Alliance54.com » Angel Investor

How Can Crowdfunding Scale In Sub-Saharan Africa?

Tue, 05 Jul 2016 00:03:48 +0000

It will have been difficult to ignore the exponential growth in crowdfunding over the past five years. In a relatively short period of time the industry has become an established and credible source of funding for small businesses and start-ups globally explains Will Tindall, Co-Founder of Emerging Crowd. In 2013, more than $6 billion was raised through crowdfunding platforms, and in 2014 an impressive $16.2 billion. When the results for 2015 are released, volumes are expected to more than double again, to reach $34.4 billion and by 2025 it could be as much as $96 billion . The industry has now surpassed venture capital and angel investing in total volumes raised; this is quite a feat considering it was a relatively unheard of concept not so long ago! Despite this phenomenal international growth, crowdfunding’s potential in sub-Saharan Africa (Africa) has yet to be unlocked. Small and medium-sized enterprises (SMEs) and startups, which account for the vast majority of growth and jobs on the continent, suffer acutely from a lack of access to capital. Meanwhile, China and India are gradually becoming middle class nations?—?thanks in part to entrepreneurial value creation. Business growth stages and capital needs The lack of an angel investing culture or any scaled venture capital offering means the “funding gap” is even more barren across Africa. This is widened further by the lack of entrepreneurial and support networks that exist in the likes of the US and Europe. An adapted crowdfunding model has the potential to address this head-on, but before the panacea can be reached, some sizeable hurdles and misconceptions need to be addressed: Regulations All investment-based crowdfunding must to be strictly regulated and platforms should be required to follow guidelines to ensure that investors are protected and the sector is able to grow. Often the guiding principles are around the implementation of robust anti-bribery and corruption, anti-money laundering and financial sanctions procedures. This is paramount to prevent an early upset. To address the increased risks associated with investing in Africa, platforms need to be properly regulated by international regulators who have built specific frameworks for crowdfunding. This also enables platforms to demonstrate that their issuers have adhered to the highest international standards before being marketed to investors. Overcoming Asymmetric Investor Information Frontier market investors often assume, sometimes rightly so, that they aren’t always privy to the full set of company facts. It is vital that platforms undertake deep-dive financial, commercial and legal due diligence on all prospective issuers and that this information is fully disclosed to investors. The “wisdom of the crowd” is often relied upon in developed markets, but with fewer participants and a less efficient exchange of information, platforms need to do the heavy lifting and be able to display high-quality enhanced diligence. Experienced analysts should be able to perform comprehensive company analysis as expected of companies in developed markets. For crowdfunding to reach a meaningful size, opportunities must to be seen as investments as opposed to punts! Investor Protection Simple minority investor protections such as pre-emption rights and tag-along rights should be provided as standard across all platforms – without this, investors may miss out on their fair share at an exit and this could lead to a PR disaster. We all know that start-ups and SMEs are likely to fail more frequently than established companies. There can be many commercial causes for this and savvy investors should be able to consider the risk-return trade-off before committing. What isn’t considered a fair risk by investors is if a company fails as a result of malfeasance. A platform that wishes to win the trust of its clients and deter fraudulent activity, must be able to demonstrate that it can pursue appropriate and enforceable legal action on behalf of its investors. A recent USAID study showed that over 24 million Africans abroad use the web to search for investment opportunities in their home country. Crowdfunding has the potential to become a conduit for this and to become truly transformational. To enable this, African platforms need to foster a culture of trust and transparency within their online communities. If this can be achieved, crowdfunding could bridge a significant part of the existing funding gap and African entrepreneurs will be able to build local economic ecosystems and drive prosperity. By appsafrica

Crowdfunding Industry Overtakes Venture Capital and Angel Investing

Wed, 01 Jun 2016 09:35:56 +0000

By 2016 the crowdfunding industry is on track to account for more funding than venture capital, according to research firm Massolution’s annual report. With an estimated market value of $34 billion in 2015, crowdfunding has come a long way since its valuation of $880 million in 2010.

In comparison, the VC industry invests an average of $30 billion each year. Meanwhile the crowdfunding industry is doubling or more, every year, and is spread across several types of funding models including rewards, donation, equity, and debt/lending. In particular, equity crowdfunding – now being legalised in the US – holds huge disruptive potential.

Crowdfunding industry growth figures, as reported by Massolution

The crowdfunding market grew by 167% in 2014, continuing the exponential growth of previous years. Two months ago the thriving British FinTech (financial technology) sector witnessed its first billion-dollar business. The company? Funding Circle, a five year-old crowdfunding platform. Their $150 million funding round was over-subscribed.

It should come as no surprise that a crowdfunder is the first business in the booming world of FinTech to break through the billion-dollar mark. Small businesses are finding it harder than ever to raise money from traditional sources. Quite simply, banks don’t seem up to the task. New bank loans to small businesses in Europe plummeted by 35% between 2008 and 2013. Meanwhile, crowdfunding platforms are enjoying huge support from policymakers in the form of tax breaks, and from institutional investors looking to diversify their portfolios.

Crowdfunding is moving mainstream. So, what does this mean for older, more established types of business financing?

Venture capital overtaken

The World Bank estimated that crowdfunding would reach $90 billion by 2020. If the current trend of doubling year over year continues, we’ll see $90 billion by 2017.

VC funding, a well-travelled avenue for small businesses trying to raise capital, accounts for roughly $30 billion a year. Angel investing, meanwhile, accounts for roughly $20 billion a year. In short, the crowdfunding industry is scaling up rapidly with VC and angel investing firmly in its crosshairs.

Note: growth figures of the entire crowdfunding industry

Interestingly, the crowdfunding sector with the most potential for disruption is yet to truly take off. If, as expected, equity crowdfunding doubles in size annually over the next few years, it will overtake venture capital as the largest source of startup funding by 2020 ($36 billion). Equity crowdfunding in Europe has been flourishing for several years, while the US – the birthplace of crowdfunding generally – has been slow in legislating for its introduction.

Currently the US equity crowdfunding market is limited to accredited (professional) investors only. But what happens when an entirely new class of investors – namely 250 million Americans – are empowered to participate and invest for the first time under new equity crowdfunding laws? In theory this would more than double the current European-dominated equity crowdfunding market.

The potential growth and impact is staggering.

How will angels & VCs respond to equity crowdfunding?

What will the market for startup investing and small business finance look like as equity crowdfunding continues to grow? And are VCs embracing the changes?

It’s fair to say that crowdfunding was originally looked down upon by professional investors. Some angels and VCs have begun integrating equity crowdfunding as a step in their investment strategy. Increasingly we’re seeing startups in talks with bigger investors after a successful crowdfunding campaign, as fund managers scout platforms for interesting ideas.

The lines are being blurred across the early stage investment ecosystem – some equity crowdfunding platforms are effectively becoming venture funds of their own. Meanwhile, VCs are integrating equity crowdfunding into their investment processes due to the marketing and strategic benefits it can bring.

What’s for sure is that the real winners are the high-growth entrepreneurs who have more sources and channels for finding capital than ever.

A giant new capital market is taking shape before our eyes.

By Louis Emmerson, Editor-in-Chief, Symbid

African IPOs Set to Double Capital Raised in 2016

Wed, 04 May 2016 00:03:38 +0000

Insights

By Baker & McKenzie

Angel Investing on the Rise, A Perfect Storm for African Entrepreneurs

Mon, 04 Apr 2016 07:06:01 +0000

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.

Impact investing covers a broad spectrum of financial offerings, from Environmental, Social and Governance (ESG) screened securities, to donor-advised-funds, to direct investments in emerging economies. While the current impact investing market is growing – with more than one out of every six dollars under professional management in the U.S. invested according to sustainable, responsible and impact investing (SRI) strategies – this number is expected to grow in the coming years.

Trend 3: Africa is the Next Big Thing

It’s hard to deny that Africa’s economic outlook is improving. The continent is rich in natural resources, human capital and is home to some of the world’s fastest growing economies. In fact, Africa’s GDP is expected to grow at a rate of 5% in 2016, up from 3.5% in 2013 and 3.9% in 2014. Several of the continent’s countries have a growing middle class that is expected to continue to increase, just as real incomes (and demands) rise right alongside it.

During this time of expansion, small, mid-size and large companies across sub-Saharan Africa are sprouting up to meet said growing domestic and international demand. Per the IMF, “the same crucial developments that presaged the arrival of institutional financial investors in emerging markets in the 1980s are taking place in parts of sub-Saharan Africa today—growth is taking off, the private sector is the key driver of that growth.” Local companies are starved for capital as their financial markets scramble to keep up.

Bringing it Together – The Perfect Storm

At the intersection of these three trends we are seeing the emergence of a new financial actor on the continent of Africa; the Impact Angel. A swell of interest from HNIs, millennials, wealth managers and family offices is causing many to shift their charitable giving and philanthropic strategies into high impact investments. At RENEW, we believe these trends will continue to unlock opportunity for once capital starved companies in Africa to attract much needed growth finance from these investors.

But a word of caution. First, to companies seeking capital from impact angels; do not be fooled into thinking these investments will save you, or are just another form of charity. Investors worth their salt will expect you to deliver, and will likely take a board seat and closely monitor the company’s performance. If you want to bring on an equity investor, then you must understand the basics of private equity, read through the legal documents and become well acquainted with your investor. You should also realize that you are now a spokesperson for your country. The world is excited about Africa’s growth, but that excitement can quickly turn. When you join hands with an investor you are entering into a “business marriage” with someone. Your cultures may clash, your styles will be different, and there will be things about your investor that may make you crazy; but like any successful marriage, you must be dedicated and continuously work towards common goals. Trust will be the foundation of your relationship, so do everything in your power to build and protect that trust.

Next, we investors must also be wise and cautious. Investing in unfamiliar parts of the world, like Ethiopia, (where legal and regulatory systems are under developed and unpredictable) exposes us to considerable risks. Don’t let your heart leave your head in the clouds and your wallet in the gutter. We must perform careful due diligence (that can last weeks) on every investment, and should consider using a trusted local partner who understands the complicated business environment to oversee the diligence, structuring, closing and management of the investment. Or, you can always move to the country and do it yourself. Aside from either of these routes it’s Russian Roulette. Sure, there are some renegades – I have met a number of them on my travels – that are doing very well with a light touch. But, I consider this the exception versus the rule. Thankfully, frontier markets like Ethiopia, Kenya and Rwanda are becoming more accessible to investors through international firms that are opening offices in these opportunity rich countries. Also, be sure to manage your expectations. The statistics are against us – roughly 50% of angel-backed companies go out of business. So manage your expectations. In summary, do your homework and know what you are getting into – if you come in with your eyes wide open, then I believe being an impact angel can be very rewarding.

At RENEW, we believe that convergence of angel investing, the rise of impact investing and the African renaissance will continue to create impact angels who want to invest in and grow high quality entrepreneurs in Africa. We believe there are many hard working, ethical and determined entrepreneurs in Africa that not only want to make a profit, but strengthen their economies and help create a new story for their countries. We believe that Africa is filled with opportunities and, over the coming decades, Africa will emerge into a economic powerhouse. And we at RENEW, the Impact Angel Network and all of the other visionaries in this space can be a part of this chapter of history.

By Matthew Davis of VC4A

Getting into Impact – How to Become an Angel Investor

Thu, 07 Jan 2016 01:52:15 +0000

One of my colleagues recently pointed me towards a brilliant flowchart, exploring how you know if you’re ready to angel invest. Mike and I thought about what it might look like in the impact investing space, but it is true that there is no simple route into angel investing with a social impact lens.

We all know there is no one kind of angel investor, and there is certainly no one kind of angel focused on social impact either. That’s the amazing thing about this sector – people come from such a diverse range of backgrounds. What brings us together is a shared set of values, the fact that we want to support and invest into businesses doing social good.

Some people get into this and know a lot about a particular sector, some know a lot about angel investing, and some know a lot about starting, running and selling a business. I was one of those; I have been on a journey of 13 years from when I sold a business that I had helped to grow. When I started, I didn’t know much about angel investing. I could relate to entrepreneurs and analyse the financials of a business and look critically at a marketing or sales strategy, but it didn’t mean I knew about cap tables and preference shares and how term sheets are structured in angel or venture deals.

I did my first deals on my own. I certainly made mistakes, and then I started to think – okay, what do I wish I had known? How do I find out more about this? Then I met this group – Investors’ Circle. Here was a group full of people like me, and I thought – wow, a couple of hundred people who all care about the things I care about, who have been doing this and know about how it all works. Here are people who’ve made this journey already.

I knew that here was a place for me to learn and also to bring my own experience to the table, support some great entrepreneurs making a difference – and yes, here was a place for me to have some fun. Between us, we could add value much greater than the sum of our parts. So I really did dive in. I looked at deal after deal. Some I invested in, many I didn’t. I sat on screening committees for deals, and emceed some venture fairs. When I started, I didn’t even know what it meant to sit on a screening committee, but I learnt – and then I volunteered to lead screening teams. I helped to start a collaborative angel fund within our network. Eventually I was asked to run Investors’ Circle.

When I came to the UK, I wanted to see other angels make that journey, here in the UK. For me,Clearly Social Angels lets us share our collective knowledge about business, and investing, and social good.

So angels come in all shapes and size – but how to start out if you’re not there yet?

Well, first you have to learn about angel investing. That means the what (What types of attributes do we look at for these companies? What’s the difference between investing in seed-stage vs. early stage businesses?) and the how (Do I have the time for this? Can I give these businesses the attention they need? Can I get involved in due diligence?). You can have such an impact on a businesses at this early point in its trajectory, so you need to know you’re ready for it.

You also need to decide what you can offer – do you have more money than time, or more time than money? The decision on how much capital you have to invest is an important one. You need to know that you have enough to risk £15k or £20k into each deal – knowing that you’ll build a portfolio, that you’ll do the due diligence and make good calls, but that it is a risk nonetheless. For some, that starting point of £15k into each deal might be where they stay – for others, they’ll be investing hundreds of thousands in this social investment space (let’s admit it, it is fun and it is rewarding).

It depends on the angel, but you need to know before you get started that you have the means to do this properly, to think about your first investment in a company, but also subsequent investments after that – further rounds into the same company, and new investments into others. And that you might need to be very patient. Usually, these enterprises need time, and intellectual capital, not just financial capital, to develop.

An investor network, like Investors’ Circle or Clearly Social Angels, lets you experiment with time as well as money. You might dive in deep into one thing but provide the capital for other members to dive in deep on two other deals. Of course, being in an exclusively impact investing space helps too. In mainstream angel investing, people’s number one criterion is often the financial picture – how much money can I make? It’s true that it is also about sharing your skills – and bringing along your contacts and your networks – or promoting entrepreneurship or helping a sector grow.

In social angel investing, however, there is another question too – what are the problems I care about in the world? Can I support an entrepreneur to solve this one problem but also to go on and solve others? I am proud of entrepreneurs with whom I have worked, some even in businesses that failed, who have gone on to have great social impact because they had support at that early stage.

Many people in the social impact space as well as the “traditional” angel space invest in the entrepreneur and the team, first and foremost. Is this a person who you really believe in, that you really like, that you want to help to succeed? Do they have what it takes to change the world?

Think about the kinds of businesses you like, the kinds of businesses you want to encourage to do good in the world. What would make you excited to say – here, look at this company and this entrepreneur; I’m investing in them.

So you’ve answered the questions, you’ve followed the flowchart. What next?

Start by finding out how other people do it. Go on a course if you like to learn that way – I went on an incredibly helpful course, The Power of Angel Investing, when I was starting out. In fact, I ran a training company for almost ten years, so I know how valuable training can be – Go Beyond, which runs a number of angel networks, runs trainings both online and in live workshops, and is one example of a valuable resource for new angel investors. UKBAA now do training for angel investors in the UK, and we offer educational sessions and pitch events for investors who want to find out more (get in touch if you’d like to come along).

For some it will be reading that helps – so read books about it (such as Dragons or Angels by Modwenna Rees-Mogg of Angel News). My friend David Rose, from NY Angels, is about to come out with a new book on Angel Investing. For some it will be by watching other angels do it – so go to a pitch event or a taster evening. I’d say that most people, like me, want to get started and learn as they go; it doesn’t matter how you go about it, but keep on asking questions and listening to this generous group of people who can share their wisdom.

Then you can really dive in – find other people who have the knowledge and skills that will complement yours. Our social angels are a remarkable group of people; we’re mostly evangelists too, because we’ve discovered how brilliant social investing is, and we’d like to share it with you.

By Suzanne Biegel

The state of Angel investing in Africa in 2015.

Thu, 31 Dec 2015 01:00:48 +0000

Last year, I wrote about the state of the Angel investing in Africa in 2014 , I thought it would be good to look at the same issue and look back on the state of Angel investing in Africa in 2015.

Alot has changed from an ecosystem point of view but there is still alot that need to change .

Our year in review :

At the beginning of 2015 I shared our plans with DisruptAfrica and subsequently kicked off the “MeetInvestor series” for the publication and I am very happy to see the wonderful job that Tom and Gabriel have done with that platform .

We started a series of investment dinners called #FrontierInvestorsDinner in London and it was an excellent opportunity to curate great conversations and meet some people that are shaping our world today . Please see some of the photos from the July’s dinner with the Rwanda High Commissioner to the UKhere and we are looking forward to expanding this series to 5 cities around the world in 2016 .

AngelfairAfrica that took place in Accra, Ghana was the highlight of our events calendar because we were able to directly participate as investment partners and add value . Please find the full report and pictures here

NewGenFund was also established with the aim of investing in up to 10 over the next 18 months . The objective here is to give retail investors an opportunity to witness professional angel investing in practice. Our goal is to activate 1000 angels by 2020 .

In other news :

Africa Business Angel Network came alive in 2015 and run a number of workshops across the continent ,find out more about them here

Crowdfunding adoption is still low .

Infodev reports on lessons learned through East African startups, and it makes a very interesting reading , find the full report here

Predictions for state of Angel investing in 2016.

This is a long term play so hold tight because we are just getting started as an ecosystem so this is not the time for us to start cracking champagne .Having said that we expect the following things to happen :

More deals will be done and they will be unprecedented in size. There are a few seed funds and micro funds have been raised capital in 2015 that will need to be deployed.
More local investors will start doing some interesting deals , as more stories emerge.
More corporate venture capital will be made available to more startups ,Safaricom and Interswitch have led the way but more corporates will be getting involved in 2016. You can read more about Safaricom’s CVC fund known as Spark here
More impact investors will come out and stand up to be counted , our colleagues at RenewLLC have had a fantastic year and recently announced their 7th investment in Ethiopia .
More small size acquisitions will be done in 2016 , looking at these top 5 acquisitions done in 2015 ( mind you that there were others that were completed but not publicly announced) . I can predict that more sub $20M deals will be done throughout the year across sub-Saharan Africa and North Africa .
The three funds that I am really excited about are:
1)VentureGardenGroup -Nigeria
2)CRE Venture Capital -Pan-African
3)Chanzo_Capital -Ghana
Last but not the least ,more governments will need to take a leaf out of Rwanda’s book and put together policies that are friendly to startups and investors .

If you Want a ticket to startup heavens, Here are 4+1 reasons to become an angel investor in Africa today .

How we made it in Africa also did a great feature on NewGenAngels and our progress so far ,please find it here

Wishing you a profitable #2016 !

By Sean Obedih, Founder, Diverse Code