Why VCs Must Invest in South African Tech Startups

South Africa is one of the leading countries in Africa when it comes to technology. With notable tech infrastructure, a vibrant investor community and a rapidly growing pool of skilled talent, the country offers venture capitalists (VCs) a rare combination of stability and high growth potential. From fintech and e-commerce to agri-tech and healthtech, South African startups are pioneering solutions that address both local needs and global challenges.

Rapid Digital Adoption in Underserved Regions

The surge in South African tech startups is largely due to the rapid digital adoption in the country’s underserved areas. This adoption is driven by technologies such as mobile phone subscriptions, and improvements in broadband infrastructure. As of 2023, over 77% of South Africans have internet access and 72.6% of households have internet access via mobile phones, and over 75% have internet access in general. 

Beyond access to mobile technology, there has also been a rise in demand from the middle-class in sectors such as e-commerce, mobile connectivity and digital media consumption – showing its willingness to adopt new technologies.

Beyond the consumer market, the South African government and private sector have facilitated various tech hubs and programmes to further boost the tech startup ecosystem and encourage a more diverse ecosystem that benefits all South Africans.

In this guide we look at some of the reasons venture capitalists (VCs) need to be investing in South African startups.

High Growth & ROI Opportunities

Startups in Africa continue to grow despite the many challenges they face. In April 2025, African startups raised $343 million across 30+ deals, marking a 43% year-on-year increase. The fintech sector continues to be a major driver of growth with a projected rise from $4 billion to $30 billion by 2025.

The e-commerce sector has also seen substantial growth and is projected to reach R225 billion in value in the next five years. Other industries such as agritech, healthtech and edTech are also showing significant signs of growth, highlighting positive investment opportunities for VCs.

For VCs, South Africa’s tech startup landscape presents a unique opportunity to invest in a country that has huge growth potential. Local startups are attracting large amounts of local and international VCs. In 2023 alone, the VC asset class saw R10.73 billion invested across 1106 deals. This number is projected to grow and reach a total raise of $463.35 billion in 2025, highlighting how local startups continue to attract diverse investors.

Now, for VCs the whole point of investing in a startup is to get a good return on investment (ROI). When investing in a South African tech startup, VCs can expect high returns although with inherent risks. Most VCs may expect returns of up to 30% over a 5–10-year period, while the top quartile of VC funds have seen average annual returns between 15% and 27% over the past 10 years.

When it comes to exits, VCs are experiencing a positive shift in South Africa. Exits enable VCs to convert their investments in startups into liquid assets, generating profits for their investors and enabling them to reinvest in new ventures.

Here are some examples of some exits that have happened in SA:

·Independent payment platform Adumo was acquired by Lesaka Technologies for $85.9 million in October 2024.

·Cloud-based platform Deel bought local payroll platform PaySpace for an undisclosed amount.

·AI-first financial reporting platform Syft Analytics for $70 million in September 2024.

·Cape Town-based Fundamo was acquired by Visa in 2011 in a $110 million cash deal.

·Local ticket platform Quicket was acquired by Ticketmaster for an undisclosed fee.

These exits are just some of the many that have happened in South Africa. These exits demonstrate that while liquidity events remain relatively rare, when they occur, they can deliver outsized returns.

Innovation & Diversification Benefits

There are many reasons for VCs to invest in South African tech startups. Some of the benefits include:

·Access to a range of innovative solutions: South African founders are designing various economical solutions—tech optimised for networks and economies similar to those in other emerging markets. By investing here, VCs gain first-mover exposure to IPs and business models with global applicability.

·Emerging market opportunities: South Africa is a country with a lot of growth potential and serves as a seamless gateway to the rest of the African continent. The country offers access to a diverse range of emerging markets with huge growth potential. By investing in local startups, investors can tap into these markets and capitalise on a growing and young African consumer class.

·Opportunity for strategic partnerships: When investing in a South African startup, it enables VC to form partnerships and leverage the local expertise, networks, and market insights. For investors, these partnerships can deepen their understanding of the local market and navigate regulatory requirements effectively.

·Diversify your portfolio: Investing in a South African tech startup offers international investors an opportunity to diversify their portfolios. By investing in emerging markets like South Africa, investors can alleviate risks associated with market volatility and economic downturns in their home countries.

·Government incentives: The SA government offers various incentives and support that encourage foreign investment in the tech startup ecosystem. These include tax incentives, grants, and funding schemes aimed at promoting innovation, economic growth and job creation.

Overcoming Common Investment Barriers

·Navigating Regulatory & Currency Risks: While currency volatility (ZAR) is a factor, forward-contract hedging and natural-hedging strategies mitigate exposure. Regulatory frameworks are increasingly investor-friendly, with clear licensing regimes for fintech, healthtech and data services.

·Building Local Partnerships: Joint-venture structures with South African corporates and development finance institutions (e.g. IDC, DBSA) provide co-investment opportunities and enhance due diligence.

·Due Diligence Best Practice: Comprehensive legal, financial and technical diligence—supplemented by local advisors—helps VCs identify strong management teams, robust unit economics and scalable operating models.

Top VC firms in South Africa

Below is a list of some of the best VC firms operating and investing in South African startups.

· Kalon Ventures – Has invested in companies such as GoMetro, Talk360, Flow and Ozow.

· Knife Capital – Invested in companies such as Quicket, Octiv, Wamly and Grindstone Ventures SA.

· Naspers – One of South Africa’s biggest funders, the company has invested in Udemy, OLX, Luno, and PayU.

· IDF Capital – IDF Capital has invested in various companies including Rentoza, Hi-Q, and AceUp.

· UW Ventures – South African based VC firm that has invested in companies such as Lulalend (Lula), Peach Payments and Pargo.

· Alphwave Group – Alphwave Group has invested in a number of companies such as FarmRanger, Bytefuse, FieldSENSE and Skynamo.

· Norrsken22 – A tech fund backed by various international tech founders investing in companies such as TymeBank, NALA, Raenest and Sabi.

With its large ICT market, thriving startup community and strengthening environment, South Africa represents an increasingly compelling destination for venture capital. By investing now, VCS can make use of untapped growth, diversify their portfolios and back innovations that resonate across all emerging markets.