Afrigather SA VC traders made $17 million from exits in 2022, a 3x return. Nonetheless, loss-making offers nonetheless outnumbered the return-making ones.
In line with the 2023 Southern Africa Enterprise Capital Affiliation (SAVCA) survey, exits within the South African ecosystem returned traders R318 million (~$17 million). This represents a 3.8x return a number of on the R83 million (~$4.4 million) invested in such offers.
Nonetheless, regardless of the returns, the whole variety of losses incurred on exits was R80 million (~$4.2 million). Moreover, the returns symbolize the third consecutive yr the place exit returns have plummeted within the nation. Since 2017, the one yr that exit exercise didn’t document a loss, within the cumulative sense, was 2019 when the variety of returns and losses on exits was the identical.
SA’s complicated exit market
Over time, South Africa has been heralded because the exit hub of the continent, persistently main different VC hubs in Africa. A number of causes have been attributed to South Africa’s spectacular mergers and acquisitions (M&A) dominance. These embody energetic capital markets and banking methods, mature corporations that may snatch up startups, and others.
Nonetheless, as extra knowledge turns into public, it has been clear that many of the exits have been loss-making for traders. Exiting too early has been hypothesised as one of many explanation why such transactions may not reap the specified outcomes for these concerned.
In line with Keet van Zyl, co-founder and accomplice at enterprise capital agency Knife Capital, there’s some legitimacy to the hypotheses. Van Zyl states that in some situations, there’s a disconnection between the expansion capital wanted by startups and what’s out there, so it is sensible to promote as a substitute of attempting to embark on extra fundraising. On common, in line with van Zyl, South African startups exit after three to 4 rounds of funding.
“Regardless of the rising availability of deal-flow, there stays a big follow-on financing hole for high-growth native startups with confirmed traction,” van Zyl told TechCabal in Might. “Due to this fact generally when startups attempt to increase progress capital, they flip to strategic traders who seize the chance and make a full acquisition provide.”
Nonetheless, in line with van Zyl, this pattern is just not essentially dangerous because it permits for an elevated variety of smaller exits – which then recycles capital into the ecosystem – as a substitute of an extended highway to unicorn constructing and an absence of liquidity for traders.
In August, van Zyl’s Knife Capital introduced a $50 million enlargement fund which might spend money on B2B corporations which are globalising South African applied sciences and opportunistic investments in the remainder of Africa. The particular focus shall be on progress and enlargement stage corporations at Collection A extension and Collection B funding levels.
