and solutions globally.”