More than 50 percent of the business angels active in Africa mostly invest in high-growth, revenue-generating startups, according to a report published by research firm Briter Bridges, Business intelligence for emerging markets in collaboration with the African Business Angel Network (ABAN).
The report indicates that those investors, who are often high net worth individuals, corporate executives or former entrepreneurs, perceive these established innovative companies as less risky than early-stage start-ups.
A survey of 110 business angels, 84% of whom are based in Africa, reveals that most investors reported having a multi-sector approach; 51% of them expressed interest in three or more sectors as part of their investment strategy.
The most targeted sectors turn out to be fintech (11% of favorable opinions), ahead of agritech (10%), edtech (9%), logistics & supply chain (7%), healthtech (7%) and e-commerce (6%).
When asked what qualities they seek in management teams, 25% of the respondents answered they bet on startups with several founding members while 24% bet on serial entrepreneurs; 24% invest in startups with highly skilled managers while 13% look for startups led by people with proven management skills.
Less than US$10,000 deal sizes
More than 50% of the surveyed investors typically invest less than US$10,000 per deal, as those smaller amounts allow for diversification and are less-risky investments. Meanwhile, 72% of the business angels say they usually make follow-on investments in companies already in their portfolios.
The report also shows that 41% of business angels invest via a syndicate network while 23% prefer direct stakes and 31% adopt a mixed method combining syndicated networks and individual stakes; 3% of the respondents invest via financial platforms while 1% invest via rolling funds.
As far as the preferred investment types and instruments are concerned, equity investments are the most popular with 70% of respondents favoring that method, compared to 8% in favor of debt investments and 22% adopting blended financing types.
The instruments used are simple agreements for future equity (43%), shareholders' agreements (36%), convertible financing agreements (11%), and loan agreements (8%).
On another level, the study shows that 23% of the business angels surveyed rely on their networks to find investment opportunities while 19% use start-up events.
Other channels used to identify start-ups in which these investors can inject funds are recommendations from other categories of investors (19%), business angels' networks (16%), direct contacts with the founders of start-ups (15%), consultation of venture capital funds' databases (3%) and the media (3%).
Reports have shown African tech startups raised $2.7 billion in total funding in the first three quarters of 2022, almost 30 per cent more than the $2.1 billion banked in the entirety of 2021.
The seventh edition of Disrupt Africa’s annual African Tech Startups Funding Report, released in January, found 564 startups raised a combined $2,148,517,500 in 2021, a record for a calendar year.
That record had fallen within the first half of 2022, and African tech startups continued to perform strongly from the fundraising perspective in Q3. So far in 2022, 385 startups have raised just shy of $2.7 billion.
This is 28.5 per cent more than was raised in the entirety of 2021, meaning 2022 is already comfortably the most successful yet when it comes to investments into the space.
“That African startups continue to shatter fundraising records at a time when the global venture capital industry is experiencing a downturn is testament to the resilience of the tech sector on the continent and its status as a greenfield of opportunity,” said Disrupt Africa co-founder Tom Jackson.
“Though we expect the overall rate of growth in 2022 to be slower than it was in 2021, the sector is still on a good trajectory.”
As has become the norm, Nigeria is leading the way, with 123 companies having raised a combined US$858 million between January and September. This is still just short of the $903,680,000 raised by Nigerian ventures in 2021, though that target will surely shortly be beaten given the current rate of investment.
Egypt comes in second, as it did in 2021, though the $621 million raised by 84 Egyptian startups in 2022 already represents significant growth on last year, when the overall total was $446 million. Kenya, in third, has seen $489 million raised by 53 startups, more than $150 million more than the $292 million the country raked in across 2021.
South Africa continues to have a relatively disappointing year compared to other members of the “big four”, with $297 million raised by 44 companies. This still means, however, that the country is on course to better 2021’s total of $336,405,000.
