Angel Investors plugging the Early-stage Funding Gap in Sub-Saharan Africa

One of the biggest challenges facing entrepreneurial startups in sub-Saharan Africa is funding – particularly early-stage financial support – even though the landscape across the region has evolved over the past few years with more funders and capital deployed in this space.

This is mainly due to a growing interest in alternative investments, successful recent exits (e.g. Paystack Nigeria) and the fact that it’s easier to invest in start-ups.

This capital growth is not distributed equally. During the initial stages of a business, less capital is available and women entrepreneurs still struggle to get funding.

In the same way, capital access is difficult for certain sectors and countries. It is different to raise capital for an established fintech company in Lagos than for a proof-of concept agritech venture in rural Tanzania.

While there were several funds established to support African start-ups in Africa, most of the funds are for those who have a marketable product and are ready to scale to new markets.

This has led to an aid gap in early-stage start ups. Angel investors – defined as an individual or groups of individuals who usually provide equity capital for start-up businesses – are ideally positioned to help plug the seed-stage gap.

Angels are often able to provide capital and mentorship to their investees.

More investors are needed to fill the gap in early-stage financing. This is what the African Angel Academy (AAA), aims to address.

African-led, the AAA was founded to grow the number active angels on Africa in order to catalyze the development of local start-ups and early-stage investing.

The Academy was initially established in pilot projects with 50 angel investors representing five Southern African countries. It has since expanded its reach and partnered up with top development financiers and ecosystem facilitators to offer bespoke programmes for new angels.

Its biggest successes were in ‘Africa’s top 3’. Over the past 18 months, the AAA, in partnership with the UK Government’s International Tech Hub Network, has trained and connected over 240 emerging angel investors from Kenya, South Africa, Nigeria and the UK, providing them with support, tools and knowledge to become active angel investors.

More than half of these angel investors are women. This is vital if we are to ensure women entrepreneurs receive an equal share of funding. We also need to remove stereotypes about female founders from predominantly male investment professionals.

Our AAA Alumni Survey confirmed this finding, which showed that 63% invested in female-founded or cofounded businesses.

This is an astounding statistic when you compare it to the norm: “7% of the funding has gone to female CEOs in 2021 in Africa; less than 1% to single female founders and female-only founding teams” according to Africa: The Big Deal (2022).

AAA’s value lies in its ability to build confidence, fill knowledge gaps, and create stronger relationships. It converts accidental angels into active investors with a clear investment strategy, and a network to leverage.

It is working! Ninety-seven per cent of participants feel more confident about making investments after the program ends. Over $2 million has been invested in the start-ups that were showcased through it.

We have observed an interesting trend as the program has developed. This is due to the increase in angel investor groups investing in start-ups within their ecosystem.

Seven new angel groups were created from program alumni from South Africa, Nigeria, and Kenya.

This is evident in the Nairobi Business Angel Network (NAIBAN), which is a network of more than 50 angels that have invested over US$420,000. It has been involved in 11 deals on the continent.

Two of these were obtained through the AAA showcases. This group leveraged $3,15 million more than the amount they directly invested in their portfolio companies. All this activity took place within the first year of their formation.

Two syndicate groups of angels were among the investors who ensured that Nigerian anti-counterfeiting start-up Chekkit – which raised US$500,000 pre-seed funding – expanded its operations within the pharmaceutical and FMCG industries. This is a group that met at an AAA startup showcase.

The Nigerian start ups have seen a significant increase in financial support. They now raise more than South Africa and Kenya combined.

Another exciting trend is that of super angel funds or angel stage fund, which allows angels to invest in one fund and get exposure to multiple deals at early stages or syndication opportunities with well-known angel organizations.

This allows more angels across the continent to take part at lower price points and builds a portfolio that spreads their risk.

Despite these successes, there is still a need for angels. Startups that need both capital and advice are more common than the available investors.

Other than angel investors, the region also requires seed funds and grants to help entrepreneurs launch small businesses. However, not all businesses can be suited for angel investors.

We are optimistic and encouraged that we will see more early-stage and start-up capital being invested by angels and venture capitalists on the continent in the long-term.

It is still difficult to regulate the sector; create an environment that supports entrepreneurs and funders; provide more early-stage grants, first loss capital, and foster and support founders and their teams as they begin the journey of building their businesses. But, the future is looking bright.

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