Angel investors are stepping in to fill the gap left by the decline in funding within Africa’s startup ecosystem which has made it challenging for early-stage companies to secure capital, says a new report by the Africa Business Angels Network (ABAN).
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In the first three quarters of 2024, Africa’s tech startups managed to raise a total of $1.4 billion in venture funding, according to Africa the Big Deal, and except for a massive windfall in Q4 2024, did not surpass the $3.5 billion (itself a 46% decline from 2022) raised in all of 2023.
In total, African startups raised $2.2 billion in 2024 – a massive 29% drop from 2023.
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This environment is proving more difficult for early-stage startups which, often characterized by unproven business models, struggle to attract risk-averse investors. By providing essential funding, angel investors help de-risk these businesses, enabling them to reach critical milestones and attract larger investments to scale, said the report by ABAN.
According to the report, Africa now boasts over 110 active angel investment networks, a 27% increase compared to 2022. These networks are not only increasing in number but are also expanding their geographic reach, particularly into emerging markets such as Francophone West Africa and Southern Africa.
- Technology remains the leading focus of angel investors, with 42% of deals targeting tech-driven startups. Within this sector, fintech leads the charge,
- followed by agritech and health tech
- Emerging interest in climate tech has also gained traction, with sustainability-focused startups witnessing a 19% increase in funding
The report determined that most angels typically write small cheques between $1,000 and $25,000. On average, individual angels invested $30,000 per deal, while syndicates pooled larger amounts of up to $200,000. There is a noted shift towards co-investment models, where angel investors collaborate with venture capital funds and institutional partners.
Most angels participate in:
- Seed (47%) and
- Pre-seed (40%) rounds
providing patient capital to support entrepreneurs validate and scale their innovative solutions.
- Half of the respondents (50%) make equity investments using SAFEs and equity or shareholders agreement. On the other hand,
- More than a quarter of angels (28%) invest using debt instruments through a loan or convertible notes that have short maturity
Kenya, Nigeria, Egypt, and South Africa — commonly called Africa’s Big Four startup ecosystems — have the continent’s largest concentration of startups and venture funding. Additionally, they host the most active angel investing ecosystems, with the highest number of individual angels and angel groups.
Projections suggest that more than doubling the number of active angel investors in Africa could lead to an 11-fold increase in angel investments by 2026.
Put differently, if the number of angels in each of the 54 countries in Africa increased to an average of 94, the continent could unlock more than 5,000 active angel investors, the report added.
Collectively, angels have invested more than $35 million into African startups between 2008 and 2023, according to ABAN.
The report advocates for collaboration between global investors, diaspora communities, and local stakeholders is key to driving sustainable early-stage investment in Africa. The report says this can be achieved by:
1.) Leveraging diaspora networks for local insight and trust – Diaspora communities can act as bridges, providing global investors with nuanced, insider knowledge about market conditions, business practices, and cultural dynamics.
2.) Engaging in knowledge and capacity exchange – Global investors and diaspora communities can provide strategic value by sharing knowledge, offering mentorship, and providing access to international markets and networks.
3.) Fostering partnerships to de-risk investment – By fostering collaborations between global investors, diaspora communities, and local stakeholders, there is a potential to pool resources and de-risk investments
4.) Capitalising on co-investment platforms and syndicates – By facilitating syndication, this allows for a shared approach to funding that reduces individual risk while increasing the capital pool available for early-stage startups.
5.) Collaborating on building stronger exit pathways – Collaborating with local stakeholders and diaspora communities to develop clearer exit pathways – whether through local acquisitions, secondary markets, or even IPOs – will encourage more foreign capital inflows.
Click here to read the full report.
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