In Africa, more than 50% of business angels prefer to invest in start-ups that are already generating income (report)

(Ecofin Agency) – Most business angels operating in Africa opt for cautious investment strategies. They typically make investments of less than $10,000 per business in well-established start-ups.

More than 50% of active business angels in Africa prefer to invest in high-growth start-ups that are already generating revenue, according to a report by research firm Briter Bridges on behalf of the African Business Angel Network (ABAN).

This report specifies that these investors, who are often wealthy individuals, corporate executives or former entrepreneurs, perceive these well-established innovative companies as being less risky compared to young start-ups.

The report, which is based on a survey of a sample of 110 business angels, 84% of which are based in Africa, also reveals that the majority of investors surveyed said they had a multi-sectoral approach. 51% of them expressed interest in three or more sectors as part of their investment strategy.

In terms of the most targeted sectors, fintech ranks first with 11% of favorable reviews, ahead of agritech (10%), Edtech (9%), logistics and supply chains (7%), healthtech (7%) and e-commerce (6%).

With regard to the qualities most sought after in start-up management teams, 25% of respondents prefer to bet on start-ups that group together several founding members, while 24% favor start-ups founded by “recurring” entrepreneurs.

24% are also looking to inject capital into tech nuggets whose leaders have strong technical skills, and 13% are going to entities run by people with proven managerial skills.

Tickets under $10,000 per transaction

In terms of ticket size (amount of money invested in each deal), more than 50% of business angels surveyed said they typically invest less than $10,000 per deal, as these small tickets allow for diversified and less risky investments.

However, 72% of business angels declare that they make additional investments (follow-on) in companies that are already in their portfolios.

The report also points out that 41% of business angels invest in a network (or in a group), an approach that allows them to increase the ticket invested in start-ups, while 23% prefer to invest individually.

31% prefer to invest funds in innovative companies both online and individually, against 3% who choose to invest through a financing platform and 1% through rollover funds (specific investment vehicles that permanently capture resources).

Regarding the types of preferred investments, equity investments in start-up equity dominate with 70% favorable opinions versus 8% for equity contributions in the form of debt and 22% for mixed financing operations.

The instruments used in this context are simple futures equity contracts (SFAE) up to 43%, shareholders’ agreements (36%), convertible equity financing contracts (11%) and loan contracts (8%).

At another level, the study shows that 23% of business angels surveyed use their personal networks to find investment opportunities, while 19% use events dedicated to start-ups.

The other channels used to identify nuggets where these investors can inject funds are recommendations from other categories of investors (19%), business angel networks (16%), direct contact with founding startups (15%), venture capital consultation fund databases (3%) and media (3%).

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