AFRICA’S ANGEL INVESTING MOVEMENT PICKS UP MOMENTUM IN 2017
By Ben White
This past week, the VC4Africa community converged in Johannesburg for the Global Entrepreneurship Congress 2017. It was the first time the global congress was hosted on the African continent, bringing together more than 6,000 participants from around the globe. During the week-long congress, a series of high-profile events were organized for the African investor community to take stock of the current state of the industry and to set a common agenda for the way forward.
Of particular relevance, was the 2017 African Angel Investor Roundtable held at the Johannesburg Stock Exchange (JSE) on March, Wednesday the 17th. The curated meeting was organized by VC4A partners: The African Business Angels Network (ABAN) and infoDev at the World Bank. The meeting brought together a cross section of African investors to discuss the state of angel investing industry in Africa and to debate the roadmap for the future.
The 2017 Africa Angel Investor Roundtable brought together 20 leaders championing Africa’s angel investing movement from across the continent. Angel communities were represented from Ivory Coast, Kenya, Liberia, Mauritius, Niger, Nigeria, Senegal, South Africa and Zambia. A further 20 VIP guests and subject experts were in attendance, including the president of the European Business Angels Network (EBAN).
Clear from the session, there is a growing interest and appetite for angel investing coming up across the continent. This is in direct response to the growing pool of entrepreneurial talent and the improving quality of the investment propositions found across African markets. See VC4Africa research for additional context on the 6,000 startups part of the VC4A community, and the progress these ventures are making across the continent.
At a result, the emergence of an angel investing community is a rapidly growing phenomenon with now more than 40 groups forming across the continent. That said, these efforts are only starting and there is a remarkable diversity of models being developed. Where some angel groups have been formed by a group of high net worth individuals, others have been mandated by a government department, are supported by a brokerage service, or operate as a program on behalf of an incubator, foundation or service provider. The high level of experimentation can be expected as parties work to understand what is most effective in their own context.
‘Founders funding founders’ was also recognized as a key development in the angel financing space. The movement reaches increasing levels of maturity as the number of founders turned investor grows.
Each initiative works with a different business model and applies a different protocol for managing their operations. Some networks are membership driven while others rely more on brokerage fees. Others seek sustainability though syndication. Each angel initiative is sourcing different channels of capital and there are clear differences in strategy and approach e.g. when comparing ‘old money’ with ‘new money’, the sectors that have primary focus, and levels of risk appetite.
That said, and despite the differences in approach and structure, there are several common issues that are shared by all investors at the meeting:
- There is a clear demand for more networking and discussion amongst investors. The exchanges are useful in terms of comparing strategies, benchmarking progress and distilling lessons learned;
- Cross border investing remains a critical theme, but also where the participants agree that moving ventures and capital across markets remains a serious challenge. More could be done to identify best practices and to foster efficiencies;
- The role of government is still being defined, and where the private sector community depends on Angel friendly policies and a regulatory framework conducive to early stage investing. Here it is also agreed that investors should work together to support policy campaigns that can sometimes take years to bring to fruition;
- Incubators and accelerators do a lot to develop the entrepreneurial pool of talent, but the gap between the quality of companies and the stage investors can deploy capital remains significant. The angel groups invest considerable time and energy preparing the deal flow. Also noted that entrepreneurs learn from the process even if they are not selected for investment;
- The post investment period is critical, and where the companies require significant follow up, guidance and market development support. This can be challenging when many angels are also directors of companies and have limited time;
- Transaction costs remain high. This makes investing at the early stage unfavorable for many investors. Clear the incentives for angels should reach beyond financial returns alone to justify the levels of risk, but where participants feel there is also a social obligation to support up and coming entrepreneurs;
- Where companies register legally is critical for investors and remains a determining factor for where the company can fundraise and who can invest. A serious point for positioning follow on rounds/market expansion strategies;
- There are significant opportunities for syndication, where diaspora and Angels from other parts of the world, look for mechanisms to invest in African based companies;
- Follow on investment is needed if the companies are expected to scale beyond their early stage rounds of investment. Here a more robust field of Series A investors is needed and where more should be done to engage this type of capital in the market.
The outcome of the meeting was that significant opportunities have emerged across the early stage investing market, and then for angels and angel groups in particular. At the same time, resources are needed to build on this early momentum. Considerable work needs to be done to distill working models and best practices that can help federate efforts across the continent. A dedicated and sustained campaign is needed to shape the policy agenda, and to work with government to establish a regulatory framework conducive to early stage investing. All the investors agreed that allowing the private sector to better engage these markets will unlock much needed venture capital for supporting the continued growth and development of Africa’s innovation community.
Two years ago, a conversation like this would not have been possible. There is a growing interest to angel invest. The African Business Angels Network (ABAN) has been instrumental in bringing these parties together and in a continued effort to build momentum. It’s critical we continue to educate angels across the African continent, provide a platform for the Angel investor community to have a voice, and to pitch the ‘African opportunity’ at international events, building bridges with angels abroad and in the diaspora.
The participants will reconvene at the 4th Annual Africa Investor Summit that will be held in Cape Town, South Africa, mid-November 2017. Interested in attending these meetings? Check out our investor services and express your interest in syndicated deals. Please sign up for a VC4A Pro account and our team will follow up with details about the event.