Mentor Driven Capital, a business angel movement to realize African startup potential
Through mentoring, business angels offer more than just money. Mentor-driven capital is creating value for startups by sharing the knowledge, experience and network gained over the course of a career, actively supporting founders to maximize their return on investment.
Where capital is only one aspect, a mentor-driven capital approach uses mentorship to guide entrepreneurs to success. Understanding how to add value to a starting business is core to becoming a successful Business Angel.
• How can you help entrepreneurs become strong leaders?
• How can you support the founder team in achieving their business objectives?
• How can you unlock your network and expertise for the growth of the company?
• How can you use your experience to help the company navigate the market?
• How can you do this in your own interest to maximize value and improve chances of a successful investment outcome?
Mentor Driven Capital
Mentor Driven Capital is core to unlocking the continent’s potential. Not only is the pool of entrepreneurial talent coming up across Africa expanding, the number and the quality of ventures is improving over time. These companies represent a powerful collection of innovations, products, and services that have the potential to transform every industry. At the same time, as these businesses grow they offer new sources of income and produce high-quality job opportunities. As the turnover of these businesses grow they provide African governments with new sources of tax revenue needed to invest in infrastructure and social services. And for ventures that achieve great levels of success, there is a healthy financial return for the investors that took the risks early and supported the effort with their Hard (money) and Soft Capital (Time, Network, and Expertise) when they needed it most.
Where any startup requires cash to operate, it is the application of capital in smart ways that secures a greater impact and return on investment.
VC4A research shows a clear relationship between venture performance and the support these ventures received from the startup ecosystem. For example, companies on average raised more capital, USD $210,000 with ecosystem support vs USD $84,000 without ecosystem support, and are more likely to be generating new jobs. This is significant when considering 60% of the new jobs created are for individuals under the age of 36. Considering this impact, and given the continent’s growing population, Mentor Driven Capital has a critical role to play in supporting the continent’s entrepreneurs. It is also where a good Business Angel can make the difference between venture failure, survival and success.
What makes Mentor Driven Capital unique?
The focus and emphasis is too often on the money part of early-stage investing, when we know that the soft contribution Business Angels can make for startups adds the most value. Where any startup requires cash to operate, it is the application of capital in smart ways that secures a greater impact and return on investment. More importantly, Business Angels are in a unique position to add value. They often bring deep industry experience, an extensive network of contacts and many lessons learned from years of being in the industry. The Business Angel can provide a level of support an entrepreneur will not get from a traditional Bank, VC investor or most Startup programs. Business Angels can provide hands on support when companies need it most!
What defines Mentor Driven Capital and the Business Angel?
• Two individuals believe in the potential of an idea, share an enthusiasm and dedication for its potential, and are willing to put in the hard work needed to implement the idea successfully;
• Where one individual is the entrepreneur responsible for building the business structure that will carry the idea, the Business Angel offers hard (money) and soft (time, expertise, and network) capital support;
• Investing hard capital (money) without offering the entrepreneur soft capital (time, expertise, and network) means the individual is an investor. Investing soft capital (time, expertise, and network) without investing hard capital (money) means the individual is a mentor. Mentor Driven Capital is the combination of both and is what defines the Business Angel.
Alignment of Incentives
The business angel investing money into the business means they most likely stand to benefit financially from any successful outcome. This ‘skin in the game’ helps to create alignment between entrepreneur and Business Angel, and where both parties are working towards the same objectives. At the same time, there are many reasons why startups fail at an early stage. The risks are only compounded when operating in nascent markets where infrastructure can be lacking. Investing capital into a business and expecting success is often short-sighted. This is where supporting the entrepreneur in the decision-making process and actively unlocking opportunities for the entrepreneur to tap into can only improve the chances for a positive outcome, and can often mean the difference between failure, survival, and success.
Skin in the game helps to create alignment between entrepreneur and Business Angel, and where both parties are working towards the same objectives.
It is not always possible for the investor to engage as a mentor. Sometimes the investor is too busy or should focus on other business priorities. This is not necessarily an issue if both parties are upfront about this at the start of the relationship and to manage expectations. This is to prevent a situation in which the entrepreneur is expecting support they are not going to get or the investor being inundated with requests they are unable to follow up on.
Investing money into the business is also not a requirement. It is not always possible. It can be that the Mentor does not have the financial resources to invest in the business or that the entrepreneur is pursuing a fundraising strategy that doesn’t allow for the mentor to participate as an investor. Again, this is not necessarily an issue, but where both parties need to understand the incentives that motivate their partnership from the beginning. Sometimes a mentor is looking for new career opportunities, wants to better understand a market or industry, or simply wants to give back. Any of these reasons are valid for wanting to engage with startups in a formative stage, but where it’s important for both parties to understand what motivates their engagement and to set realistic expectations.
Helpful Links:
Join the African Business Angels Network (ABAN) and take an active part in growing an angel investing movement
Become active as a mentor and engage startups from across the continent on the VC4A Mentorship Marketplace
Time to scale your operations? Check out Four Steps to Fundraising on VC4A
Join thousands of Africa focused investors in backing the next great startup and register a Premium Account
Get detailed Industry Research on the market and what is happening across the early stage investment industy
Check out the VC4A Index and explore Fundraising Trends
About VC4A
VC4A seeks to link as many entrepreneurs to growth opportunities as possible. Each connection, measured as a transaction, represents an entrepreneur connecting to the knowledge, network, and capital they need to succeed. VC4A supports the making of these connections through the core activity of building, improving and maintaining the VC4A.com website, a critical piece of infrastructure for supporting entrepreneurs building African ventures and key partners that seek to link their opportunities to entrepreneurs.
As a member of the VC4A.com online platform, entrepreneurs have free access to the VC4A Startup Academy, Mentorship Marketplace and the ability to raise capital from more than 2,000 Africa focused early stage investors. More than 1000 program partners engage members with their entrepreneurship programs, competitions, and services. A global network of investors use VC4A tools to discover great companies, research investment opportunities and to follow up with founders directly.
