R91 million ($5 million) was returned to investors via exits in South Africa in 2023, according to the Southern Africa Venture Capital Association (SAVCA). The returns were from ten exits, a decline from 2022 when 11 exits were recorded. Three write-offs were recorded, a slight decline from the five write-offs recorded in 2022, but a concerning trend that has plagued SA’s VC ecosystem in the last five years.
South Africa has been considered Africa’s leading exit market, boosted by active capital markets and banking systems and mature companies that can snatch up startups have been attributed to South Africa’s exit opportunities. However, many lossmaking write-offs marauding as exits have been recorded, putting into question the country’s M&A dominance.
In 2022, exits returned investors R318 million ($17 million), a 3.8x return multiple on the R83 million ($4.4 million) invested in the deals. But the total number of losses incurred on exits was R80 million (~$4.2 million). This year’s number of exits is the second lowest since 2019, with only 2022 figures being lower.
“Writeoffs are not a good look on the industry because GPs want to see that there is a chance of favourable returns on the VC asset class,” one LP who requested anonymity said.
With R920 million ($50 million) in dry powder awaiting investment, VCs are looking to back not only growth-oriented startups but also startups that present a clear exit avenue.
According to the same report by SAVCA, venture capital investment into South Africa broke the R3 billion ($163 million) mark in 2023, a first since the survey was first conducted in 2010. Addressing the lossmaking exit problem is a problem that both the innovators and VCs will have to address for the better good of the whole ecosystem.
“Investors have shown increasing confidence in innovation so it's only fair that we return that favour,” added another investor.