Unit 3

Early-stage investors: seed to growth

Giacomo Ciambotti – 181022
Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
2
Seed & early-stage investors

Seed Early-stage
Models of Equity Financing

Family, friends, fools Business stage Investors

Incubator People close to

Private Equity
entrepreneur
Business Angels Accelerators
Idea

Business Incubators Start up Healthy People

Businessman
Retired Managers
Business Accelerators Develop

Crowdfunding

Corporate Acquisitions

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Early-stage challenges in Africa – Snapshot 1

What is the biggest challenge to growing your company?

1 out of 2
entrepreneurs say
funding is the
biggest challenge!

Report:
Youth Entrepreneurship Survey - 2016

4
Funding sources in Africa – Snapshot 2

Report:
VC4A - Venture Finance in Africa - 2016

5
African investors and investment size

Report:
InfoDev - Financing the Next Wave of African innovation - 2013
6
Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
7
The first investor

The first investor of the company is

 the founder & owner

 Provide with initial funding capital (or assets)

 Personal savings
 Reinvest profit (and not losses)  retained earning

1.000 – 10.000 $

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Family, friend & fools (FFF)

Many businesses turn to their friends and family

members to raise the capital that they need to finance the
F
business.

 Particularly used in some industry as agro-business, retail and

restaurants
 Usually, these financial arrangements are informal, with
entrepreneur promising to pay the money back when he/she can
 Sometimes, it could be systematic, with the entrepreneurs signing
promissory notes and paying interests, or giving some shares to
obtain capital

5.000 - 20.000 $

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Grants in East Africa

Provision of non-repayable donations to the social purpose

organization supported; an Impact Only strategy, typical
business model of Charity Organizations or NGOs

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Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
11
Business Angels

A business angel is a wealthy individual who provides

capital for a start-up, usually in exchange for convertible
debt or ownership equity

 Angel capital fills the gap in start-up financing between “friends

and family”, providing seed funding.
 They take small stakes, nevertheless they aim at participating
actively in the decision process,
 They supply financial, industrial and managerial experience

10.000 - 150.000 $

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Business Angels: key insights

Video:
Business Angels - 7 things to know

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Business Angels groups and networks

An increasing number of angel investors organize

themselves into angel groups or angel networks to share
research and pool their investment capital

 In emerging countries, business angels are not well known

and organized. Nevertheless business angels exists, and
lately new networks are in the process of being set up

EBAN, the European Business Angels Network

ABAN, the African Business Angels Network

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Business Angels in Africa

SABAN, the South Africa Business Angels Network

Angel Investment Network, Kenya

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Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
16
Crowdfunding

Crowdfunding is the collection of finance to sustain an

initiative from a large pool of backers — the "crowd”

 Crowdfunding is a process in which individuals pool money and

other resources to fund projects initiated by other people or
organizations
 Crowdfunded projects may include creative works, products, nonprofit
organizations, supporting entrepreneurship, businesses, or donations
for a specific purpose (e.g., to pay for a medical procedure)
 Crowdfunding usually takes place via an online portal that handles
the financial transactions involved

5.000 - 200.000 $ for each investment

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Crowdfunding: 3 main models

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Crowdfunding: stakeholders involved

 People or organizations that propose the ideas or projects to be

funded
 The crowd of people who support the proposals
 The organization (the "platform") which brings together the project
initiator and the crowd

Fund Raising Cash

Many small Vehicle (Company) Many small

Investors/Donors web based Enterprises
Crowd
Returns Equity

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Crowdfunding: the African outlook

 South Africa saw the most projects launched on the Continent (4.581 launched
on 18 platforms)
 The overall market potential of the crowdfunding market in Sub-Saharan Africa is
estimated at $2.5 billion by 2025 (WorldBank)
 Money raised by crowdfunding platforms operating in Africa is projected at $190
million in 2016, based on AlliedCrowds estimations

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Crowdfunding: some examples

The goal of the ACfA is to lobby for

crowdfunding legislation creation and
reforms, increase public awareness, and
to create a more cohesive industry
structure in Africa that protects investors
and democratizes access to capital for all
http://africancrowd.org/ Africans

Miva Funding helps Africans raise funds for

projects in Africa and the African Diaspora.
The platform takes advantage of the solid
African Social Network massive user base
to unite Africans to support various projects
causes and initiatives around the continent
http://mivafunding.com/

Report:
Afrikstart - Crowdfunding Report - 2015
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Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
22
Business Incubators

Business incubators are programs designed to support

the successful development of entrepreneurial
companies

 BI provide business support, resources and services, developed

and orchestrated by incubator management and offered both in the
incubator and through its network of contacts
 Services include: office space, internet & telephone, grants,
mentoring, investor network, technologies etc
 Incubators can be either run by private investors or promoted by
public institutions; often subsidiaries of public universities

5.000 - 10.000 $ as GRANT BUT usually NO funding

Duration: 1 - 5 years

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Business Incubation Process

Incubators vary in the way they deliver their services, in

their organizational structure, and in the types of clients
they serve

Incubation Process

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Business Incubators: services offered

HOW
Business Incubators
provide VALUE  Many services
to STARTUP (Netwoking and office
spaces)
 Not always they
provide seed capital

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Incubators in Africa: a fruitful ground

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Business Accelerators

A business angel is a wealthy individual who provides

capital for a start-up, usually in exchange for convertible
debt or ownership equity

 Cohort-based programs, that include mentorship and educational

components and culminate in a public pitch event.
 Characterized mainly by set of meetings, training & mentoring,
events with investors
 Business model is based on generating venture style returns (not
rent, or fees for services.

5.000 - 30.000 $ as GRANT (typically for the 4% to 15% of equity)

Duration: 3 - 6 months

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Business Accelerators: services offered

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Incubators VS Accelerators: business stage

ACCELERATOR
INCUBATOR

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Incubators VS Accelerators: other differences

INCUBATORS ACCELERATORS

Cost of Service Very expensive Less costly

Length 1-3 years 3-6 months
Equity No Usually yes
Office space Yes No
Mentoring
Selection No competition High competition
(fast-growing companies)
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Tech Hubs: a huge phenomenon in Africa

A tech hub is a
community – informal
or otherwise - that
fosters innovation
for technology
startup companies

SERVICES:
 Technologies
 Networks
 Mentoring
 Other services

Info:
Tech Hub - what is it

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iHub: an example of tech hub

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Table of contents

1.Early-stage investors
2.Family, friends and fools
3.Business Angels
4.Crowdfunding
5.Business Incubators & Accelerators
6.Corporate Acquisitions
33
Corporate acquisitions

Acqu-hiring or Acqhired (“acquisition and hiring”) is the

process of acquiring a company to recruit its
employees or funders, without necessarily showing an
interest in its products and services

 The process of talent acquisition also provides a relatively

favorable exit strategy for the funders and employees that
get capital and chance to work in a larger company
 Talents comes before product
 Many famous IT companies have already closed several
acquisition strategies – eg. Google, Facebook, Twitter …

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Corporate acquisitions: the example of FACEBOOK

Video:
Facebook: why FB buys startups

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Corporate acquisitions: quotes from the example

 “My company acquires other, smaller startups to hire great

people. The fact that so many of the people who are
leading products within Facebook are coming from a startup
just creates an incredibly entrepreneurial environment at
scale”.
Mark Zuckerberg, CEO Facebook

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TASK 2

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TASK 2: Identify early-stage investors

Identify 2-3 early-stage investors in YOUR Country and fill the following table.

Type
Name of Investor Investment Amount
(Angel, Crowd, Acc…)

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 n d n o w …
A
sines s !
y our bu
ba ck t o
Let’s go

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