The Future of Angel Investing in Africa
How novel approaches to angel investing are bridging Africa’s massive early-stage funding gap for high-growth ventures.
Angel investment in African startups has recently increased rapidly, in tandem with the development of startup ecosystems, which has greatly increased the number of investable opportunities. Early indications of success, such as the emergence of several successful fintech startups, have piqued the interest of angel investors around the world.
New approaches to organized angel investing enable and accelerate their increased appetite for investment on the continent. Investing in high-growth African ventures becomes more cost-effective as a result. These companies are critical to increasing (youth) employment, innovation, and competitiveness in African economies.
As a result, this paper investigates new approaches to organized angel investing and emphasizes the ongoing need for innovation in order to make finance more accessible to high-growth African firms.
Access to start-up and expansion capital
While access to finance is difficult for all “missing middle” ventures in developing countries, early-stage enterprises face particularly high barriers. Their establishment and growth are hampered by a lack of funding, particularly in Africa, where traditional sources of capital, such as bank loans or government and research grants, are particularly difficult to obtain. Access to start-up and growth capital is critical for high-growth ventures because they drive innovation, improve productivity, and create jobs.
Angels in business
Business angels, who frequently invest through an angel network or syndicate, provide capital with a high risk appetite, as well as business expertise and networks. Angel investors are typically the first outside investors in a company. Because angel funding and mentorship are essential for founders, bolstering the role of angels in Africa is critical to assisting startups in overcoming the pioneer gap.
New hybrid models
New hybrid models combine elements of angel investing, crowdfunding, and venture capital, reducing due diligence time and spreading risk among investors. The increased reliance on data, as well as the widespread use of standardized SAFE notes, are lowering previously high transaction costs.
These hybrid investment approaches have already successfully mobilized more seed capital for promising entrepreneurs, resulting in a significant increase in the number of high-growth ventures that are creating jobs and having a positive developmental impact.
The future will tell
Questions about the scalability and replicability of these models remain unanswered for the time being. The financial returns of these new hybrid investment models and their investees will be revealed in the coming years. A better understanding of the impact of angel investments in early-stage companies on job creation, inclusiveness (particularly gender equity), and broader ESG impact is also required.
The Dutch Good Growth Fund, a “fund of funds” investment initiative of the Dutch Ministry of Foreign Affairs, commissioned the paper. Eelco Benink and David van Dijk are the authors.
