The South African venture capital (VC) industry continues to expand with almost R2bn in assets under management, according to the latest SAVCA 2015 VC Survey.

Erika van der Merwe, SAVCA CEO, said this is “in line with the increase in entrepreneurial high-tech activity in the market, a deepening pool of skills and experience, a growing exits track record, and lower barriers to entry for VC-type deals, especially for those that target businesses that involve the use of digital technology (e.g. online, e-commerce and new media) to expand service offerings.”

The South African VC industry survey, which covers VC-type transactions that took place between January 2011 and July 2015, reveals that as at July 2015, total VC assets under management were valued at R1.87bn, comprising 187 deals.

In the 2011-2015 period, 21 public and private VC fund managers and angel investors completed 168 new deals amounting to a total value of R865m.

The survey indicates an uptick in the number of VC deals done, from the 11 deals struck in 2012, to 18 in 2013, 34 in 2014 and 43 annualized in 2015 to date.

In line with international trends, the average deal size has declined in recent years: the average transaction value has reduced from R9.3m over the 2009-2012 period, to R7.3m during 2011-2015, a decline of 22%.

“Lean approaches to starting new businesses, which translates into smaller quantities of capital required for transactions, is a key reason for this development,” said SAVCA.

“Another reason is the dwindling deal activity by public fund managers and public-funded entities, given that these entities in the past typically have done larger transactions than private sector managers.”

The survey shows that 56% of fund managers with deals on their books had exited from at least one investment during the 2011-2015 survey period.

The average rate of return on investments, for all declared deals that were exited with a gain, is 20% (compound annual growth rate).

The amount declared as write-offs over the survey period totals R187m, compared with the total value of profitable exits of R438m.

“The trends highlighted in this survey are positive, in that they signify the advancement of a still-emergent industry that is an integral component of a vibrant and healthily functioning economy – and which is considered a critical enabling mechanism for new high-growth and entrepreneurial sectors and technologies that have the potential to transform the South African economy,” van der Merwe said.

Nevertheless, findings from the survey that public-sector VC funds are reducing their activity is a concern.

Stephan Lamprecht from Venture Solutions, who conducted the survey, said: “Evidence from other markets is that sensible government backing and enablement of seed-stage and early-stage VC activity are vital in ensuring not only the development of the VC asset class, but, more importantly, the growth of high-tech, high-growth entrepreneurial activity.”

“Without visionary and consistent government backing for VC, the industry will at best continue to grow at average and organically driven rates, subject to market pressures and the high risks associated with being an emergent asset class. It is therefore imperative for the transformation of the entire economy that VC in South Africa is harnessed to support improved, more diversified and more sustainable economic growth,” he added.