African or Western, are Angel Investors Alike Everywhere?
While angel investing is common globally, individuals in different regions have notable differences.
The phrase angel investor ranks high among the terms frequently spoken in the start-up world. It is not an unfamiliar one. Because it presents one of many funding options to start-ups and, perhaps, serves as the first finance resort of the founder.
In addition, this investor may be known to the founder as s/he could be found amongst family or friends. The angel investor is a major player in the start-up ecosystem.
The practice of angel investing is a global, common one; though we wondered about the differences, if any, between African angel investors and their Western counterparts.
We highlighted the discrepancies discovered under the following headings:
Investment Focus: African angel investors typically focus on start-ups that have the potential to create social impact and improve the lives of people in their communities. Remember, Africa is plagued with many challenges which are absent in developed environments.
The angel investors may prioritize businesses in sectors such as agriculture, health care, education, and renewable energy, which have the potential to address some of the continent’s pressing challenges.
“Angel investing is more than just writing a cheque,” says Biola Alabi, a tech investor and owner of a strategic, advisory company producing film and television content. She is also obsessed with making an impact in Africa. One of her first investments was in Big Cabal Media because she perceived the positive effect the company was having on society.
In contrast, Western angel investors tend to focus on businesses that have a high growth potential and the potential to generate significant returns on investment. They may prioritize start-ups in sectors such as technology, biotech, and FinTech, which could disrupt established industries and create new markets. This might explain why African FinTech start-ups are the belles of the continent’s ecosystem when funding from the West is involved.
Investment Size: African angel investors are known to invest smaller amounts of capital in start-ups compared to their Western colleagues. This is because fewer high-net-worth individuals are on the continent, and many are cautious about investing in high-risk ventures.
As a result, African angel investors often provide seed funding or early-stage financing to start-ups, with investment sizes ranging from a few thousand dollars to tens of thousands of dollars.
On the other hand, Western angel investors often invest larger sums of money ranging from tens of thousands of dollars to several million dollars in investment.
Investment Approach: African angel investors typically take a more hands-on approach to their investments. They tend to provide guidance and support to start-ups beyond just financial assistance. They may also proffer mentorship, network connections, and strategic advice to help start-ups grow and overcome business hurdles.
Western angel investors do the same, but their approach tends to be more focused on providing capital and expecting a return on their investment. They may also have a more formalized investment process and require more stringent due diligence before investing.
Investment Culture: In Africa, the culture of angel investing over the years has gained traction as news of acquisitions becomes public. A good example is Paystack’s acquisition, a few years ago, by the Silicon Valley-based payments company, Stripe, for a reported $200M. Worthy of mention too is the emergence of eight unicorns on the continent.
There is new awareness and understanding of the benefits of investing in start-ups as more successful start-ups emerge and more investors see the potential for high returns on their investments. Now angel networks and associations dot the African landscape for founders to discover and approach for seed capital.
In the West, angel investing has a more established culture and infrastructure, with networks, associations, and platforms that facilitate the process of finding and investing in start-ups.
In the end, angel investors have one thing in common—investing in start-ups. The differences above reflect the unique challenges and opportunities that each region faces in terms of fostering innovation and supporting the growth of start-ups.
Related: The Angel Investor
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