Unlocking Capital for African Startups: The Case for Alternative Investment
Tips for African startups and Africa-focused VCs to maximize alternative investment for accelerated growth.
Building a startup in Africa is no small task, it requires dedication, resilience and an ability to learn and adapt. Of the plethora of seemingly insurmountable challenges one must overcome to get a product to market, perhaps the most challenging is securing funding. One might argue that Africa has emerged as a hub for startup innovation, with an increasing number of young entrepreneurs building businesses that are making a significant impact across the continent. But despite this growth, African startups continue to face significant challenges in accessing the capital they need to grow and expand.
The subject of funding is certainly top of mind in the African startup and venture spaces, Unfortunately, the traditional investment model has failed to adequately support African startups with most of the venture capital and private equity firms focusing on established markets and have yet to recognize the untapped potential of investing in African startups. This lack of adequate funding poses a significant challenge for startups looking to innovate and drive change in their communities. As a result, African startups have been forced to rely on limited sources of capital, such as family and friends, grants, and microfinance institutions, which can provide only limited funding.
To unlock the potential of African startups and drive innovation and growth on the continent, alternative investment models must be explored. Alternative investments refer to investments in assets that fall outside of traditional asset classes, such as stocks and bonds, and can include private equity, venture capital, and crowdfunding.
There is light at the end of this tunnel after all; there are new investment models that have the potential to drive innovation and growth in the African startup space. One such model is impact investing, where investors focus on businesses that have a positive social or environmental impact in addition to generating financial returns. This approach not only helps to unlock capital but also supports businesses that are making a positive impact in their communities.
Another alternative investment model that has the potential to support African startups is crowdfunding. Crowdfunding involves raising funds from many individuals through an online platform. By leveraging the power of social media and online networks, African startups can reach a global audience of potential investors, allowing them to raise significant amounts of capital quickly and efficiently.
Venture Capital and Private Equity firm cannot be left out when it comes to unlocking capital. Venture Capital (VC) for instance, gets funds from institutional investors and family offices to avail startups the capital they need for building their ventures. More interestingly and in recent times, we have seen VC firms having a modification to the traditional VC model and acting as venture builders. This suggests the keen interest of the general partners in building these ventures and handholding them through the different phases of development rather than just acting as providers of capital.
Venture Building (VB) cannot be left out when it comes to unlocking capital. VB is a modification to the traditional VC model, although similar, they are not the same. A VC firm, for instance, gets funds from institutional investors and family offices to avail startups of the capital they need for building their ventures. VB on the other is interested in building these ventures and handholding them through the different phases of development rather than just acting as providers of capital.
Lastly, African startups can also explore other alternative investment models, such as angel investing and strategic partnerships. Angel investors are high-net-worth individuals who invest in early-stage startups in exchange for equity, while strategic partnerships involve partnering with established companies to leverage their resources and expertise.
In conclusion, unlocking capital for African startups is essential to driving innovation and growth on the continent. Alternative investment models such as impact investing, crowdfunding, angel investing, and strategic partnerships offer viable solutions to the traditional investment model’s limitations. By embracing these alternative investment models, African startups can access the capital they need to grow and make a positive impact in their communities.
