Tag: africa

  • An Angel Investor’s Guide to Startup Investing

    An Angel Investor’s Guide to Startup Investing

    With startups making the news and causing a ruckus for raising ridiculous amounts of funding and the VCs all swooping in to have a piece these last years, there has been a lot of talk on “startup investing” and how to go about it.

    This article is here to help you break it down and thoroughly understand what it is and how to get the maximum benefit from it with daba.

    Startup investing like a VC but cheaper

    What is a startup?

    A “startup” refers to an early-stage company founded and owned by one or more entrepreneurs, often with a new product or service and an untested business model. After finding a product-market fit, the goal is often to grow and expand rapidly, therefore, startups generally start with high costs and limited revenue. To achieve this, they look for capital from a variety of sources such as venture capitalists.

    For a long time, investments in private companies like startups were reserved for ONLY accredited investors (people with a high net worth or an investment company e.g., venture capital firms) due to the large amounts required for startup investments and the high risk involved.

    But with the advent of crowdfunding and law changes in lots of countries, people 18 and older can now invest in startups and gain high returns.

    Why startups?

    Startup investing, though risky like every other type of investment, has the potential to produce very high returns on investment if proper research and due diligence are done.

    An example is Paystack, the Nigeria-based payments startup that makes it easy for businesses to accept secure payments from multiple local and global payment channels.

    In 2020, US payment company Stripe acquired Paystack in a deal worth over $200 million. The angel investors who invested in the seed round of Paystack in 2016 made approximately 1,440% ROI, 14.4x their investment in just five years.

    These show that although investing in startups could be risky, it could also be rewarding.

    Now imagine if you had invested in 2017…..

    How do you value a startup?

    Before investing in a startup, it’s important to know the company’s value in actual figures. This provides insight into its ability to use the new capital to grow, and meet customer and investor expectations.

    But deducing a startup valuation can be difficult. This is because company valuation is done using historical financial performance. However, most startups don’t generate profits or even revenue for a few years after starting, thus using traditional metrics for early-stage valuations doesn’t apply.

    Generally, a startup valuation accounts for factors like your team’s expertise, product, assets, business model, total addressable market, competitor performance, market opportunity, goodwill, and more.

    Valuing a startup is both an art and a science and some of the best ways to go about it include the cost to duplicate, market multiples, discounted cash flow, and valuation by stage.

    Ways to invest in early-stage startups:

    1. Equity investment: investors purchase shares in a startup at a fixed price
    2. Investing in convertible securities: the investment amount is eventually converted to equity
    3. Use a trusted investment platform like daba, sign up here for African startups

    How do I choose startups to invest in?

    Before investing in startups, it’s necessary to conduct your due diligence; a series of checks an investor might run on a startup to confirm that the investment is a good strategic fit and to identify potential red flags. Due diligence allows investors to make informed investment decisions and mitigate risk.

    How do I get a return on my investment?

    Startup investors can get returns when:

    i) The company is bought by a bigger organization

    ii) The startup goes public

    iii) Dividend payments (if the business is successfully trading, and the founders are not looking for an exit via sale or IPO, they may reward investors by paying out regularly or through a one-time special dividend)

    iv) Selling your stake in the company

    v) Revenue from the day-to-day running of the startup

    Startup investing is very risky (90% of startups fail in their first five years) but can be highly rewarding for investors willing to sit tight until the startup matures.

    As the saying goes in finance; the riskier the asset, the higher the return. This is evident in the technology sector. An example is Cisco’s $3.7 billion purchase of AppDynamics, app management, and analytics tool in 2017. The latter was launched in 2008 and had been through five funding rounds, suggesting several investors got sweet returns from the deal.

    It’s important to note that the return on investment you get as an investor depends on the size of your stake in the startup and the valuation it’s based on.

    How to get started?

    There is no need to worry about how to source for startups, their valuation, founders, how much to invest, and monitoring your investment, daba can help you get started.

    daba has created a simple app to access custom investment strategies and build wealth by investing in Africa’s best private and public market opportunities.

    In addition to this, daba offers resources help you sharpen your knowledge and make more informed investment decisions.

    Register to get early access to daba here.

  • Social Commerce in Africa: The $28bn Opportunity

    Social Commerce in Africa: The $28bn Opportunity

    Today, a lot of buying and selling is done over social media platforms like Facebook, Instagram, Twitter, and WhatsApp.

    In emerging markets, this brand of e-commerce (called social commerce) has grown over the years. 

    Facebook and Instagram are used for online shopping more than e-commerce marketplaces by Africans, per a 2019 GeoPoll survey, and social commerce accounts for the majority of e-commerce activity on the continent, according to GSMA and UNECA. Beyond just shopping on social media, buying decisions are also influenced by online social communities.

    An underlying reason for this growth is that these channels don’t require much digital expertise and are easily accessible for less tech-savvy vendors in Africa. 

    Small-to-medium formal businesses also set up stores on social platforms to promote and sell to all sorts of buyers, where they already spend several hours per day.

    Image from Later.com

    By the numbers

    • 3.6 billion: The number of people that use social networking sites globally
    • 34%: The share of Africa’s population using the internet as of 2018.
    • 233 million: Total Facebook subscribers in Africa as of December 2020.
    • 18%: Average increase in the number of online shoppers in Africa between 2014 to 2018, against 12% globally
    • 92%: SMEs in Kenya that used social commerce as of June 2020.
    • 87%: E-commerce shoppers that strongly agreed that social media influenced their purchase decisions in a 2018 report.

    The opportunity: Social commerce does a great job blending content sharing, messaging, and selling into one, helping businesses shorten the sales cycle. But most of the processes through which transactions happen—from product discovery and selection to order placements and payments—are crude and inefficient. Put simply, social networks aren’t built to support end-to-end online shopping experiences, meaning users need third-party support for the logistics and payments side of things.

    6 Startups to watch and why
                    

    Image from daba

    Many African startups currently offer solutions that help improve social commerce processes for vendors. Below are a few;

    Catlog   

    The Nigeria-based startup offers vendors a simple way to create an online store on its platform, add their products, and create a custom link they can share on social media with deals finalized on WhatsApp. 

    ANKA 

    Ivorian SaaS player provides merchants with an omnichannel dashboard through which they can monitor their sales and inventory across all several channels—Afrikrea, social media, and websites—and manages payments and logistics for vendors.

    Chooya

    Which brands itself as the “TikTok for e-commerce”, digitizes word-of-mouth marketing, allowing consumers to recommend sellers and get rewarded for it. 

    Tendo

    Offers the average individual an opportunity to tap into Africa’s e-commerce boom by selling online with zero upfront inventory. Ghanaian sellers on the platform are able to source products and resell items using social commerce tools such as WhatsApp, arrange delivery, and get paid, all through the app.

    Rabawa 

    Enables Nigerian entrepreneurs to leverage social media for curating, promoting, and selling their products. Its social sharing integrations include WhatsApp, Facebook, Twitter, and Instagram, allowing vendors to earn from their social networks such as friends and family.

    Tushop 

    Works with “community leaders” to make access to groceries more affordable and more convenient for Kenyans through community group buying. The leaders register with the startup, collate orders from their neighbours and manage door-to-door deliveries all through its platform.

    Elloe AI 

    Is a Kenya-based AI-powered, conversational commerce platform that allows small businesses to manage customer interaction and sell products online across various messaging platforms such as Facebook Messenger and WhatsApp.

    Image from the Wfanet.org

    The challenge: Limited access to the internet presents potential challenges to the ability of startups in the social commerce space to scale. In addition, selling products via social media platforms alone has its disadvantages, such as when Facebook, Instagram, and WhatsApp experienced lengthy outages last October.

    The future: Social commerce continues to blur the lines between social interaction and online selling while accounting for an increasing share of e-commerce sales. We expect to see more growth in the collective social commerce sub-sector in emerging markets as more people come online. More so, Africans are more likely to patronize people they interact with on social media. As a result, social commerce on the continent has a very promising future.