SA's Tech Start-up Ecosystem Gets a R130 Million Venture Capital Boost
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In the United States, the impact of the venture capital and tech start-up ecosystem has been enormous, with revenue from venture-backed companies reportedly representing over 20% of US GDP.
With South Africa experiencing the largest quarterly drop in GDP in a decade, it is now critical for the country to become an active global participant in the knowledge economy. However, this requires venture capital investment.
This is according to Justin Stanford, co-founding General Partner at 4Di Capital, a venture capital fund manager which has recently launched 4Di Capital Fund III, with the SA SME Fund as the initial anchor investor to help advance the local tech start-up ecosystem.
A welcome development for the local ecosystem
“Unlike other countries, South Africa does not have much of a history of institutional LPs or investors that invest in venture capital funds. Accordingly, it is very difficult to raise money for the asset class locally. The creation of the SA SME Fund as a new local institutional LP, with venture capital as a part of its mandate, is a very welcome development for the local ecosystem,” says Stanford.
“For 4Di, it is helpful for the seeding of new funds such as our Fund III, which then assists us in attracting further capital from investors – local and foreign – interested in allocating to the world of South African tech start-ups.”
Fund III's mandate includes early- and growth-stage investments into start-ups in the FinTech, InsureTech, HealthTech, EduTech and AgriTech spaces as well as other tech verticals. It will also be co-investing with 4Di’s Exponential Fund I, which focuses on InsureTech, HealthTech and FinTech.
Supporting a new generation of entrepreneurs
The Fund will be investing in start-ups, from South Africa, but which will likely have continental or global ambitions. “Naturally, we are only looking for opportunities that satisfy the typical venture capital requirement for significant scaling potential, which entails pursuing significantly large market opportunities,” says Stanford.
“The SA SME Fund is very pleased to work with 4Di, one of a handful of experienced VC fund managers. It increases the likelihood of finding and supporting a new generation of mainly black entrepreneurs. The SA VC ecosystem is small and fragmented and needs huge investment and focus so that it can contribute meaningfully to innovation and economic growth. This partnership is one more significant step in the right direction,” concludes SA SME Fund Chief Executive Officer, Ketso Gordhan.
The first close of Fund III is R130 million, but it will remain open to other qualified or institutional investors for a limited period.