Tag: African Startups

  • Becoming an Investor: Do it Yourself or via a Venture Fund?

    Becoming an Investor: Do it Yourself or via a Venture Fund?

    Early-stage companies drive innovation but need money to grow. 

    For those looking to invest in exciting startups, there are two main options: angel investing and venture capital funds. 

    Figuring out these choices can be hard. However, understanding their benefits and drawbacks can help you make the best decision for your goals. 

    Let’s compare these paths and see what might work for you.

    Who is an angel investor?

    An angel investor uses their own money to invest in an early-stage startup, getting a share of ownership in return.

    Being an angel takes dedication. It means working directly with startups, often when they first launch. This is very risky but has big potential rewards.  

    Pros of angel investing

    1. Hands-on: If you connect with founders, you can get firsthand experience and actively help the business grow using your knowledge and connections.

    2. Possible high returns: While some investments fail, smart choices and luck can result in huge returns on your money. For example, investing $50,000 in a startup could turn into $5 million.

    3. Exciting: If you love the thrill of working with groundbreaking startups and founders, angel investing provides an exhilarating opportunity.

    Cons of angel investing

    1. High risk: Many investments fail, so you need to be ready to potentially lose money. You may invest $50,000 and end up with nothing.

    2. Time-consuming: Being actively involved is crucial, requiring significant time and effort. After reviewing pitches and due diligence, you still need to work closely with the startup.  

    Click here to begin your angel investing journey

    Who is a venture capitalist?

    A venture capitalist (VC) invests money from a fund into early startups, receiving a share of ownership in return. 

    VC firms use a limited partnership structure comprising general partners (GPs) and limited partners (LPs).

    In the typical venture capital fund structure, general partners (GPs) are the fund managers who source deals, make investment decisions, and oversee the portfolio. 

    On the other hand, limited partners (LPs) are the investors who provide the capital that GPs invest. LPs are limited in their ability to make investment decisions, relying on the GPs’ expertise to manage the fund and generate returns.

    VCs tend to have a “minimum investment ticket,” which is the smallest amount of capital that an individual or institution must commit to invest in the fund.

    This minimum investment amount varies significantly among venture capital funds, ranging from a few thousand dollars to several million dollars.

    For those wanting a more hands-off approach, becoming an LP in a VC fund may be a good fit. 

    Pros of being a VC limited partner

    1. Lower risk: Professionals manage your money, spreading risk across many startups. But there is still a significant risk of losses.

    2. Deal access: Unlike individual angels, VCs typically see many more opportunities. Investing in a fund provides exposure to diverse startups. For example, a $1 million investment could be spread across 10-20 startups.

    3. Steadier returns: While the chances of huge windfalls are lower, returns may be more consistent and predictable.  

    4. Less time and effort: This is ideal if you prefer minimal involvement.

    Venture Capital funds in Africa - Daba - Future Africa

    Cons of being a VC limited partner

    1. Limited involvement: You have little say in daily decisions or what startups get funded, maintaining distance from the startups.

    2. Potentially boring: If you want hands-on excitement, this approach may feel dull and unsatisfying. 

    Click here to start investing in VC funds

    Ultimately, the choice depends on your risk appetite, time, and preferences. 

    Angel investing provides an exciting, high-reward experience but demands more time and risk tolerance.

    Being a VC limited partner represents a safer, more passive approach, possibly lacking direct engagement.

    Overall, VC funds grant access to diverse startups, professional investment management, and valuable networking and learning. For most, this makes it preferable to direct angel investing.

    Bonus Tip: Don’t choose either/or! You can be an LP in a VC fund and an angel investor. This lets you enjoy the benefits of both worlds: diversification and direct involvement. Plus, you can share promising startups with your fund manager, building valuable relationships.

    Investing in Africa’s Future with Daba

    Are you looking to invest in Africa’s booming startup ecosystem? Whether you prefer to invest as an angel investor or through a venture fund, Daba is the right tool for you. 

    Daba is your gateway to individual venture opportunities as well as hand-picked venture funds. Discover exciting opportunities, collaborate with other investors, and learn from seasoned professionals.

    Ready to take the plunge? Let Daba guide you. Contact us today and unlock the potential of Africa’s future.

  • The Case for VC in Africa: 10 Lessons From Iyin Aboyeji

    The Case for VC in Africa: 10 Lessons From Iyin Aboyeji

    Daba recently had the honor of speaking with Iyin Aboyeji, Founding Partner of Future Africa, about the immense opportunities for venture capital investments across Africa. As one of the continent’s foremost early-stage startup investors, Iyin shared invaluable insights from his experiences investing in over 100 startups in Africa.

    In this blog post, I’ll be covering the top 10 lessons for investors looking to tap into Africa’s vast startup and venture capital potential:

    #1 Partner with Experienced Africa VC Fund Managers

    Partnering with seasoned Africa-focused venture capital fund managers can greatly boost individual investor outcomes. Their localization expertise and superior access to the continent’s most high-potential startup deals are invaluable.

    #2 Embrace a Long-Term Mindset

    Adopt a long-term mindset fitting of Africa’s nascent but rapidly developing venture capital ecosystems. Similar to Silicon Valley in the 1970s, patience is vital.

    #3 Contrarian Thinking Uncovers Outliers

    Avoid consensus group-think. Contrarian thinking and swimming against the tide is key to uncovering outlier startup opportunities across Africa’s 54 diverse countries.

    #4 Evaluating Market Opportunity is Paramount

    Carefully evaluating the addressable market opportunity and problem-solving potential is even more important than strength of team or product.

    #5 Build Strong Founder Relationships

    Developing close relationships with and serving as trusted advisors to African startup founders is crucial to VC investment success.

    #6 Co-Invest Strategically With Connected Peers

    Co-investing alongside well-connected, Africa-focused peers can provide deal flow and follow-on financing access.

    #7 Leverage Corporate Ties

    Leverage corporate ties on the continent to help portfolio startups secure those critical first reference customers and scale more quickly.

    #8 Conduct Extensive Due Diligence

    Be highly selective and conduct extensive due diligence, drawing from localized African market insights and context.

    #9 Adapt Your Investment Approach

    Continuously adapt your investment approach, diversifying or concentrating capital as necessitated by changing African economic landscapes.

    #10 Remain Returns Focused

    Stay focused on driving strong returns, which attracts further capital inflows from LPs and builds credibility in African VC as an asset class.

    In summary, prudent venture capital investing in Africa requires vision, patience, relationships, regulatory know-how, and investment strategy agility. Follow these key lessons from pioneers like Iyin Aboyeji to successfully participate in Africa’s vast long-term growth story.

    You can view the full discussion here https://www.youtube.com/live/-Tx6wRjV0UU?si=3TZ03PjxJg2Wy4mc

  • 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.