Darius asked me how the Kenyan scene was in terms of Angel financing.
According to Wiki, an Angel Investor is is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt orownership equity.
Well, opportunities for an Angel to invest are boundless, the question is if the investors are available in Kenya.
I once worked in a set up where we needed to raise capital for various real estate opportunities, and have assisted a couple of friends source for short/medium term financing this is my experience with ‘Private Equity’. In Kenya, there’s always money looking for places to rest, the trick is how to get this money resting in your business. Below are some of the things to look out for. It takes much more than an excellent business idea.
- Networks- Like everything in business, your success is directly proportional to the to the number of people you know. Sharing your ideas with as many people as possible increases your chance of meeting someone who is interested in funding it, or knows someone who can do it. The main investors in one of our ventures were investment clubs. Most have a higher risk appetite than individuals and are therefore willing to invest in start ups. The down side to investment clubs is most don’t have investment committess, and one has to convince all the members
- Track Record – Investors are more comfortable investing where there’s a track record of exceptional performance, albeit a small one. A rookie in business will have a hard time convincing investors, as opposed to one who is seeking expansion capital. That said, there’s always the select few that will invest in you.
- Structure- How you structure your investment is important. Are your investors after cashflows or capital gains? What horizon are you looking at? Are you delivering tax efficiency to your investors? For example, structuring the larger part of the investment as a shareholder loan or a debenture is more tax efficient than a flat share issue, because interest payments are not subjected to corporate tax while dividends are.
- Returns – You must be prepared to offer higher than average returns for your investment to be worthwhile to Angel Investors. This is just common sense as the risk is also higher for the investor. You might have to give them board seats, discuss major business decisions with them and all. Again, the extent to which your investors manage you depends on the structure of their investment.
- Exit Mechanism – If an investor wants to liquidate her holdings, is there provision for this? Will you buy them back after a certain period, or is the investment a loan repayable after a certain period? Structuring issue too.
Lately, there has been several home grown private equity funds that are more sensitive to young businesses, and this would be a good bet for medium/long term funding, e.g Cassia Capital (Mr. Imtiaz is one of the founders) among others. We have the usual suspects, Grofin, BPI etc.
We have other organisations that are interested in not only funding businesses, but also investing in the entreprenuers and imparting business skills such as BID Network, and the Go Innovate initiative by Harvard students under the tutorship of Professor Calestous Juma.
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Interesting perspective. I’ll be sure to check out those links.
If I can also add – I think one of the most important factors in angel/entrepreneur relationships is the chemistry between the two. This is particulaly true where there is less of a track record on the entrepreneurs part.
Being able to get on like a house on fire with your investor is beneficial especially if the structure of the support involves an element of decision making and input from the investor.
One of the mistakes that I made several years back was to accept an offer from an angel because I needed the money – but in truth, it was a marriage made in hell. This is an experience many entrepreneurs have faced and it actually makes sense to consider your relationship with an investor as a factor. Business angels by their nature are likely to be serial entrepreneurs themselves and its not uncommon for them to have a ruthless streak in them.
To get business angles one need to have a great idea and solid plan to match it. The investors come in the business coz of the prospect of good returns, but once in they do anything in their powers to ensure the business succeeds. This probably would mean they invest their skills, time, experience and the contacts.
The worst nightmare for most startup business owners is the lost of control, with business angles in town, control of the business could easily be taken by them depending on the individual. At the end funding process has a lot of advantages and as long as they outweigh the disadvantages, it is the way to go
Nice new blog, and nice meeting you at TEDx
interesting post; since we’re trying to find links for both sides. There is also the exit mechanism legal gap when things get sticky- protection for angel funders, and protection for reecipients (from rogue angels), that has not been addressed in the VC legislation
Thanks! It was an honour to finally meet you too
As it is, our law is wanting in the area of alternative financing / alternative investments. For example, we don’t have laws on REITs.
As professionals, is there a way to lobby the Ministry of Finance to push for these?
There are proposed laws on REITS by Capital Markets Authority albeit not very good ones:(. You can view them on their website.
Hi, it would be fantastic if we had genuine angel investors .
Many have bankable project plans but luck finance.
I hope profesionals will provide for this gap.
A nice forum though-keep it up
Asante sana Mrembo, and welcome here. It’s true, genuine investors are hard to come by, what we have in Kenya are loan sharks. But I encourage people to keep looking and talking. You just might land someone whose investment strategies are aligned to your business.