Attracting Angel Investors in Africa: A Guide for Entrepreneurs
Introduction: Angel Investing Comes to Africa
Not so long ago, African entrepreneurs seeking seed or early-stage capital had to go a long way to attract it, meaning to the U.S. or Europe. But the situation has changed significantly in the last few years, with angel investors and angel investor networks springing up all across the African continent, all aiming to invest in African small businesses seeking to grow.
Evidence of this can be found in the African Business Angel Network (ABAN), which brings together many African angel investors, as well as foreign angel investors looking to invest in African businesses. Through regular summits and meetings as well as active online activities, ABAN and the many angel investor networks it supports are making a considerable impact on regional and local startup ecosystems across Africa.
The purpose of this post is to present best practices for entrepreneurs or startups to attract angel investors, particularly in Africa, though the methods are applicable around the world. But before moving on to our guide for startups or entrepreneurs, it may be useful to briefly and generally discuss what angel investors are and what they can do for entrepreneurs.
Who are Angel Investors and How Can they Help Entrepreneurs?
In a nutshell, angel investors are individuals or groups of investors who fund smaller, early-stage businesses in exchange for equity (or company shares), not through debt like banks or microlenders. Angel investors should not be confused with venture capitalists (VCs), who generally invest at later stages with larger sums and expect larger returns. In other words, angel investors bridge the gap between seed funding from friends and family and later-stage funding from venture capitalists.
Angel investors want to see the companies they invest in succeed, and offer more than funding to this end. Angel investors often provide additional mentoring or advising support to entrepreneurs on matters such as strategy, sales, marketing, accounting and legal. When they cannot provide this support themselves for free, they often have a network of professionals who can provide it for the startups they invest in at little or no cost.
Angel investors, like VCs, expect growth and returns from the companies they invest in. Their returns usually materialize in the form of “exits,” or events in the life of a business that creates liquidity for their equity investment. This can take the form of a sale of all or part of a business, a stock purchase by management, a merger with another business, or an initial public offering (IPO). Sometimes angel investors will propose dividends on company shares to ensure they receive a return on investment (ROI).
Finally, angel investors also often develop strong professional and sometimes personal relationships with entrepreneurs over time. This happens because angel investors tend to get more involved with the businesses they invest in than other types of investors, due both to professional and personal interests. Angel investors often require frequent meetings with management, which can create a sense of camaraderie between investor and investee.
With this overview of who angel investors are and what they do for entrepreneurs in mind, we can now move on to ways entrepreneurs can attract angel investors if they believe they are a good fit, which is not always the case.
How to Attract Angel Investors in Africa
Without further ado, here are the top ten things an entrepreneur can be and do right now to attract angel investors in Africa. For ease of understanding, we have divided the ten ways to attract angel investors into “Four Be’s,” Three “Do’s” and “Three Don’ts.”
The Four B’s of Attracting Angel Investors
- Be Prepared:
Each angel investor has different requirements that need to be met in order to receive funding and support. These requirements can include a pitch deck or business plan, biographies of founders, financial information and projections, and so on. Each angel investor also has communication preferences, some via email, some social media and some in person. It is vitally important to have your materials and approach prepared in advance so as not to appear unqualified or incompetent.
- Be Proactive:
Don’t just sit there and wait for angel investors to come to you, and especially don’t wait for angel investors to do your work for you. You need to reach out to them in their preferred mediums, give them what they are looking for even before they ask for it, and follow up at every step. Being proactive, as opposed to reactive, is a sure way to gain the attention of angel investors and keep it until funding and support is secured.
- Be Patient:
Angel investors are usually very busy people who have to juggle full-time handling of funding applications, entrepreneur interviews and running every aspect of their business, often while holding high-powered full time jobs and full personal lives. In contrast, some angel investors work on funding business part-time, meaning they take it much easier with their investment processes. In both cases, the result is the same: it takes time for an entrepreneur to attract an angel investor. So don’t be surprised if the funding process with angel investors can take longer, sometimes much longer, than you would like or expect.
- Be a Good Fit:
It is also very important for entrepreneurs to keep in mind that not all angel investors are interested in making the same investments at the same time. Indeed, there are many types of angel investors, so finding the right fit is key. Some angel investors fund small startup businesses getting off the ground, others medium sized looking to grow; some focus on technology, while others focus on sustainability businesses or agriculture (especially in Africa). Be sure that the angel investors you are trying to attract are a good fit with what you have to offer. Otherwise, you may be wasting your time and effort.
The Three Do’s of Attracting Angel Investors
- Do Act Local:
Angel investors are located around the world, and they often prefer investing in their proverbial backyard. So it is important for entrepreneurs to do their research on local and regional angel investor networks that actively invest in startups in their area. Not only are local angel investors more likely to invest in local startups, but they can also provide more in terms of support with their local networks and market knowledge. Joining a local startup association, like the Tanzanian Startup Association, can give you valuable insights and connections.
- Do Go to Events:
As they say, practice makes perfect. The more you get out there to expose your startup to the right people, the more likely you are to be successful when the right angel investor comes along. This is why it is vital to participate in pitch competitions, startup expos, and angel investor networks to showcase your business and connect with potential investors. Getting used to selling your business is as important as getting used to selling your products or services.
- Do Tell Your Stories:
Stories sell products and services, but they also sell businesses to angel investors. Make sure you have a great story behind your business’ origin or idea, as well as success stories for your products or services (also called “traction”). Tell these stories in your business plan or pitch, and also on the web via your website and social media. Be prepared to share these stories with angel investors in the ear
The Three Don’ts of Attracting Angel Investors
- Don’t Ask for Too Much:
Angel investors have strictly limited time, resources and money. Never forget this when making your asks for funding, mentoring and assistance. Sometimes angel investors will say upfront what they are willing to offer an entrepreneur, and sometimes you have to do a little digging. Be diplomatic and understanding in all your dealings with angel investors. The saying “shoot for the stars, land on the moon” does not apply in this case. Remember that what you think are reasonable requests may seem outlandish to an angel investor, so think and act in win/win ways.
- Don’t Be Annoying
Being diligent and following up are vitally important to attracting an angel investor. But beware: too much of a good thing can be bad. Constant communication is not effective communication, and knowing where to draw the line is as important as not crossing it. Angel investors are likely to see too much communication as neediness, and providing too much information as desperation. The key to “not being annoying” is to sense the signs an angel investor is transmitting in their responses to your inquiries, and adjust accordingly.
- Don’t Give Up:
Attracting the right angel investor is difficult, and takes a lot of time and effort. Don’t despair, take care. Keep this in mind each time you reach out, submit, or simply wait for a response. The more doors you knock on, the more one is likely to open. The deeper you go in the tunnel, the more likely you are to find light at the end of it. You may want to ask for help from other professionals in preparing for, or during, the attraction of an angel investor. Always remember that the benefits or having an angel investor on your side generally far outweigh the troubles of attracting one.
Conclusion: Fast vs. Slow
The purposes of this post have been, first, to explain who angel investors are and, second, to provide practical guidelines for entrepreneurs to attract them. But what makes this approach uniquely African?
The main difference we see is that, in other parts of the world, the angel investor approach seems to follow the technology startup motto “move fast and break things.” That is, in the U.S. and Europe, entrepreneurs and angel investors alike seem to want to close deals quickly and move to exits even quicker.
In Africa, however, the motto seems more to be that of the popular saying in Tanzanian Kiswahili, “pole pole,” which translates to “slowly slowly.” That is, African angel investors seem to want to move slower and build things rather than move fast and break things. This pole pole approach goes equally for closing deals and exiting them.
That said, the explanation of angel investors and the guidelines to attracting them provided in this post are almost universally applicable. We hope you do apply them in your engagements.