In the era of digital transformation, African start-ups are experiencing rapid growth. However, a shortage of funding is hindering the development of this promising ecosystem. Business angels present a promising solution to address these critical challenges.
Typical profiles of a business angel
A business angel is an investor who supports a company or start-up, often bringing more to the table than just financial backing. These individuals, typically experienced and successful entrepreneurs, provide crucial mentoring, coaching, and access to valuable networks.
Their involvement is especially vital during the seed and start-up phases, leveraging their skills and expertise to guide the business. Business angels also invest in training and monitoring start-ups, as exemplified by organizations like Angel Network Botswana (ANB).
Specific features of the African business angel ecosystem
In Africa, angel investment holds significant potential, with an estimated annual investment exceeding 100 million USD in start-ups. However, the ecosystem is still in its early stages despite the presence of many wealthy individuals who could become angel investors. The culture of private investment in startups is not yet fully developed on the continent.
Most business angels in Africa tend to focus on high-growth start-ups that are already generating revenue, often neglecting early-stage companies in need of start-up and growth capital. Additionally, this cautious approach typically results in investments of less than 10,000 USD per deal in established companies. Notably, nearly 72 % of African business angels make follow-on investments in companies already in their portfolios.
Impact of business angel networks in Africa
Due to this cautious approach, many business angels are banding together to form networks, often organized by location or sector. These networks enable larger investments and enhance their impact on start-up growth and support. Notable examples include the Africa Business Angel Network (ABAN) and the South-South East Angel Network (SSE Angel Network).
Launch of the African Business Angel Network (ABAN)
The African Business Angel Federation (ABAN) was established at the close of the 2nd edition of the African Start-up Conference (ASC) in Algiers. This initiative aims to unite African business angels to raise funds for start-ups across the continent. The federation seeks to attract both national and international investments to strengthen the African entrepreneurial ecosystem.
ABAN operates with a rotating presidency and a board of directors primarily composed of Africans from various regions. It currently includes over 72 member networks across 40 African countries and the diaspora. The federation collaborates with organizations like Afrilabs and Algeria Venture, as well as renowned institutions such as the French Development Agency (AFD), GIZ, and the World Bank.
Angels investors networks : Strategy against talent drain
Business angels and networking are efforts to prevent highly skilled people from leaving Africa in search of better opportunities abroad. This phenomenon negatively affects :
- African economies
- research and development
- innovation and the continent’s overall growth
With this in mind, the African Start-up Conference, in coordination with the AU, is working on a strategy to create favorable conditions for developing SMEs in Africa and combating the skills drain. An African charter is proposed to address this issue and call for a coordinated response from African governments.
The importance of co-investment platforms
Sid Ali Zerrouki, Managing Director of Algeria Venture, emphasizes the need to unite stakeholders in the African entrepreneurial ecosystem and to encourage affluent individuals to invest in start-ups. Co-investment platforms like Catalytic Africa are emerging as effective solutions to address these challenges.
Catalytic Africa, launched by ABAN and Afrilabs with support from AFD as part of the Digital Africa seed fund, aims to boost investment in African start-ups by supporting angel investors and investment clubs. The platform seeks to leverage two to three times the participation of network and individual business angels with institutional funds.
Under this model, the maximum funding per transaction is EUR 60,000. If an angel investor contributes up to EUR 10,000, the fund will match this amount for the start-up. For investments exceeding EUR 10,000, the platform will triple the investment.
Each transaction on Catalytic Africa involves three stakeholders:
- the start-up seeking financing for its growth
- the innovation hub that supports it
- the network of business angels who provide financing, mentoring and advice.
The platform prioritizes funding for African start-ups that are developing innovative digital solutions with significant environmental impact. ABAN General Secretary Fadilah Tchoumba notes that business angels are increasingly adopting a targeted approach, concentrating on areas such as smart agriculture, digital commerce, and clean technologies.
