The power of seed stage syndicates in Africa

All startups kick off with a seed funding round. How are African angel investors participating?

The African continent boasts an abundance of human resources
and huge potential for accelerating technological change. However, corporate Africa needs to step up its performance to make the most of these opportunities, and African governments will have to play a stronger role in unleashing renewed dynamism.

Across the continent, many of the world’s fastest growing economies are home to a number of promising and investible tech-enabled start-up companies. These same countries are home to decent higher education (business, engineering & science) institutions but no real research centers. Their economies are driven by growing populations, business activities and public/private sector development.

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In Africa’s most populous country, organizations like the Lagos Angels Network (LAN), a network of business angels that provide funding and mentorship to early-stage Lagos-based ventures, are bridging the venture gap and kick starting investment opportunities at the seed stage.

Deal sourcing by LAN is carried out proactively. Ventures are sought through the membership network, and reactively through inbound requests that originate from the website, social media or email. Ventures that pass our initial screening process are coached regarding the expectations of LAN investors and how to best present their venture. Selected ventures are then invited to present to members at a LAN Deal Day Pitch event, normally held once a quarter.

Typically, 5–6 companies pitch their ventures and face a variety of questions. The investors then discuss aspects of the company and potential deals in a closed session. Formal due diligence is carried out by the Angels as well as
professional service providers. The process includes: a competitive analysis, validation of product and IP, an assessment of the company’s structure, financials and contracts, a check of compliance issues, and reference checks on the team. Reports are provided to the LAN investment syndicates who
review and declare interest or decline.

If member syndicates declare sufficient interest, term sheets are prepared and the company’s valuation is negotiated by the Lead Angel investor. The venture may be also be requested to present to the investing members a final time. After the investment, the Lead Angel monitors, mentors and assists the venture with expertise and connections through LAN. In addition, it becomes the Lead Angels responsibility to work closely with the venture to facilitate an exit for the LAN investment at the appropriate time.

About the Author

Harry Tomi Davies (TD) is a versatile technology business leader, keynote speaker and advisor with over two decades of outstanding experience building large-scale, national and region- wide IT infrastructure projects across Africa. Over the last decade TD has looked after a growing portfolio
of Africa-based tech- enabled early stage businesses and is the Founder of the Lagos Angel Network (LAN). He is also President of the African Business Angel Network (ABAN).

This article is featured on the State of Play report. To receive a free copy of the report click here.

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