Considering what the global economy has been through the previous few years, expert advice is necessary for individual financial growth and also within the venture capital market space. Accountancy SA spoke to some of our members within the investment space about their advice and tips for 2023.
Venture capital ecosystem predictions for 2023
By Kabelo Themane CA(SA), Senior Investment Associate at Edge Growth
Although there has been a global downturn in venture capital (VC) funding, Africa is the only continent that has recorded positive year-on-year growth in venture capital deal value in 2022. A major driving factor in the downturn has been due to a tough macroeconomic environment − including rising interest rates − which has trickled down to the private markets.
As we look to the year ahead, we are still marred by macroeconomic headwinds, with a possible global recession looming.
My predictions for the 2023 venture capital market are as follows:
- Even in the face of an uncertain economic environment, firms still have plenty of dry powder to deploy. This capital will most likely be allocated on a more conservative basis from investors with smaller cheque sizes, at lower valuations and with more due diligence. The 13-year bull run with abundant capital and large valuation multiples has definitely ended.
- Investors will continue to back entrepreneurs whose businesses have a solid model, who solve for access and who solve meaningful problems.
- Entrepreneurs should think of creative ways to extend their runway, as fundraising in this environment will be harder and will take longer.
- Both investors and entrepreneurs need to prepare for tough headwinds, including bridge rounds, down rounds, and scaling down of operations.
Despite the current market sentiment, I am wholly optimistic that this will be a great year for the VC ecosystem, with fantastic companies emerging to the forefront.
Simple ways to save and grow your purse in 2023
By By Nothando Dlamini CA(SA), Investment Analyst Internal finance corporation (IFC)
As South Africans, we have had to adapt to several guaranteed events which shall continue to form part of our lives in 2023. These include constant load-shedding, rising interest rates, high tax rates, increasing inflation rates and volatile petrol prices.
My 2023 investment advice to my peers is to kick-start the year with more purposeful cost-saving methods. The plan should be to increase financial stability through simple and less formalised savings solutions. I explore some of these below.
- Given that we know load-shedding is coming: why not ‘meal prep’? Of course, we note the risk of food spoilage, but by tailoring meal preparation around the load-shedding schedules, money can be saved on take-outs.
- Reduce petrol costs from travelling to alternative working environments during load-shedding by investing in a UPS or an inverter.
- Find alternative entertainment solutions to reduce excessive spending on going out.
- If you have available funds, invest in a tax-free savings account. It is an easily accessible banking product, offers stable returns, requires minimum contributions, and provides tax breaks on the interest earned.
Although the above are not long-term solutions, the day-to-day benefits can make a small yet meaningful difference.
A case for tech-focused local venture capital
By Onke Ndinani Mkiva CA(SA), Co-Head: Africa Debt and Trade Solutions at RMB
South Africa (and broader Africa) sits in a unique position where local technology can help us level the playing field. To realise this, more pools of local venture capital (VC) are required to support local ideas.
Capital and technology are key to achieving economic growth, which in turn lifts society. In the past four years, the amount of VC funding raised by Africa increased from $1,5 billion in 2019 to $5 billion in 2022, but only 25% was from local venture capital. Over 2 000 start-ups raised a median of $1,6 million, which suggests that 50% of the deal flow was more than attainable for local investors, whichever country you look at.
As global markets’ uncertainty continues, and with the fall of technology stocks globally, how should Africans build on the success of the past four years?
- Young professionals should develop a habit of angel investing.
- Experienced professionals (especially C-Suite) should use their access to capital and networks to actively explore early-stage investing.
- Local private investors should educate themselves on early-stage investing to allocate small portions of capital to tech start-ups.
South Africa, Kenya, and Nigeria already boast a number of accelerators which are critical enablers and filters for viable start-ups, and which new investors in this space can use to propel growth in the medium to long term.