A Guide to Creating More ‘Angels’ in Africa.
🌟Good morning, entrepreneurs & tech enthusiasts!
From a funding perspective, Africa’s startup scene was cruising nicely, with an exponential ramp in 2016 and peaking in 2022. Then there was a notable slowdown of the money train that left a lot of promising start-ups stranded at the station. Africa being famous for its cocktail of currency swings and unpredictable inflation spirals, and this is a major turn-off for investors playing it safe. They’re betting on well-established companies or those with a U.S. base over African startups, leaving many promising African startups out in the cold.
What makes an angel investor?
To frame things, think of an angel investor as a fairy godparent to a startup. They pump in their own funds to a business they believe in in exchange for ownership or royalty payments, with the expectation that they will recoup their funds and make more in the long run when the entity of interest flourishes. These investors can range from business pros, top executives, or successful entrepreneurs who fancy getting involved in the field of new ventures.
An angel investor stands out from a venture capital firm in the following ways:
Personal funds: Angel investors contribute their personal funds to startups, while venture capitalists manage funds from a broader scale of sources.
Early Investment: Angel investors are more likely to pump their money into a startup in the ideation phase, while venture capitalists emphasise more the importance of proof of concept.
Hands-Off: Unlike venture capitalists, who usually demand a board seat, angels don’t demand operation control.
The playbook for diving into the world of angel investing is actually less complicated than most people would imagine. Let’s take a glance at how to become an angel investor in Africa:
Educate Yourself: Reading this newsletter can be a starting point for some because you need to arm yourself with knowledge about the landscape of Africa’s businesses, which includes all the key regions and industries of interest. Channels of information are limitless in the modern day; challenge yourself to stay updated on emerging trends, recent deals, and market dynamics. Most successful angels often forge strategic relationships, visit the continent, and keep a close eye on developments (a good example would be A.I. and Starlink at the moment).
Build a Network: For new angels, joining angel networks focused on the regions, countries, or industries (i.e. tech or agriculture) in which they intend to invest. Meeting with like-minded investors provides diversified insight into evaluating companies and allows for sharing the considerable due diligence work that large investments require. Further, angel networks have visibility and access to more deals to which most individual investors would not customarily be privy; by joining an angel group , a new investor can vastly expand or diversify their options for investment.
Given the recent decline in venture capital funding in Africa, angel investing is very beneficial to the ecosystem of the region. Let’s debunk popular misconceptions on angel investing in Africa:
Myth 1: ‘I need to be rich to be an angel investor.’
This is far from accurate. You don’t need ridiculous amounts of money to plant a seed in Africa. There are a variety of opportunities ranging from sectors like agriculture, renewable energy, tech, and real estate, and all these fields have their own custom capital requirements. Many angel networks permit investors to pool funds, creating access for those with modest resources.
Myth 2: ‘Investing in Africa is only for social impact, not financial returns.’
Nope, wrong again. While it is true that investing in Africa drives socio-economic positive externalities like job creation, it can also be extremely profitable; Lagos’s Paystack or Kenya’s Sendwave are classic exhibits.
Myth 3: ‘I can’t invest in Africa because I don’t live there.’
The African diaspora consists of around 140 million people living abroad, and this presents a huge investment potential for many. The integrated understanding of Africa and international exposure presents a strategic bridge for fostering economic growth.
The Power of the African Diaspora
The African Development Bank (AfDB) emphasizes the diaspora’s vital role in funding Africa’s growth. With the continent needing financial muscle for infrastructure, diaspora investors are essential. They can drive structural change and development by:
Building Trust: Bridging gaps between African startups and global markets.
Pooling Resources: Amplifying impact through collective funds.
Mentoring: Sharing global business insights.
Advocating: Influencing policies for a better investment climate.
Utilizing Remittances: Channeling remittances into startup investments for consistent funding.
In a bullet point, angel investing is the secret sauce that can fuel Africa’s startup success, with a dash of rewards for both the investor and the entrepreneur. The key is to dive in with a willingness to learn, build relationships, and collaborate within the vibrant startup ecosystem.