There has been a surge of interest in people across the world who are keen to learn more about how to become angel investors and get involved in creating world-class companies.
But the rise of African angel investing ecosystem requires more than the money.
There is still talk of angel investing as something people do for reasons other than getting returns and that is very dangerous because it fails to attract local capital that can see big returns in other areas including the banks or government bonds that are less risky.
As a banker once told me, all of this angel investing nonsense will not work in Nigeria because there is no trust, people want their returns and they still treat angel investment like any other investment ie real estate or government bonds; so if we want more Angel investing in Africa, then let’s talk about returns because that’s what matters the most.
In our Investing in Africa update we highlighted some of the reasons why it is time to invest in Africa and I would like to elaborate further and give you 4 + 1 reasons why early stage investing present a tremendous opportunity for those with the cash and know how.
Like any other form of investing, angel investing is a dangerous sport and people make or lose money but the returns are tremendous if done right. Besides profits, Angel investing also offers an opportunity that other forms of investments don’t offer, the ability to shape and influence a new generation of business leaders by coaching and mentoring them.
We are also starting to see a new trend of investors and entrepreneurs starting to take entrepreneurship seriously, from His Royal Highness, The Duke of York KG, Mr Aliko Dangote and His Excellency Olusegun Obasanjo agreeing a partnership to support Entrepreneurship in Africa to Tony Elumelu foundation TEEP programme.
For those who are less experienced with investment lingo, there is a big distinction between a Venture Capitalist and an Angel investor. The important difference is that an Angel investor works directly with the founding team to develop their business and gives the startup money out of their own pocket in exchange for an equity stake in their business whereas venture capitalists invest institutional money from Pension funds, university endowments or family offices.
The intuition backs up our argument, as the costs of creating value continue to decline, agility and adaptability are coming to be far more relevant than the scale.
This means that, on average, lean, innovative startups are better positioned to spot opportunities that generate returns for their investors than are larger companies.
Startups are also better equipped to move fast because they don’t have complex bureaucracy and hierarchy that tends to slow down larger companies.
1. Valuations Still Low
You only have to look at the funding rounds that are being raised today across the spectrum from (Seed to A, B) to see that there are still bargains to be had.
It is a question of supply and demand, obtaining venture funding is still a brutal experience for most founders because it is still a buyers market at the moment.
Investors can pick and choose but the good news is that $20K–$200K invested directly or via syndicates in African startups today will most likely yield tremendous returns whereas that amount would not even register if one is investing in Europe or the USA where capital is abundant.
Valuations are still low but it will not be the case for so long.
A company from Kenya called Wezatele realised an exit early this year and we are confident that we will see many small wins similar to .
We predict that sub $20M exits should be common across Africa in the next 2–5 years. These are going to be as a result of strategic acquisitions by multinationals looking for African exposure or other forms of buyouts as IPOs are still not a viable exit strategy for most startups.
For example, we have an exciting opportunity to invest in the next round of Heels.com.ng a premier female shoe megastore offering a wide selection of hand-picked designer shoes across Nigeria.
I believe that this will be the Zappos of Africa.
2. Abundance Of Bootstrappers Solving Real Problems
Africa is home to some of the world’s best bootstrappers, like the founders of Nigeria’s Printing company Printivo who worked for 3 years to save up the startup capital.
From Mergims in Rwanda to PayKind in Kenya and countless other startups that are tackling real problems and coming up with viable solutions without waiting for any angels to descend from the heavens to rescue them by funding their prototypes.
People are bootstrapping their startups and leveraging social media and other avenues such as competitions to get the attention of investors.
Perhaps the most exciting example of this notion in practice is of Mark Essien of Hotels.ng which recently raised $1.2M.
3. Increased Awareness Of Early Stage Investment Opportunities In Africa
BidNetwork, a Dutch organisation that offers technical expertise to startups and SMEs across Africa and other emerging markets is organising a trip to Rwanda for Impact investors and the quality of the companies that they have selected is a testament to some of the opportunities that are available across Africa.
On the other end of the spectrum,the South African behemoth Naspers is setting up a channel that will it hopes will leapfrog Netflix in Africa.
John Melas-Kyriazi a VC at Spark Capital in Boston explains why the company sees potential in Andela. Referring to an earlier blog post about three ingredients for why VCs invest, John catalogs where Andela is with which each of them and how Spark Capital’s investment in Andela was a clear choice.
I recently had an opportunity to discuss with #SocialMediaWeekLagos how African entrepreneurs can leverage social media to market themselves to the rest of the world.
4. E-Commerce Bet
People have the same needs and often desire the same conveniences, as the Africa middle class starts to really take off, e-commerce is going to be one of the biggest beneficiaries because people want to shop without the hustle and bustle of traffic in cities such as Lagos or Nairobi or the inconvenience presented by the lack of brick and mortar shopping malls.
Entrepreneurs that have spotted gaps around these opportunities are building great companies such as Nigeria’s ACE Africa Courier Express.
Apart from e-commerce, fintech, edutech and agritech present tremendous early stage investment opportunities.
+ 1 Big Rewards For Those With Capital And Know-How
I always say that most people who have the money in Africa don’t necessarily understand technology and the opportunities presented by the technology sector.
Those with the knowledge of the tech sector don’t have the money so it is an interesting dilemma that also present a tremendous business to offer angel investing training across Africa, which is why we have partnered with Angellabs, our colleagues at ABAN have also secured support from Lions Africa to offer similar training to their members as recently documented in their series here.
Africa’s abundance of opportunities is only rivaled by its supply of pitfalls and insufficient infrastructure in some parts of the continent.
This means that one has to do their homework and due diligence before taking the plunge, but this applies to any market, not just Africa.
Cover Image: Steve Case At ACE in Nigeria | Sean Obedih