All across the African continent, innovators and entrepreneurs are coming up against a persistent roadblock: lack of access to capital funding. But a new investment platform aims to change that and will soon introduce the first pan-African “angel investor” networking event in Johannesburg.
An “angel investor,” typically a very wealthy person, provides funds for a startup business often in exchange for convertible debt or ownership equity.
The platform called Angel Africa List is hosting an Angel Fair on Sept. 26 to connect a group of investors with 25 African startups, mostly in the technology sector. The event will include panel discussions, workshops and an opportunity for business owners to deliver pitches.
The platform, led by Ghanaian tech entrepreneur Eric Osiakwan and South African businessman Andile Ngcaba, was founded in May at an entrepreneurship forum in South Africa. Its purpose is to "achieve economic prosperity on the continent by building and fostering -- through mentorship-based financing -- a forum for innovative technological ideas, investors and business mentors." The organization also plans to set up representative offices all across the continent.
"The idea was to create a network of angels who could provide early startup money and things like networks, mentoring and other contacts," Osiakwan told Balancing Act, a London media outlet. "We want to help people go through the classic cycle from idea to product to business more easily."
Indeed, the African continent seems rife with entrepreneurial opportunities. Economies are growing rapidly across the continent -- GDP growth in sub-Saharan Africa will hit an average 6.1 percent in 2014, according to International Monetary Fund projections, far exceeding the forecast global average rate of 4 percent -- and newly emergent middle classes in Africa are expanding and driving up consumerism while empowering young people to pursue educational and business opportunities.
Entrepreneurs in Africa still face formidable challenges. The Omidyar Network, a social investment group based in California Silicon Valley, released a report this year called “Accelerating Entrepreneurship in Africa,” which surveyed 582 entrepreneurs in six sub-Saharan countries.
Although entrepreneurship is on the rise across the continent, the respondents pointed out that finding financial backing for small enterprises is either impossible or impractical. Potential financiers, meanwhile, complained about "a lack of fundable business plans, pointing to issues ranging from the quality and feasibility of the business idea to the commitment of the entrepreneur and his or her team."
The report found that 60 percent of respondents considered it acceptable to begin a business in the informal sector, and that a significant portion -- 45 percent -- used personal or family loans as their main source of capital. In total, less than 10 percent of respondents used venture capital or angel seed money.
These statistics reflect a deeper truth about entrepreneurship in Africa; broadly speaking, it doesn't fit the typical Western model. Business owners across the continent are more likely to start their ventures informally and to pursue various enterprises at the same time rather than pouring their resources into a single venture. This informal, diversified approach keeps startup costs lower, minimizes bureaucratic holdups and diminishes risk.
"In a sense, African entrepreneurs run profit ecosystems rather than business units. These ecosystems interact with other ecosystems in a culturally elaborate manner that can produce extreme robustness, resilience, and flexibility," wrote the Ghanaian entrepreneur Bright Simons in the Harvard Business Review last year, adding that "the failure to study African entrepreneurship as a creature beautiful and complex in its own right has impoverished our global view of entrepreneurship."
The angel investor network now kicking off in South Africa may bring some formality to African entrepreneurship, if only on a small scale. But it also presents an opportunity for self-propelled growth, allowing African investors and business owners to come up with home-grown solutions to the continent's unique challenges.
"In Silicon Valley, they know how to take care of all this," Osiakwan said. "But in Africa, you need to provide what we’re calling ‘mentor financing’; in other words, all the things that wrap around the finance itself."