Kenyan angel investor Stephen Gugu used to work in asset management for one of the largest banks in Africa. But he was bored.
“After a couple of years that became boring, too much sitting in plush offices and not a lot of front line action,” he said.
So Gugu decided to pursue his MBA, which provided him with the perfect launchpad into entrepreneurship. Now he runs corporate financial advisory firm InVhestia, and invests in startups through the Viktoria Business Angels Network (VBAN).
“From 2012 to 2015 we did a lot of consulting work for incubators and accelerators around access to finance for their entrepreneurs. We realised during that time that there are a lot of efforts to help entrepreneurs build good businesses and even raise money, but without good focus on the angel side of things most of this effort would go to waste,” said Gugu.
“Further, we felt that cash with benefits would be the key thing to help entrepreneurs solve the major challenges in Africa hence angel investing.”
Hence the launch of Viktoria, which has 15 members and has done two deals so far, as well as having run over 15 educational and pitching events over the last three years.
“We have put the angel investment discussion on the table in Kenya and now we are looking to get more deals done,” Gugu said.
“We are now more focused on closing deals and getting more paying members. We want to close three deals by the end of the year and get more members on board.”
Viktoria angels like capital efficient, innovative and scaleable businesses.
“We are currently focusing on tech-enabled businesses because they easily fit the characteristics mentioned,” said Gugu. “However, as we gain traction in that sector we shall explore which other sectors are compatible with our growth preference and the risk appetite of our network members. We come in early and will usually be the first formal investor in a business.”
He believes angel networks are vital to the development of the African startup space.
“The whole idea is really to give interested angels an opportunity to learn how to invest with other more experienced angels, and while doing this also give people who may not be super rich opportunities to participate in startup investing,” Gugu said.
“In developed markets angel networks and groups have been critical in channeling necessary funding to entrepreneurs to grow their businesses, especially in the recent past where this has been well documented. In Africa we are beginning to observe a surge in angel investing as entrepreneurial ecosystems grow.”
Structuring these angel networks can be a challenge, with Gugu saying there is no one right way of doing things.
“It depends on the angels and the startup ecosystem. You have to try and see what works. Before we got to our current model, which we think is working, we iterated over three different models,” he said.
“The key thing is to ensure you are clear on what success looks like right from the beginning. Is it pitch days, is it members, is it deals, is it cash disbursed? And of course get them to be sustainable.”
So what kind of relationships due angel investors and angel networks have with VCs?
“For us as a network its a symbiotic one. They show us deals they think are too early, we show them those we think are too late and push our investments to them,” said Gugu.
Right now, there are not enough such linkages.
“There’s a bit of chasm, mostly due to the fact that the angels and VCs are just not as networked in our ecosystem. This means that you don’t see as much linkages happening to get deals done. Of course it does not help that a number of angel investors don’t want to get known,” he said.
“The tide is shifting however as we see more angels with investment backgrounds or who have been entrepreneurs and have a good sense of the VC environment.”
Angels perform a pivotal role distinct from VCs in the African startup ecosystem, he said, in that they have a different approach to investing.
“At the end of the day both the angel and the VC want success for the business and will offer cash, mentorship and connections,” said Gugu. However, there are key differences in approach.
“For funding the angel is just less formal about the process of getting the funds and expectations thereafter. This means the angel can write a cheque without too much due diligence and may not have very strict reporting requirements,” he said.
“Further, the angel comes in quite early, at times the business model is not even clear. The VC would only come in when it’s time to think of how to scale. Remember the angel is investing his or her own money while the VC has institutional cash usually.”
Meanwhile, angels offer lots of mentorship to entrepreneurs, in a very easy going way.
“I find that because the relationship between the angel the entrepreneur is not as formal, mentorship is more open and the two can share much more. The entrepreneur does not need to show they know everything, they can just call and say “I don’t know how to do X”, and the angel will not judge. Once VCs come to the picture things are different. It is almost like an internship and formal employment, you do the same things but expectations are very different,” said Gugu.
“The implication is that the entrepreneur is more at ease to experiment and work on their business when they have an angel on board than when they have a VC. This makes a tonne of a difference for the entrepreneur, less stress, and less reporting pressure.”
The importance of angels is illustrated by the fact most startups that raise funding in Africa have received angel funding at some point. However, Gugu feels most of the activity is still coming from individual angels rather than angel groups.
“Most of the individual angels participating in the deals have participated in deals before and are better able to spot the opportunities. Groups that tend to put together less experienced angels or angels that may not have as much time to scout for deals and execute on them individually are yet to really play a huge role,” he said.
He feels this will change, and says there are many opportunities to be found in Africa’s tech space.
“Africa has many challenges which can be translated to opportunities. If you believe that every day we are marching towards a more developed economy, then the opportunities are massive – all the way from agri-tech to connect farmers with markets, to fintech to move banking services to the last mile, to energy to ensure everyone gets power,” Gugu said.
“There’s a lot of opportunity. The key thing is that you need founders who are willing to take the market for what it is and innovate from there. Context is really important to be able to take advantage of the opportunities.”