NB Financial Health

Friday
February 21
2014

Tara Sabre Collier

African Angel Investors: Creating an ecosystem

As an impact investor, I see angel investors as key allies and collaborators, but angel investor circles are notably absent in most African capitals. This is ironic, given that many forms of community and social lending (like susus and chamas) have existed here for ages. Although the amounts lent in these groups are small, they show the same collaborative spirit that’s behind angel investing. Still, given the less sophisticated financial and regulatory markets in Africa, there are not many formal structures where one can gain this kind of support, especially for social and BoP-focused business ideas.

I had the pleasure of attending the recent Sankalp Africa Forum session on Angel Investor Networks, where Suzanne Biegel, Eric Osiakwan and Ranjith Cherickel presented on behalf of Clearly So, Angel Africa List and 88 mph, respectively. Discussion focused on the challenges and potential solutions to developing Africa’s angel investing ecosystem.

As the panelists mentioned, high-net worth individuals in Africa can make great earnings in local real estate markets, through government procurement and even by trading – so many see little reason to seek returns from something as novel as angel investing. Thus, convincing people to engage in angel investing in Africa requires lots of trust, and potentially some social pressure.

The Tony Elumelu Foundation has reportedly tried to catalyze this social pressure by supporting angel networks and homegrown philanthropy. African Investors for Development was launched in 2012 with a similar mission. I was really delighted to learn that AngelAfrica is now partnering with the African Venture Capital Association on some of this ecosystem development, and I wish more of the other players would likewise begin to align and collaborate. It will end up improving returns for all of us.

As the panel pointed out, developing local angel networks means opening up sources of capital that bring expertise plus market linkages – these lead to increased probability of business success. They also mean more active networks for information sharing, which helps all investors (including impact investors) vet deals more effectively. Relative to foreign impact investors, local angel and domestic impact investors are more likely to recognize and support high-value business models that reflect their local culture. This helps make our market-based development solutions more endogenous and probably more effective.

Local angel networks are also good for pipelines, good for “first loss” capital and good for creating an ecosystem. They can even be among the backers of impact investment funds, which reduces our currency risks. All of this can contribute to good fund economics for impact investors.

In my view, the two big challenges to developing Africa’s angel investing ecosystem are:
– Creating the impetus
– Ensuring inclusiveness

The first challenge is slowly being addressed, given the advancements mentioned above. It would be even better if the media and civil society were similarly highlighting the importance of African angel investors, furthering the social momentum.

The second challenge will be much harder. Africa is the world’s second most inequitable region, after Latin America, and money tends to coagulate among connected individuals at the top. Through educational incubators and business plan competitions, we can at least ensure that some of the businesses supported will be generating solutions for the base. We also have to work to ensure geographic inclusiveness, as currently the incubators, angel networks and impact investors are disproportionately saturating in South Africa, Kenya and Nigeria.

Tara Sabre Collier is the co-founder and managing partner of EOSS Consulting, an economic development consulting firm based in Rio de Janeiro, Brazil.

Categories
Entrepreneurship, Impact Assessment
Tags
impact investing, SME finance, social development, social enterprise, social entrepreneurship, social impact, startup