Epic Games, Uber, Juul Labs, Magic Leap, Instacart, Katerra, Opendoor, and Lyft share many common traits. As you might have guessed, they are U.S.-based, male-led, venture-backed technology companies.
What you might not have realized is that each of them individually attracted more venture capital in the last year than was invested in the entire continent of Africa in 2017. The top three, Epic Games, Juul Labs, and Uber each attracted $1.2B, or more than twice the amount of venture capital invested in Africa.
African-based or -focused venture firms have seen substantial growth over the last three years. Of the 22 Africa-based funds, 41% have been formed since 2016.
Jumia’s IPO announcement has gotten the world interested in “African” startups and there is for sure more startup capital available in sub-Saharan Africa today than a few years ago, but that capital is not coming from the sources that really matter for early-stage startups.
Africa needs more angels.
Angel investors invest their own money in early-stage startups. Even more so in communities where “friends and family” do not have the wealth or expertise to invest in startups, angels play a key role in financing the business from the concept stage to the revenue generating stage.
They are especially critical for women in these communities who need to overcome a higher “proof of concept” to attract institutional capital. While it’s hard to pin down the total dollars invested by angels in Africa, it’s clearly not significant enough.
In 2018, $133.5M of venture capital was invested in Nigeria, the continent’s leading destination for venture investment behind South Africa. That same year, the Lagos Angel Network, the most active angel investment network on the continent, invested only $1.5M.
Startups lament a lack of capital to get them started. Venture capitalists say they would invest more in Africa if only there were more viable companies in the pipeline.
A robust angel network would solve both of these problems by serving as the bridge between startup idea and growing company. And in building that bridge, angel investors may help entrepreneurship fulfill its promise as a generator of youth employment and innovative local solutions to local problems.
Africa does not lack high net worth individuals (HNIs). According to South Africa’s Business Report, there are more than 40,000 millionaires in South Africa.
Nigeria leads the world in the growth of millionaires. It’s projected that the number of millionaires will grow by 16.3% annually until 2023. There are two main reasons that these HNIs do not invest in startups.
First, they don’t understand the asset class. In the US, where over $24B was invested by angel investors last year, 6 out of the 10 richest people made their fortunes through technology. Africa’s richest man, Aliko Dangote, made his fortune in cement.
Only 1 out of the continent’s top 10 richest people made their fortunes in tech-adjacent spaces. Naguib Sawiris’s wealth comes from the telecommunications industry.