Finance

Africa: 50%+ of active business angels prefer established startups (report)

Friday, 11 November 2022 16:33
Africa: 50%+ of active business angels prefer established startups (report)

(Ecofin Agency) - Most business angels operating in Africa opt for conservative investment strategies, typically investing less than US$10,000 per deal in established startups.

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 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%).



 
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