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How to Invest in African Startups as an Angel Investor
By Renew Capital Marketing and Communications Team | Thu Dec 12 2024
African startups beam with innovation addressing unique challenges and creating solutions that have the potential to scale globally. African tech hubs like Lagos, Nairobi and Cape Town are emerging as "startup capitals," driving innovation and addressing local challenges with scalable solutions.
Africa’s vibrant startup ecosystem has given rise to several unicorns, including Flutterwave, OPay and Andela. These ventures underscore the continent’s capacity for innovation.
Recently, Moniepoint became a unicorn with its recent $110M funding, reaffirming that Africa’s startups are not only addressing local challenges but also shaping global narratives around innovation and growth. Unicorns often symbolize innovation, market disruption and significant investor confidence, making them standout successes in the startup ecosystem. This also reflects the rarity of such companies.
Here’s a look at Africa’s unicorns from 2019 to 2024.
Source: Africa: The Big Deal
However, despite this success, many entrepreneurs struggle to secure the funding they need to bring their ideas to life.
Therefore, this is where angel investors step in, offering not just capital but the kind of support that can help these startups grow and thrive.
The Main Challenge African Entrepreneurs Face
Entrepreneurs in Africa are incredibly resourceful but they also face unique challenges that can make launching and scaling a business difficult. A recent 2024 survey by Flourish Ventures, titled Passion and Perseverance: Voices from the African Founder Journey, which gathered insights from 169 startup founders across 13 African countries, found that 80% of respondents enjoy their entrepreneurial journey. However, their biggest challenge remains raising capital.
Here are a few other pressing issues:
- Limited access to capital and high loan interest rates: Securing funding is a major hurdle for entrepreneurs, with affordability and accessibility being a key issue. In many regions, local interest rates often exceed 20 to 25%, making it expensive for early-stage startups to borrow the capital they need.
- On the other hand, alternative finance providers charge even higher rates, sometimes surpassing 30%, further tightening the financial strain on entrepreneurs.
- For many, these high borrowing costs become a barrier to growth, forcing them to either delay expansion or take on crippling debt, ultimately stifling their ability to scale and thrive in an already competitive market.
The Role of Angel Investors in Africa’s Growth
Angel investors can play a role in the growth of African startups. By providing funding and mentorship, they can help entrepreneurs overcome challenges, scale their businesses and create jobs that drive economic development. But what exactly makes angel investing in Africa so impactful?
- Investing in people, not just ideas: Unlike traditional venture capitalists, angel investors often invest in the entrepreneur, not just the idea. They understand that a passionate-driven founder can pivot and adapt, even when faced with obstacles. They’re looking for individuals who are committed to solving problems and making an impact.
- Mentorship and strategic guidance: One of the most valuable contributions an angel investor can make is offering mentorship and strategic advice. Many angel investors bring years of industry experience and knowledge to the table, helping founders navigate challenges and avoid common pitfalls. They can provide insights into product development, marketing, scaling and entering new markets.
- Opening doors to new markets: Angel investors often have a network of contacts that can be invaluable to startups looking to grow. Whether it's connections to potential customers, partners or regulatory bodies, an angel investor’s network can help a startup navigate the complex business landscape. This network can also open doors to global markets, helping African startups expand beyond their borders.
- Encouraging further investment: By taking the lead in funding rounds, angel investors can set the stage for additional investment from other sources. Their involvement can act as a catalyst, inspiring venture capital firms, corporate investors and even government bodies to step in and support the startup.
How to Connect with Angel Investors in Africa
For angel investors seeking to network and explore promising investment opportunities in Africa, connecting with others in the community is essential. Here are some ways you can network and get involved in the African startup scene:
- Apply to Join Angel Investor Networks
A great way to connect with other angel investors is through established angel investor networks. These networks pool resources, share investment opportunities and collaborate on startup projects.
- Attend Startup and Investment Conferences
Networking events and industry conferences are good places to meet both entrepreneurs and fellow angel investors. Many of these events focus on showcasing innovative startups, providing a space for investors to connect with founders looking for funding. Attending these gatherings can help investors stay on top of trends, identify promising ventures and meet other investors to discuss potential co-investment opportunities. These events not only provide access to startups but also serve as platforms for investors to share knowledge and build a supportive community.
- Venture Capital Collaborations
Many venture capital firms focus on early-stage startups and often collaborate with angel investors by co-investing in funding rounds. This approach potentially gives angel investors access to a steady flow of investment opportunities while benefiting from the expertise and resources of the VC firms. By co-investing with VCs, angel investors aim to reduce the risks associated with direct investments and look to gain exposure to high-potential startups across various industries. Additionally, investing alongside VCs has the potential effect of building a diversified portfolio.
- Leverage Personal Networks
Angel investors can also rely on their personal and professional networks to find investment opportunities. Often, introductions are made through mutual acquaintances or referrals from industry contacts. By connecting with people in sectors like finance, technology or consulting, you can tap into networks that may already have strong connections with African startups. Many entrepreneurs seek angel investors through informal channels, making personal referrals and word-of-mouth an important way to find the right investment opportunities.
By participating in these networks, attending events and leveraging personal and professional referrals, you can create strong connections with other investors and entrepreneurs. This will enable you to contribute to the growth of Africa's vibrant startup ecosystem.
Our Vision for Africa’s Entrepreneurs
We believe that African entrepreneurs are resilient and resourceful. They are creating the solutions that will drive economic and social change. With the right investment, mentorship and access to markets, these entrepreneurs have the power to shape industries both locally and globally.
For more information, check out Renew Capital Angels - an active community of accredited investors shaping the future of startups in Africa.
Disclaimer
This blog should not be viewed as investment advice, or as a solicitation of an offer to buy or sell securities or to adopt any particular investment strategy. Impact investing, and investing in frontier markets specifically, is speculative in nature and involves a high degree of risk. The Renew Capital Angels invest in companies located and doing business in sub-Saharan Africa. Investors should understand and be willing and able to handle the risks of investing in such frontier markets, which are more significant than the risks associated with investing in securities of U.S. companies or in other developed countries. Risks include the risk of total loss of an investor’s entire investment. Investors should fully understand all risks and consult with their independent financial, legal and tax advisors to determine whether any particular investment or investment strategy is appropriate for them. Renew Capital does not make any recommendation regarding the appropriateness of any specific investment opportunity for any specific investor.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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