AI-native businesses are expected to attract more funding and create new acquisition opportunities for established companies. (Image source: iStock)
South Africa’s venture capital (VC) ecosystem is entering a new phase of maturity, fuelled by a growing pipeline of exits and increasing investments in artificial intelligence (AI) start-ups that are challenging traditional incumbents.
This is among the key findings of research released during a webinar yesterday, conducted by the South African SME Fund (SASME Fund), in collaboration with the Southern African Venture Capital and Private Equity Association (SAVCA) and Endeavor South Africa.
The report, titled: South African Venture Capital: Exit & Performance Analysis, shows that AI is emerging as the next major catalyst for VC activity in SA, lowering the barriers to establishing technology firms and enabling start-ups to challenge established companies.
The research methodology combines data from three sources to validate venture capital exit and performance trends: the annual SAVCA VC Survey, a dedicated 2026 Supplemental Exits Data Survey, and detailed case studies conducted by the SA SME Fund, Endeavor South Africa and SAVCA.
The supplementary survey captured additional exit data from fund managers that had not been reported previously, with 2026 responses prioritised to avoid double counting.
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The report argues that AI-native businesses, unconstrained by legacy systems, are likely to accelerate start-up formation, attract more venture funding and drive a new wave of acquisitions as larger companies seek to acquire rather than build emerging capabilities.
This trend, it notes, could further strengthen SA’s maturing VC ecosystem by creating a faster cycle of start-up creation, investment, exits and founder reinvestment in the next generation of technology companies.
Speaking during the launch of the report, Retail Capital founder Karl Westvig said AI is likely to become the next major force driving venture-backed businesses.
“The big driver we’re going to see coming forward in terms of more VCs and successes is AI. The incumbents are more and more under threat because what they’ve built is going to become easier and easier to replicate.
“The newer the business, the more likely they are to be fully AI-native. Older businesses are more likely to be using AI for productivity gains as opposed to changing the way they do business.
“It’s a whole new paradigm on how you build your business, how you think about your business, the data you can support and the intelligence you create. It’s a very fast-moving space,” Westvig explained.
As a result, larger companies are increasingly likely to partner with, invest in or acquire these AI-driven businesses, creating attractive exit opportunities for venture capital investors, notes the study.
SA will also see more and more VCs that are adopting AI to conduct due diligence functions, optimise portfolio management and automate the deal sourcing process.
Claudia Manning, principal at the SASME Fund, added that several VC-backed companies are already being built around AI technologies.
“There are some AI-native companies that are working on solving customers’ problems using AI. There’s one based in Stellenbosch that cannot hire data scientists fast enough because as the universities produce them, they hire them. We’re expecting to see more and more of these start-ups coming into our portfolios,” she noted.
Other local examples provided in the report include Optasia, RapidDeploy, IsoMetrix and Entersekt.
Retail Capital founder Karl Westvig.
Deep tech commercialisation
According to the report, the local VC industry invested more than R16 billion in over 1 100 companies during the past decade, with more than R10 billion deployed since 2021. The study also found that 226 VC-backed companies have exited, with 60% generating positive returns for investors.
The report further highlights growing momentum in SA’s technology commercialisation ecosystem, particularly as exit routes diversify beyond international acquisitions.
Endeavor South Africa MD Alison Collier said fintech dominated the sample of successful VC-backed businesses analysed, accounting for about half of the companies reviewed.
The research found fintech companies delivered revenue growth of approximately 256% over five years − nearly fivefold growth − while average exit values reached R1.6 billion. Successful exits also generated internal rates of return of about 54%, significantly above returns typically associated with listed equity markets.
Collier said the exit environment has changed markedly since 2020.
“Between 2015 and 2020, the businesses that exited were almost entirely acquired by international companies. That changed in the early 2020s, when South African corporates started acquiring fintechs and other high-growth technology businesses. More recently, we’ve seen IPOs [initial public offerings] and significant secondary transactions, and having an active secondary market is really important for getting the VC asset class going.”
She added that successful exits are helping to create a self-reinforcing innovation cycle.
“When you’ve got successful exits, founders generate capital from businesses they’ve built. More importantly, they’ve gained the know-how, the experience and the teams to go and build the next business. That’s when the ecosystem becomes truly additive because the knowledge and capital stay within the market.”
Endeavor South Africa MD Alison Collier.
The report also points to increasing commercialisation of university-developed technologies through initiatives such as the University Technology Fund, which supports the commercialisation of intellectual property originating from South African universities.
While fintech remains the dominant technology vertical, the report shows venture-backed success is broadening into enterprise software, cyber security, digital infrastructure, emergency response technology, marketplaces and e-commerce.
Among the fintech deal success stories are Retail Capital, PayFast, Cash Connect, Adumo, Entersekt, iKhokha, Luno, BVNK, Tyme and Optasia, many of which have become critical components of South Africa’s payments, lending and digital banking infrastructure.
Collier added: “About half of the companies in the study are fintechs, but what is encouraging is that we’re also seeing successful exits across enterprise software, marketplaces, education technology and other sectors. It shows that South Africa’s venture ecosystem is producing globally competitive technology businesses beyond financial services.”
Outside financial services, IsoMetrix has established itself in enterprise software, RapidDeploy in public safety technology, Quicket in online ticketing and marketplaces, and OneCart in e-commerce logistics, demonstrating that South African start-ups are increasingly producing globally-relevant software across multiple technology disciplines, the report reveals.
The report also points to SA’s growing international competitiveness. “More than half of Africa’s top 20 fintech exits since 2019 have involved South African companies, supported by an ecosystem of established banks, retailers and telecommunications operators that provide both customers and acquisition opportunities for emerging start-ups.”
VC ecosystem comes of age
The VC experts believe the increase in exits, combined with growing institutional participation, signals that SA’s venture capital market is beginning to mature.
The report shows the exit pathways now include domestic mergers and acquisitions, international acquisitions, secondary transactions and public listings.
Anusha Naidu, CEO of SAVCA, said the diversification of exit routes is a positive development. “The pathways to exit are diversifying. It’s not just a one-size-fits-all international M&A story anymore. We’re now seeing domestic M&A, secondary transactions and other exit mechanisms, which really shows the industry is moving into the early stages of maturity.”
Westvig noted the broader support ecosystem around venture-backed companies is also reducing risk.
“What I’m seeing is a maturing ecosystem. There are more founders, more mentors, more advisers, more support bodies and more support coming from funders. As the ecosystem matures, you actually reduce the risk on these ventures, so you’ll see returns growing while risk comes down. It’s an asset class that’s going to keep proving itself in the future,” he said.
Anusha Naidu, new CEO of SAVCA.
