Fund backed by SA’s top CEOs to bet R10bn on startups

0:00Sandton, SA’s financial hub. South African startups can deliver $1 billion valuations, or so-called unicorn status. These include fintech company Optasia’s $1.4 billion listing in Johannesburg last year.
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A key SA fund plans to raise as much as R10 billion in venture capital to help scale high-growth startups, a move that would expand its technology sector and accelerate the development of one of the continent’s most mature startup markets.

The South Africa SME Fund aims to secure an initial R2 billion in 2027 and will leverage this to raise the rest from other institutions, Chief Executive Officer Ketso Gordhan said in an interview.

Set up by the CEO Initiative, a group helmed by the leaders of the 50 biggest corporates on Johannesburg’s bourse, the fund aims to address barriers to growth and build a stronger entrepreneurial ecosystem.

“The planned raise follows an initial R2.7 billion that the fund raised about a decade ago and was backed by the likes of the Public Investment Corporation, Naspers, Vodacom Group,” he said. “There are talks to also reinvest the proceeds made from those investments.”

South Africa’s venture-capital industry is entering a new phase of maturity. Over the past decade, funds have invested just over R16 billion in 1 142 companies, according to a study by the SME Fund, Endeavor and Southern Africa Venture Capital and Private Equity Association that was released Thursday. Of that, close to R5 billion has been realised in about 226 exits, it showed.

“South Africa has managed to double the size of its venture-capital market over the past five years,” said Alison Collier, managing director of Endeavor South Africa. The current plans to grow the local VC funding pool would most likely see the space double again in the next three to five years.

Venture capital has increasingly become a criticalle to access traditional bank funding, helping create jobs and develop new industries

With South Africa’s economy grappling with slow growth and persistently high unemployment, scaling successful startups is viewed by many investors as one of the country’s most effective pathways to solving some of these endemic problems.

One of the biggest challenges in the South African and continental venture-capital space is to find pathways to exit.

The country has managed several exits in recent years, with growing M&A activity from both local and international corporate entities, Collier said. It’s also developing a secondary market that is attracting initial public offerings from startups, particularly in the fintech sector.

Some large transactions have shown that South African startups can deliver $1 billion valuations, or so-called unicorn status, said Collier.

These include fintech company Optasia’s $1.4 billion listing in Johannesburg last year.

Endeavor is also invested in South Africa’s Tyme Bank, which is valued at more than $1.5 billion, said Collier.

“The market has developed multiple pathways to exits,” she said. “That’s a critical sign of a healthy venture-capital ecosystem as investors need confidence that successful companies can ultimately generate liquidity.”

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