The evolution of Venture Capital

In today’s tough economic landscape, venture capital (VC) is evolving beyond financial gain.

A roundtable discussion, titled “How We Solve Funding Challenges in Early-Stage VCs,” at the SA Innovation Summit 2023, brought together a diverse group of stakeholders to explore ways to bridge the gap between Fund of Funds (Limited Partners or LPs) and Venture Capital Firms (VCs) in Africa. The central theme resonating throughout the conversation was the importance of generating value beyond investment returns.

Audrey Verhaeghe, CEO of Anza Capital, highlighted a serious problem in Africa, “Capital allocators are applying an old model to an emerging class. In this emerging asset class, 80%, maybe even 90%, are first-time fund managers. They look different, they are often female-owned or black-owned; they don’t have track records and exits under their belts. Yet the banks, the DFIs, and the family offices only want to invest in second-time fund managers or people who can prove exits. There is an urgent need for a new way of looking at the emerging asset class because the old mindset is collapsing the system.”

Against the backdrop of a 64% decline in VC capital raising in the two years leading up to the second quarter of 2023, the session delved into the key barriers discouraging LPs from allocating further resources to VCs. These obstacles included macroeconomic conditions, extended investment exit timelines, insufficient track records, and limited familiarity with emerging markets within the industry.

Keet van Zyl, co-founder, and CEO of Knife Capital, discussed the challenging economic conditions hampering VC fundraising efforts, as well as the concept of ‘exit paralysis,’ where prolonged exit periods have prompted asset allocators to consider alternative investment classes.

Konanani Rashamuse, from the Department of Science and Innovation, emphasized the need for collaboration and leveraging each other’s strengths to foster ecosystem growth amid financial constraints.

Kadir Gungor, Executive Chairman of Sustainable Impact, highlighted the significance of impact alongside regulatory and market entry considerations in VC investments.

Catherine Young of Grindstone Ventures pointed to the importance of diversity and being intentional about impact in the startup funding process.

Tishanya Naidoo, Principal, Venture Capital at 27Four Investments, emphasized that VC inherently focuses on problem-solving and impact, and effective monitoring of impact post-investment is crucial.

Stakeholders concurred on the need for a focus on impact, which would play a pivotal role in closing the funding gap.

Audrey Verhaeghe emphasized the importance of fostering a knowledge economy and solving local problems to avoid becoming an import-dependent economy.