November 2020
Kenyan entrepreneur Linus Wahome began working on ManPro, a digital construction management platform, in 2018. He bootstrapped the company for a year and successfully built a product, but still needed to address gaps in the product-market fit. He was almost out of resources to continue development when he met ViKtoria Business Angel Network (VBAN) investors at an accelerator event.
“ManPro would have definitely gone under by now if we did not have the financial and strategic support from VBAN,” said Wahome. “It is their investment plus that of the co-investors that enabled us to weather this COVID storm with still a bit of runway remaining. And the strategic input on product development was invaluable – with that experienced help, we were confident that we were building the right technology the right way.”
VBAN is just one example of the many emerging angel networks that are providing opportunities for angel investors – individual investors who make relatively small investments to support enterprises through their more high-risk early stages – to collaborate with each other and invest in enterprises like ManPro. The presence of an angel network in a region is beneficial to both investors and entrepreneurs – angel investor members benefit from more connections to promising new enterprises and valuable networking with other investors, while entrepreneurs benefit from a structured way to interface with potential investors. Angel networks also cultivate and activate new angel investors, increasing the pool of private early-stage capital in a region.
“Angel capital is adequately suited to offer the initial support structure that’s requisite to most nascent businesses. The world over, this has been the script that has led to a thriving entrepreneurial economy,” said Jason Musyoka, VBAN Manager.
Having an understanding that entrepreneurship is a key driver of economic development in a region, but that access to sufficient early-stage financial capital remains a challenge for entrepreneurs, the United States Agency for International Development’s (USAID) Partnering to Accelerate Entrepreneurship (PACE) Initiative funded the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business in 2018 to research opportunities for development institutions to support angel networks to drive private sector investment in entrepreneurship in Latin America, Middle East/North Africa, and Sub-Saharan Africa. CASE was happy to partner with Millbrook Impact and the Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town Graduate School of Business on this initiative.
After over two years of research and interviews, CASE released Angel Networks in Emerging Markets: A Guide for Development Institutions and five accompanying case studies that profile different angel networks in November 2020. The guide provides recommendations and tools for USAID, development institutions, bilateral and multilateral donors, and other investors to engage with and support angel networks in emerging markets in order to leverage local, private capital to fuel early-stage enterprises.
Below, we outline five recommendations for development institutions that are looking to engage with angel networks. Please read the full report to learn more about the strategies that angel networks are using to overcome challenges specific to their economies and for best practices evidenced across the most promising networks, as well as tools to help facilitate engagement.
5 Ways to Engage With Angel Network
1. FUND: Provide financial support to angel networks
To date, many angel networks have relied on the financial resources and volunteer time of founding leaders to launch, and those embedded in another organization have benefitted from inherent subsidies of some overhead costs through the start-up phase. Thus, grants or sponsorships to support start-up costs are appropriate and potentially catalytic investments where there is sufficient interest and emerging leadership to drive a network launch. Additionally, general operating support and/or sponsorship of specific events or initiatives can enable essential activities and allow network managers to focus on activating capital investment.
2. DE-RISK: Provide investment guarantees or matching and follow on funds for angel investments
Development institutions should consider first-loss guarantees for angel investors’ direct investments to reduce the risk for investors, as this can be particularly helpful in attracting and activating new angel investors. Investment matches and/or follow-on investments are another partnership opportunity for development institutions to catalyze more private capital by sharing risk and reward. These investments leverage the business expertise of angel investors, and “stretch” angel investors’ funds, allowing early-stage companies to reach their target fundraises with smaller checks from each respective angel. This allows those angels to invest in more companies than they otherwise would, and also allows for more diversification in the angels’ portfolios, reducing the inherent risk of angel investing.
3. SUPPORT THE SUPPORTERS: Provide financial support to angel network trade associations
Angel network trade associations, membership organizations of networks in a defined regional geography, play a critical role in angel investor growth and training and data gathering. Grant or sponsorship funding of regional angel associations’ general operating costs and/or specific convening events, educational training materials and workshops, research, or investment and impact tracking efforts can efficiently support region-wide network growth and data gathering.
4. EDUCATE: Fund and disseminate angel training resources
Development institutions can fund the centralized development of materials and workshops, with opportunities to customize for local contexts as needed, as an efficient investment to leverage throughout a region. In addition to resource development, funders can sponsor the dissemination of materials through workshops, training series, conferences, or other platforms in partnership with existing networks and trade associations.
5. SHINE A LIGHT: Lend visibility and convening capacity
Beyond financial support, development institutions can use social capital to support angel network development by visibility-raising, using convening capacity, and leveraging ecosystem relationships.
Access the full guide and the five case studies on our website.