African companies have experienced significant growth in recent years, and angel investment has been one of the main drivers of this growth.
However, Nigeria’s tech ecosystem may have seen 2021 as one of its best years as more than $1.5 billion in investment was recorded across a variety of sectors.
There is a lot of interest in African startups now, and there is more seed capital in sub-Saharan Africa today than there was a few years ago. The continent has gone from a one once desperate into a vibrant land full of opportunity, especially as angel investment continues to advance.
Moreover, an impressive spirit is alive in Africa, with a growing number of startups from areas in e-commerce, Fintech, Agri-business, Edutech, Education and e-Health and so much more emerging from youth entrepreneurial innovations aiming to reshape the face and future of the nation.
Thus, in an effort to connect these important entrepreneurs with the necessary capital, investment groups and networks of business sponsors are hopping in, spreading in numerous cities and countries across the African continent.
So, who are Angel Investors?
An angel investor is an individual who funds a promising startup, from its early stages, particularly in the pre-seed and seed stages, in return for a portion of the company, usually in the form of shares or royalties.
How Angel Investing Works
Angel investors today are an important source of equity funding that helps bridge the gap that lies between the capital raised by startups (including friends and family) and the venture capital stage.
Moreover, some angel investors invest only for the sake of profit. Others are looking to make an impact with their money by investing in causes and businesses they really love. Oftentimes, these companies may not have customers or revenue being generated at all.
They may only have a solid business plan, completed beta testing, or minimally viable product development ranging from sustainable agriculture to start-up healthcare and education products.
Angel investors invest their own money, which is usually between $25,000 and $500,000, but they can go up to millions of dollars.
In addition to money, angel investors offer experience, business knowledge in various industries, time, and most importantly, contacts. Therefore, many entrepreneurs rely on the support of angel investors to help them launch their business concept into reality.
And because angel investors realize that startups run a high risk of failure, they must ultimately believe that the ups and downs of investments are worth the risk behind.
With so much progress, over time, the higher bets of venture capitalists often enter the businesses angel investors invest in to secure the next round of financing by expanding and modernizing their production, operations and marketing.
Why do most Emerging Startups need Angel Investment?
Early signs of success, such as the emergence of several successful startups, are attracting additional interest from angel investors in many different industries across the continent and are key to increasing (youth) employment, innovation and competitiveness.
Since many startups complain of a lack of startup capital, a strong network of angel investors helps solve this problem by acting as a bridge between the ideas of startups and growing companies. By building this bridge, angel investors are helping entrepreneurs deliver on their promise to create jobs for young people and devise solutions to local problems.
Capital is the lifeblood of a growing and evolving business. However, access to capital in Nigeria is very limited.
Nigeria also lags behind international comparisons in the early stages of per capita investment for most startups. Thus, a lack of funding limits startups and growth, particularly in an economy where traditional sources of capital such as bank loans or government subsidies and research are difficult to access.
Access to seed and angel capital is important because high-growth investments drive innovation and increase productivity. Despite Nigeria’s limited access to capital, all is not lost as more Nigerian companies and founders continue to join the global accelerator. Therefore, our founders’ quality measures prove significant in our ecosystem.
In addition, angel investors are beneficial in their ability to help expand the connections and networks companies need to secure additional capital and pursue financing for continued sustainable growth.
Despite all that has been said, angel investing is not a get-rich-quick scheme. It can take a long time for a startup to grow to a level where investors can make a profit.
However, it seems that having a stable network community is an important indicator of the success of any startup. Experts believe that the positive impact of angel financing on the development of start-ups in the early stages remains the same in different countries, regardless of the level of capital activity and the business environment.
Moreover, in Nigeria, the government can play an important role in providing financial and non-monetary incentives for innovation and can facilitate the establishment of formal business sponsor networks in each state where existing and potential investors can be accredited.
With this, the increased availability of angel investment data will attract more growth and opportunities in the angel investment industry over the long term.
And finally, with Africa’s ecosystem growing right from the start and not likely to slow any time soon, the opportunities for angel investors and startups to help Africa reach its full potential as an economic powerhouse are endless.