Investment by angel investors into African startups has recently grown rapidly alongside the development of startup ecosystems, which have greatly increased the number of investable opportunities. Early signs of success, such as the emergence of several very successful African fintech startups, have spurred further interest from angel investors worldwide.
Their increased appetite for investment on the continent is both enabled and accelerated by new approaches to organized angel investing. Which makes it more cost-efficient to invest in high-growth African ventures. These businesses are key to stimulating (youth) employment, innovation, and competitiveness in African economies. So, this paper explores new approaches to organized angel investing and highlights the ongoing need for innovation to make finance more accessible to high-growth African companies.
Access to start-up and growth capital
While challenges to access finance are abundant for all “missing middle” small and medium-sized enterprises (SME) in developing countries, early-stage enterprises face especially large hurdles. Lack of financing constrains their establishment and growth, especially in Africa, where traditional sources of capital such as bank loans or government and research grants are particularly hard to access. Since high-growth ventures drive innovation, improve productivity, and create jobs, access to start-up and growth capital is critically important.
Business angels, who often invest through a network or fund, offer capital with high risk appetite in combination with business expertise and networks. Angel investors are often the first external investors and usually participate even before venture capital funds. As angels’ funding and mentorship is indispensable for founders, strengthening the role angels play in Africa is essential to helping startups overcome the pioneer gap.
New hybrid models
New hybrid models are combining elements of angel investing, crowdfunding, and venture capital, speeding due diligence. and increasing reliance on data. The widespread use of SAFE notes is one distinctive characteristic of this emerging landscape.
More about angel investing in Africa
DGGF already offers Technical Support (TA) and Incubation ecosystem support to angel investors in Africa and Asia. Want to know more about angel investing in Africa? Please click here for our paper about a new era for angel investing in Africa. You can read more about how DGGF shares and develops knowledge via this link.
Written by David van Dijk
Article originally appeared on: https://english.dggf.nl/latest/news/2021/12/22/how-innovative-approaches-to-angel-investing-help-close-the-early-stage-financing-gap-for-high-growth-ventures-in-africa