Editor’s note: Kenya’s startup ecosystem is the epicenter of East Africa’s tech startup scene. Nailab, a Kenyan business incubator was commissioned to run Jack Ma’s Africa NetPreneur prize. They spot notable investors like Village Capital, Safaricom Spark Venture Fund, TLCom capital, Savannah Fund and Accion. Last year, Kenya ranked third in terms of the number of startups that raised money in Africa, second to Nigeria and South Africa. This article is aimed at potential angel investors, but entrepreneurs and those outside of Kenya might find it useful.
Nairobi, Kenya and Lagos, Nigeria—Investing as an angel is hard but when you hit a jackpot, it brings the best fortune.
Angel investors are usually wealthy individuals who invest in small, early-stage startups providing more favorable terms than other lenders. Startups requiring angel investment typically have difficulty in accessing capital, because they are new and yet to show traction. So, angel investors, usually in the form of family and friends, step in to make a one-time investment or a recurring one until the company is able to stabilise. They are the opposite of venture capitalists, in that they are "focused on helping startups take their first steps, rather than the possible profit they may get from the business", says Investopedia. Forbes outlines 20 things entrepreneurs should know about angel investors, and we find many of them to be true.
Characterised by their investment tickets, which ranges from $25,000 to $100,000 and the stage at with they partner with a startup entrepreneur, they are also referred to as seed investors. For example, Nigeria’s Ingressive Capital is a venture capital-backed (pre-)seed stage investor. Likewise, Kenya's Savannah Fund, a seed capital fund targeted at early-stage high growth tech startups in SSA. Only that this time, their investments could go as high as $500,000.
Angel investing is a daunting process but this will guide you on the steps to take towards becoming an angel investor in Kenya's startup ecosystem. The steps explained below can be summarised into joining an angel network, paying attention to the market, and acting promptly.
Join a Network
This is the first step to joining the Kenya startup ecosystem. Networks are so connected to the industry and when you register as an angel investor, you are guaranteed to have discussions with other angel investors like you, attend meetings, know the process of angel investment and come across great startup founders.
One of the most successful angel investment networks in Africa is The African Business Angel Network (ABAN), a Pan-African non-profit association founded in 2015. Although they started from South Africa, they seek to support the development of early-stage investor networks across the entire continent.
"At its core, ABAN exists to create a contact point for existing networks, to support stakeholders involved in building the ecosystem, and to promote the creation of new Angel Investor networks. In turn, ABAN ultimately seeks to build the SME economy and improve the climate for entrepreneurs", reads an excerpt from their website.
ABAN was started as a consortium of independent investor networks including Lagos Angels Network (LAN), Cameroon Angel Network (CAN), Ghana Angel Investor Network (GAIN), Venture Capital for Africa (VC4Africa), and Silicon Cape; supported by the European Business Angel Network (EBAN), the LIONS Africa Partnership and DEMO Africa.
In Kenya, you can join firms such as Viktoria Ventures, one of the first angel investment networks in the country. Founded in 2015, it's a start-up ecosystem development venture focused on attracting local and international angel investors to the best start-ups emerging in East Africa’s innovation space.
Register on the Angel investment network Kenyan website
This the one of the world’s largest online angel investment community. It has 30 branches extending to 80 different countries and has 1,116,529 registered members with 199,602 investors and 916,926 entrepreneurs. They have already raised US$300 million for some of the coolest startups in the UK and across the world.
Go to their Kenyan website, create an account as an investor and you will see potential startups in Kenya to invest in.
VC4Africa summarizes the nature of the angel investment network as this: "Each initiative works with a different business model and applies a different protocol for managing their operations. Some networks are membership-driven while others rely more on brokerage fees. Others seek sustainability through syndication".
So the best way as a potential Angel Investor is to study these business models and join the one you think is good for you.
Pay attention to happenings in the market
While many prefer to invest their money by backing an existing portfolio or wait for experienced investors with a track record to make the first move, it’s not always a smart decision. In fact, your gut feeling is much better than following someone else’s decision. Often these experienced investors don’t have a model other than trial-and-error, where they tend to invest in as many startups as possible, till they get that one unicorn!
So the best way is to focus on data and logic in the form of consumer trends, emerging technologies and those products disrupting an industry.
How do you know this? Once a week, make a habit of reading technology blogs across the world, Africa and also in Kenya. The good part is there are different outlets to read about startups and tech. Here are some tech blogs that do a good job of reporting on the startup tech scene in sub-Saharan Africa, of which Kenya is a key player.
- Disrupt Africa
- Cio East Africa
- Nairobi Garage newsletter
- iHub blog
- Quartz Africa
- Venture Burn
- iHub Blog
Another way to stay in the loop is to look for insights and data reports released by ecosystem players. Though things like funding might confuse you as I have highlighted in a previous article, you will still get important insights, compare sectors and be aware of the latest tech trends.
Act promptly, timing is crucial
Bill Gross, an American investor in his famous Ted-Talk video talked about ' timing' being the single biggest reason for startup success. In your case, timing the market is the one thing you need to focus on if you want to hit the jackpot with the startup you just invested in. One of such eras is the fintech rush. Now, imagine what it would have been like to invest in Tala—an alternate lender awarding credit scores to people in East Africa—in 2011 when they were just starting out. In 2018, Kenya’s Tala closed a series C round worth $65 million.
Like point two above, timing the market means that you are watching the market to see sparks, trends and duplicable models in other adjacent markets. Another alternate lender startup, PayLater launched in Nigeria in 2016, right about the time when others like Flutterwave, Paystack and PiggyBank (now PiggyVest) launched. A “hungry” angel investor will reach out to the network he or she is a part of and look to attract said fintech startups before they grow too big for angel investment. PayLater just raised $5 million in debt financing.
Of course, it is easier said than done as there are many factors to consider when it comes to investing in a new product, startup or entrepreneur.
One of the tools that many successful business people and investors have found incredibly valuable in this context is change factors analysis, which is sometimes called PESTEL analysis. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal factors that can impact your market.
Another tool, popularized by Harvard Business School professor Michael Porter, is Industry Structure Analysis, also known as Porter Five Forces Analysis. Although you can never predict with accuracy when a market will ignite, you can have a pretty good idea within a couple of years.
In conclusion, you should keep in your mind that if a startup or a product is early to the market, it's okay as long as it's not massively early but if the startup you are investing is late in the market, it's likely to lose. For instance, a new fintech app in Kenya or Nigeria will struggle to get users. Unless it has a very strong differentiator.
Cover photo: Sam Gichuru, founder, Nailab and Jack Ma, founder, Jack Ma foundation