Angel Investors Bridging the Seed Funding Gap in Sub-Saharan Africa

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One of the biggest challenges facing entrepreneurial start-ups in sub-Saharan Africa is funding – especially start-up financial support – even though the landscape in the region has changed in recent years with more backers and capital deployed in this space. This was mainly driven by a growing appetite for alternative investments, successful recent exits from, for example, Paystack in Nigeria, and the fact that seed investments have become more accessible.

However, this capital increase is not fairly distributed. Less capital is available in the early stages and women entrepreneurs continue to struggle to access finance. Similarly, some specific countries and sectors are also struggling to access capital. Raising capital as an established fintech in Lagos, for example, is very different from raising capital for a proof-of-concept agritech company in rural Tanzania.

Although several funds have been created for African start-ups, the majority are aimed at those with a proven product that is market-ready and ready to adapt to new customers and markets. This has resulted in an aid gap for early-stage start-ups. Angel investors – defined as an individual or groups of individuals who typically provide equity capital to start-up companies – are uniquely positioned to help fill the gap at the seed stage. In addition to providing capital, on-the-ground angel investors typically leverage their networks for their recipient companies, providing access to clients, mentoring, advice and support to founders.

To bridge the seed funding gap, the continent urgently needs more investors. The African Angel Academy (AAA) aims to solve this problem. An African-led initiative, the AAA was created to increase the number of angels active on the continent to catalyze local seed and start-up investment ecosystems. Initially established as a pilot project with 50 angel investors from five Southern African countries, the Academy has expanded its reach and partnered with leading development financiers and ecosystem enablers to run programs on measure with cohorts of new angel investors.

His greatest successes are in the “African 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. Kingdom, providing them with support, tools and knowledge to become active angel investors.

More than half of these emerging angel investors are women. This is essential if we hope to ensure that female entrepreneurs receive a fairer share of funding and to remove stereotypical biases against female founders from male-dominated fund managers and investment professionals. This was confirmed by our recent AAA Alumni survey, which found that 63% of investments were made in companies founded or co-founded by women. This is a stunning statistic when compared to the norm: “7% of funding went to female CEOs in 2021 in Africa; less than 1% to single female founders and all-female founding teams” according to Africa: The Big Deal (2022).

The value of the AAA program is that it builds trust, fills knowledge gaps and creates stronger relationships, converting accidental angels into active angel investors with a clear investment strategy and network to tap into. And it works ! Ninety-seven percent of participants feel more confident about investing at the end of the program, and more than $2 million has already been invested in the startups featured in the program.

As the program evolved, we noticed an interesting trend. It’s about the growth of more groups of angel investors who collectively invest in start-ups in their ecosystem. A total of seven new groups of angels were formed among program alumni from Kenya, South Africa and Nigeria.

A good example is the Nairobi Business Angel Network (NAIBAN), a group of over 50 angel investors who have already invested over US$420,000 in 11 different deals across the continent. Two of them were obtained through AAA startup showcases. In addition to the amount directly invested, this group has raised an additional $3.15 million for its portfolio companies. All these activities were carried out during their first year since their formation.

Two union groups of angel investors were among the investors who ensured Nigerian anti-counterfeiting startup Chekkit – which raised $500,000 in pre-seed funding – expanded its operations within the pharmaceutical and FMCG. This is a start-up the group encountered through a AAA start-up showcase.

There has been a noticeable increase in financial support in Nigeria, with Nigerian start-ups now raising more money each year than Kenya and South Africa combined, which has been reflected in our angel investor activity .

Another exciting trend is the rise of super angel groups or angel investment funds, which allow angels to invest in a single fund to expose themselves to multiple early-stage deals or growth opportunities. syndication of well-known angel groups. This allows more angel investors to participate in transactions across the continent at lower prices while building a portfolio to spread their risk.

Despite these successes, there is still an urgent need for more angels. Startups that need both funding and advice far outnumber the available investors. Beyond angel investors, the region also needs other seed funding mechanisms, including grants and seed funds to help entrepreneurs achieve a proof of concept or even start their small business, as all companies are not suitable for angel investors or do not fit their mandate.

Encouragingly, we are cautiously optimistic that over the long term we will see more seed and seed capital being poured in from angels and venture capitalists across the continent. There is still a long way to go in terms of regulation; creating an enabling environment for donors and entrepreneurs; provide more start-up grants and first-loss capital; as well as encouraging and supporting founders and teams as they embark on growing their businesses. However, the future looks positive.

***Alexandra Fraser is Lead Facilitator and Partner of the African Angel Academy, arguably the premier Africa-focused knowledge program for angel investors on the continent. ***

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