Angel investing is on the rise in Africa: Turning big dreams into reality through entrepreneurial finance.

AuthorAeroe, Anders

African early-stage investing has been growing tremendously in the last five years. Of the 22 Africa-based venture capital funds, 41% were launched after 2016. (*) African start-ups raised more than $725 million in 2018 alone across 458 deals from early stage investors (**). Recent initial public offerings like the one by Nigeria-based e-commerce company Jumia, catalysed world interest in the African start-up ecosystem and managed to attract more capital for high-growth local businesses than few years ago.

However, this capital is mostly dedicated to venture capital and does not fully address the funding needs of many African startups. More than $133 million was invested by venture capitalists in Nigeria, the top continent's investment destination, in 2018. In the same period, Lagos Angel Network, the country's most active network, invested only $1.5 million. (***)

On one side, promising businesses across the continent keep mentioning lack of access to adequate capital as one of their main challenges during their start-up phase, putting budding ventures in a difficult situation when the lack of seed capital hinders growth and ultimately kills the company. On the other side, venture capitalists and impact investors complain of the lack of an investable pipeline.

Angel investment could solve this problem by bridging the gap between the idea phase and the growth phase of a venture and by helping enterprises fulfil their mission of creators of jobs and innovative solutions for local social challenges.

Angel investments are generally made by high net worth individuals (HNWIs) investing their own time and money in start-ups. Usually they invest as part of a local network of angels. Luckily, Africa does not lack for HNWIs; South Africa alone has more than 40,000 millionaires. (****) That number increases if we consider diaspora-based Africans investing in their home countries.

However, there are two main reasons that prevent such people investing in start-ups.

First, most investors already obtain solid financial returns from more traditional asset classes. Second, most of the wealth in the continent does not come from innovative businesses - only one out of the 10 richest Africans made their fortune in a tech-related space.

So, what would be the reasons for HNWIs to consider investing in early stage start-ups with unproven operations, new technologies and limited exit opportunities?

Start with the premise that angels do not have the same time...

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