In this column called “The Indicator,” we will be taking an economic or financial statistic from East Africa and breaking it down into bite-sized nuggets of knowledge for investors.
This month’s indicator figure is 63
63 what?
There are exactly 63 investors focused on early stage, seed, or “angel” investing in the East African Community (EAC) countries according to Angel List, a global platform for start-up investing that seeks to “democratize the investment process and to help start-ups with their challenges in fundraising and talent”.
What is an angel investor and what do they seek to invest into?
An angel investor is a term for typically a wealthy individual who invests in a start-up, early stage, seed stage, at the new company level,or in relatively new companies that are looking for a higherreturn on the higher risk of business start-ups.
In East Africa, angel investors typically invest anywhere from US$1,000 in a group of several angels or syndicate such as Viktoria Angels or TAIN in Nairobi and Dar es Salaam respectively. Other angels invest individually at ranges from US$10,000 to US$100,000 and some will go up to approximately US$500,000 per investment in a professional angel fund or early stage or seed investment fund. Most angels seek to invest in a high quantity of companies across a wide spectrum of start-ups by using a diversified portfolio approach to mitigate their risks.
Since angels seek to invest in high-growth companies there is usually some information technology involved or some other accelerated distribution system that enables rapid growth of a business.
What types of investments have angels made in the EAC?
Angel investors in East Africa seem to prefer financial technology (fintech), renewable energy (cleantech), electronic commerce (ecommerce), educational technology (edtech), agricultural technology (agtech), or health care (health tech).
So far,fintech companies that use technology for transferring and lending money have attracted the greatest amount of start-up and angel investor activity, with over 65 fintech companies operating in Kenya alone.
Why do angel investors invest in such early stage companies?
Many become angel investors to support a vision, a founding team, or because they enjoy the thrill. Sometimes, angel investors are those who would like to invest in companies and mentor entrepreneurs to make stunning successes together.Others are committed to diversification and have dedicated funds to angel investing for high risk, high return ventures.
Some angel investors in an East African start-up that raised US$20 million venture capital have indicated that they have received a 500% return on their investment in a three-year period.
This is not the norm with most angel investments going from 100% to 0% within 18-24 months.
Angel investing is not for the faint of heart.
Which EAC country has the greatest and which country has the fewest number of angel investor residents?
Kenya has the most vibrant start-up scene in the EAC and has 47 investors listed as residing in the country, or 75% of the total number of angel investors in the EAC. Tanzania and Uganda have eight each. Rwanda and Burundi presently have zero angels listed as residing in the country.
How do the number of angel investors in the EAC compare to other parts of the world?
The EAC’s 63 angels make up 21% of Africa’s 300 angel investor residents. South Africa has the most angels at 103 followed by Nigeria. In the United States, angel investors are listed by metro area with 12,232 residing in the San Francisco Bay Area, the highest concentration globally. In contrast this one relatively small geographic area of the US has nearly 200 times the number of angel investors than the entire EAC.
Are angel investors living in the EAC likely to increase or decrease?
They are likely to increase. Despite only 63 people listing their residence in an EAC country on a single platform, over 1,202 angel investors have expressed interest in angel investment in the region.
With the demographics and new frontiers the EAC is creating, it is a fair assumption that a few of those may see the opportunities and seek to move to East Africa to follow their investments.
How can I learn more?
To learn more about the topics in this article you can visit:
Angel List – http://www.angel.co
Asoko Insight – Fintech Market Map – https://asokoinsight.com/content/quick-insights/kenya-fintech-market-map
Viktoria Angels – https://www.viktoria.co.ke/
Tanzania Angel Investors Network – https://twitter.com/tzangelsnetwork
About the authors:
David L. Ross is Managing Director of Stratera Capital, Distinguished Professor and Practice of IT Entrepreneurship at Carnegie Mellon University Africa, and US Ambassador to the Open University of Tanzania. He is active in growing companies in Eastern and Southern Africa through primary investment, investment advisory, strategic partnerships, and executive education. Connect on LinkedIn at http://tz.linkedin.com/in/davidlross1 or at david@strateracapital.com.
Catherine Mandler is a Senior Analyst at Stratera Capital. Connect on LinkedIn at http://www.linkedin.com/in/CatherineMandleror at catherine@strateracapital.com.
