South Africa is still the southern Africa VC darling

According to venture capital tracking platform Africa: The Big Deal, South African startups again dominated the venture capital funding scene in southern Africa in 2022, securing 95% of all the funding in the region.

Despite its dominance in the region, venture capital inflow into the country almost halved in 2022, falling from $1.1 billion in 2021 to $555 million in 2022. In the same period, the number of $100,00 deals in the country dropped by 14% year-on-year.  The biggest deals were MFS Africa’s $100 million Series C top-up and Clickatell’s $90 million Series C.

South Africa’s regional dominance in VC funding is also apparent in the VC funding per capita metric, with the country recording $9 per capita compared to the regional average of $3.1 of VC funding per capita and the continental average of $3.4 per capita.

Elsewhere in the region, Zambia and Namibia each attracted about $15 million in funding in 2022, 40 times less than South Africa. Zimbabwe followed  with $2 million in funding, as well as Mozambique with $125,000 and Botswana with $100,000.

Reasons for South Africa’s dominance

According to Will Green, the program director at GrindstoneXL, the reason South Africa is ahead of its southern Africa peers with regards to attracting venture capital is because the ecosystem in the country has been around for longer and hence, players have managed to make significant headway. Another factor is the presence of high net worth individuals in the country who have helped seed startups through angel investing and other forms of funding.

The presence of the 12J tax incentive, which has since been discontinued, also contributed to the growth of South Africa’s venture capital ecosystem as compared to its regional peers.

“The incentive allowed retail investors to invest in startups in return for a tax break. That allowed VC firms in the country to raise capital from retail investors for their funds,” said Green in an interview with TechCabal.

Despite its regional dominance, South Africa has fallen behind continental peers like Nigeria, Egypt and Kenya. On this matter, Green pointed to the negative sentiments from potential investors about the country’s economic trajectory, for example, the load shedding challenges that have plunged the country into literal darkness.

However, he is confident that the quality of startups being built in the country will propel the country back to the top of the VC funding charts.

“There might not be unicorns being birthed here [in South Africa] but we have solid businesses which are sustainable, have cash flow and recurring revenue are being built and their value will reveal itself as time goes on,” concluded Green.