‘Africa’ and ‘opportunity’ are increasingly synonymous terms. ABAN President, Tomi Davies outlines the African opportunity, and offers some pro-tips for Angel Investing in Africa.
President of the African
Business Angels Network
Africa has developed from a continent once viewed as a lost cause, to a land of vibrant opportunity – particularly when it comes to Business Angel Investments.
While many countries today are facing the dilemma of an ageing population, the majority of the 1.2 billion Africans living on the continent are young, ambitious, and entrepreneurial. Entrepreneurs are a critical driver of innovation and development, and there is a growing consensus that the future of African development will depend on the success of entrepreneurs that are able to build scalable companies. Fortunately, the spirit is alive in Africa, with an increasing number of startups in ICT, Agribusiness, e-Commerce, Fintech, Edutech, eHealth, Renewables, and Education. These are youthful entrepreneurs who have been reshaping the face and future of a continent where over 50% of the population is under 20 years old.
Globally, the shift in the technology sector – moving from relatively stationary devices like desktop and laptop computers, to fully mobile devices like smartphones, tablets, and wearables – continues unabated; and newly emerging technologies such as drones, green energy, and cryptocurrencies are all expected to grow exponentially in the coming years. Africa’s technology adoption rate is also rising, and steadily catching up with the rest of the world – particularly with its use of mobile digital technologies increasing, as well as the skills and technical knowledge-base of the population advancing.
More than half a billion people in Africa are now subscribed to mobile services, and over 150 million smartphones are in use across the continent. With about half of the African population having mobile phones, internet usage has spiked to over 300 million users as of June 2017. The global Information Technology industry has been estimated to be worth USD $3.8tn and the African landscape is ripe for development, filled with startups in need of financial support and guidance. These are entrepreneurs building companies that are providing jobs to Africans and tax revenue to their national governments.
In an effort to connect these entrepreneurs to much needed capital, there has been a growth in Angel investment groups starting up in several cities and countries across the continent; including: the Lagos Angels Network in Nigeria, the Cameroon Angels Network, the Viktoria Business Angels in Kenya, the South African Business Angels Network, Cairo Angels in Egypt, the Kampala Angel Investment Network in Uganda, Angel Investors of Mauritius, and some fifty more. These individuals and groups provide small amounts of seed capital which, when aggregated, are quite meaningful. However, the most valuable investment contribution that these groups make to the startups is the access they give to their business networks, along with the mentoring they provide to the entrepreneurs.
According to a report from Disrupt Africa, funding for African startups (of which over 70% are generating revenues) jumped by 51% – to USD $195m in 2017 – as a direct result of these Angel groups and associated Venture Capital firms. Countries leading the way in Angel Investments are South Africa, Nigeria, Kenya, Ghana, Egypt and Tanzania.
As an Angel Investor myself, may I offer the following tips when it comes to Angel Investment in Africa:
• Educate yourself professionally. From the basics of Angel Investing – such as evaluating entrepreneurs and assessing pitches, carrying out due diligence, valuation, setting your expectations for an investment round, term sheets and deal negotiations – all the way through to managing your startup portfolio and exiting. There’s a lot to learn. The good news is that there’s a lot of learning material available out there, as there are people more than willing to teach (including yours truly).
“Africa has gazelles
that yield 20% month on
month growth, year after
year – not Unicorns.”
• Non-traditional investments into sectors like technology are still new areas of exploration on the continent; so, it’s important to be sure that you are fully informed about the opportunities for the specific sector in the specific African city where your investment is located.
• Don’t spend too much time analysing a deal, as it will lead to indecision, and you may miss out on a fantastic prospect. Your focus should be on how comfortable you are with the startup’s leadership team and their ability to deliver the results you expect. Studies continually show that the top three keys to startup success are team, team, team!
• There’s not much help from government for early-stage ventures in Africa, and most startups do not rely on them for support – so don’t let that deter you. Rather, government support is usually made available once the company has some measurable level of success. A key aspect of Angel Investing in Africa is accepting responsibility for this gap in support, and providing it to your startups when and where required.
• When investing, consider the longterm and start with the end in mind. Invest with the long-term horizon in view, knowing exits are still rare with revenue share being a more common investment return mechanism. Africa has gazelles that yield 20% month on month growth, year after year – not Unicorns. However, do not underestimate the amount of followup and future capital your startup will need. Always be thinking about the next round.
• Whatever you do, don’t do it alone! Look for other local co-investors (especially those who belong to groups, syndicates, or networks) as investment collaborators. They can provide you with guidance on where to find good venture opportunities, and will help you monitor and evaluate post-funding. Join a group, syndicate, or network yourself – hunting in packs is always much better, as you alone can’t hear, see, or know it all.
Building Africa is a team effort, and Angel Investors are moving to the heart of the continent’s future alongside others in development. Being an Angel Investor is about giving back to society; leveraging your experience and expertise; making money; and, of course, having fun in the process. With the continued growth of the African early-stage ecosystem unlikely to slow down anytime soon, the opportunity for Angel Investors – and the startups they support – to help Africa meet her full potential as an economic powerhouse, is limitless. If you have Africa in your heart, and the means to do so, regardless of where you’re from or where you live, now is the time to invest in Africa!