Business Angels and Kenyan Start-Ups

Written by Wellington Ayugi

Kenya has been named among the fastest growing entrepreneurship hubs in Sub-Saharan Africa. As a result of this, the country has received so much attention internationally to the point of hosting the Global Entrepreneurship Summit last year. 

There has been a steady rise in the formation of startups and business incubation centers in Kenya. The lure of entrepreneurship around the country has become more and more popular to the point that it is portrayed as the answer to unemployment and lack of job satisfaction.

It is alarming that the rate of unemployed youth in Kenya has risen to 40%, most of whom fall between the ages of 18 to 35 years. Therefore, we are having more and more people, within this age demographic, choosing to start their own businesses in order to take their professional success into their own hands.

However, there is a lot of work that goes towards creating that success. One needs to have a unique value proposition, determination to succeed, the passion for executing their idea at all odds, a significant client network and accessibility to funding.

One of the most common and challenging parts of entrepreneurship is getting a steady cash flow in and out of the business. This is where entrepreneurs can look into alternative investment options such as Angel Investors or Venture Capitalists. They perform a very crucial role in promoting startups locally by providing financial solutions where conventional funding methods have failed.

Who is an Angel Investor?

An angel investor is an affluent individual who invests money in startups in exchange for convertible debt or equity ownership. An Angel investor (also known as an Angel or Business Angel) may be a former enterprise associate, a professional such as a lawyer, doctor or just an experienced businessman interested in investing in a good business idea.

How it Works?

Typically, a Business Angel will listen to your presentation explaining the vision of the start-up and then keenly study the business plan. If they are convinced of the potential of the business, they will inject capital into the project.

How Different are Business Angels from Venture Capitalists

Venture Capitalists are individuals who invest in a business project, providing funds for either starting up or for expanding the business.

Angel investors and Venture Capitalists may seem to share the same goals but there are big differences in how they arrive at that point. Venture Capitalists differ from Business Angels because of the:

  1. Size of Investment Injected into the Start-Up: Business Angels inject relatively less money into businesses than venture capitalists on account of it being personal finances. Venture capital funds, on the other hand, have considerable resources at their disposal due to the partners’ capital injections.
  2. Final Decision of Investing: Business Angels are not obligated to involve anyone in their decision-making process unless by choice. Venture Capitalists, on the other hand, have investment committees that guide the decision-making process.
  3. Due Diligence: Business Angels handle their due diligence by meeting with the entrepreneur over lunch and then possibly hiring experts to do more background checks. Venture Capitalists carry out extensive research and background checks as they have a fiduciary responsibility to their clients.
  4. Time Span: Business Angels look into investments that are expected to generate returns in three to four years. While most Venture Capitalists may also have the same time-frame, sometimes they need their money back more urgently. Many Venture Capitalists funds have a lifespan of 10 years before all capital and profits must be returned to the general partners.

Raising money from Business Angels and Venture Capitalists is time-consuming and not easy to achieve. It is, therefore, best that the best time to seek out angel investments is when your business already has some revenue, but it still needs some cash to kick it to the next level.

Angel investors can also be great mentors because their money is on the line. They will be highly motivated to see your business succeed. On the downside, in return, you shall be giving away a significant amount of your business and this may become a problem when making management or executive decisions.

Getting an angel investor can be an extremely time-consuming process. Despite the challenges, they are definitely worth your consideration. Would you consider getting funding from an angel investor for your business? Comment below and please let us know your thoughts.

Learn More:

  1. 20 Things All Entrepreneurs Should Know About Angel Investors
  2. Where to Start: A list of Kenyan Angel Investors



About the author

Wellington Ayugi

Wellington Ayugi handles Business Development at Covered and has a passion for personal finance, microfinance, and developments in financial technology