Angel Investing on the Rise, A Perfect Storm for African Entrepreneurs
Times are certainly changing. Markets around the world are becoming more integrated, globalization is shrinking 3,000 miles to 30 miles, new fields in finance are offering investors financial and social returns, and T.V. shows like Shark Tank have made angel investing all the rage. While these changes on their own grab headlines, their convergence is creating some excitement in countries like Ethiopia.
In December 2015, the Renew initiated Impact Angel Network (IAN) closed their seventh investment in Ethiopia, and became one of the most active investors in the country. The network has lined up a good pipeline for 2016, and soon they will be launching into their next country. Here’s a look into why the IAN started and how three major trends are creating the perfect storm for a new era of African entrepreneurship.
Trend 1: Angel Investing is the New “VC”
High net worth individuals (HNIs) around the world are using their personal wealth in new ways. HNIs are increasingly making their own investments directly into companies, versus outsourcing the job to professional money managers. While professional money managers still oversee the lion’s share of the world’s wealth, the rise of discount brokers, legislation like the Job’s Act, and T.V. shows like Lion’s Den, The Profit and Shark Tank are alluring the wealthy and risk tolerant to venture out to make direct investments into promising companies. Angel investors and angel groups are on the rise, and they are starting to catch up to the deified venture capitalist firms.
According to Josh Lerner, a professor at the Harvard Business School, “one of the big changes in venture capital in the last decade is the rise of ‘personalized’ entrepreneurial finance.” This includes individual angel investors, angel groups, and even crowdfunding platforms, which are slated to account for more investment money than venture capital in 2016 (increase from $880M in 2010 to $34B in 2015). And while venture capital firms historically have invested larger amounts of capital than angel investors, they invest in fewer deals. For example, in 2014, venture capital firms invested $48B into 4,356 deals, or about $11M per deal. While angel investors invested $24.1B into 73,400 deals – which equates to approximately $328K per deal. Jeffrey Sohl of UNH’s Center for Venture Research states that “angel investments continue to be a significant contributor to job growth with the creation of 264,200 new jobs in the United States in 2014, or 3.6 jobs per angel investment.”
Trend 2: Impact Investing is on the Rise
In tandem with the increasing popularity of angel investing, the impact investing movement is gaining momentum among individual investors. For those who are unfamiliar with the term, impact investing combines attributes of philanthropy and investing. It operates under the philosophy of “doing well, by doing good”, wherein investors seek a double bottom line – financials returns and positive social impact, and sometimes even a triple bottom line – adding in environmental benefits.
