South Africa's VC Returns Match Global Standards, Study Finds

SOUTH AFRICA’S VENTURE CAPITAL SECTOR SHOWS MATURATION WITH RETURNS EXCEEDING GLOBAL BENCHMARKS

Research spanning 226 realised exits documented by South African venture capital fund managers between 2009 and 2026 shows the country’s private investment ecosystem reaching performance levels comparable to established markets in the United States, United Kingdom, Europe and India. The findings come from a joint study conducted by the South Africa SME Fund, Endeavor South Africa and the Southern African Venture Capital and Private Equity Association (Savca).

Capital-weighted realised returns ranged from 2.01-times to 2.45-times invested capital, with internal rates of return reaching 54 percent or higher in successful transactions. Exit values ranged from R1-billion to R30-billion, averaging R1.6-billion. These are not projections. They are realised figures, drawn from completed transactions.

Savca CEO Anusha Naidu emphasised the significance of these findings for institutional capital providers. The ability to demonstrate realised exits is fundamental to developing any private capital market, she noted, adding that the evidence now available shows South African venture-backed companies delivering return characteristics comparable with more mature international markets while simultaneously contributing to employment, innovation and financial inclusion. This data, she said, provides important evidence for pension funds, family offices, development finance institutions and other long-term capital providers evaluating venture capital as part of a diversified investment portfolio.

The exit landscape has diversified considerably. The report identifies four primary exit routes: international mergers and acquisitions, domestic mergers and acquisitions, secondary transactions and initial public offerings. Historically, international mergers and acquisitions dominated the exit pathway. Domestic activity has gained significant traction in recent years, particularly in fintech, where banks, insurers, retailers and listed technology businesses increasingly acquire or partner with scale-ups to strengthen digital capabilities. Secondary transactions are emerging as an increasingly important liquidity route as larger scale-ups attract international growth capital.

The pace of exits has accelerated sharply. Between 2020 and 2023, South Africa realised more than double the successful exits recorded from 2015 to 2020, and four times the number recorded in the early 2000s, according to Endeavor South Africa MD Alison Collier. That figure is expected to double again within the next two to three years. The trajectory reflects a sector moving beyond its early-stage constraints toward sustainable market maturity.

Economic impact extends beyond investor returns. A sample of 20 South African venture capital-backed businesses that successfully realised an exit collectively employed approximately 230 people during the past five years and achieved revenue growth of roughly five times over that period. Those employment and revenue figures underscore the broader economic contribution of the sector beyond capital returns alone.

Ketso Gordhan, CEO of the SA SME Fund, contextualised the findings within longer-term market evolution. Fifteen years ago, NYSE listings were dominated by manufacturing, oil and gas companies and major banks. Today, technology companies that were venture capital-backed startups 20 to 25 years ago dominate the exchange. Exits represent the mechanism through which venture capital proves its ability to recycle capital, reward risk and attract new investment into the ecosystem, he explained.

Collier highlighted the strategic importance of exits to ecosystem health. The missing piece in the South African venture story has been exits, and evidence now shows this gap closing. Exits create confidence, return capital to investors, reward founders and employees and create the next generation of investors, mentors and repeat entrepreneurs. The strongest companies in the study solved real market problems, used technology to scale efficiently and, in many cases, expanded into regional or global markets, making them attractive to acquirers and investors.

Gordhan noted that primary research and technology development are typically funded by the state and corporations at universities, science councils and technology agencies. Once a technology reaches commercialisation readiness, venture capital, seed capital and growth capital enter the picture. Various funds have been established in partnership with universities and science councils to commercialise intellectual property. While room for improvement exists, this represents a growing asset class that the SA SME Fund intends to prioritise with increased time and capital investment.

By contrast with the caution that has historically kept institutional investors on the sidelines, Collier expressed optimism about future participation. The figures in the report provide important evidence for pension funds and institutional investors to become more active in venture capital to drive innovation. As the ecosystem grows, more international capital and foreign direct investment are expected to enter the market, she said. The central question now is whether institutional capital providers, having seen the exit data, will move from evaluation to commitment before the next wave of exits closes without them.