In recent times, there has been an upsurge in the number of African startups. These startups propose credible solutions to many problems faced in societies. One major problem faced by most startups is securing the necessary funding needed to push their proposed idea into implementation or expansion, as the case may be.
This article aims to provide answers to Startups on how they can secure funding and opportunities available for them in Africa and globally.
Types of Funding
Funding for startup can come in various forms and require different requirements to obtain, let’s look at some of the most important and available ones.
1. Bootstrapping (Self – funding)
In this type of funding, the founder or founders use their personal savings, return on investments, or revenue to fund the business. This type of funding helps the founder or founders maintain sole ownership of the business. Although this type of funding is widely prevalent, it can also be combined with additional funding when required by the business at different levels. Additionally, this type of funding is not without its cons, as failure of the startup will result in a total loss of the founder’s investment.
2. Friends and family Funding
Friends, family and relatives raise funds for the founder to run his business. It often comes with flexible terms of repayment and less Paperworks. Notwithstanding the ease, failure in the business can result in strained relationships when the founder cannot afford to pay back from his purse.
3. Angel Investors
These investors are wealthy individuals looking to invest their money in startups; they find their ideas profitable. Angel Investors provide significant funding, offers business mentorship and industry expertise. However, the investors may ask for equity or commission per sale depending on the company’s offering and the investor’s preference.
4. Crowdfunding
In crowdfunding, startups raise funding from soliciting contributions from many people. Crowdfunding usually takes place online. As a result, they obtain significant community base and validation. Moreover, public scrutiny may arise in a case of failed startup or mismanagement of funds.
At what point does a start-up Require Funding?
This question has been a major concern amongst founders of startups. Knowing when to ask for funding is very important, as it proves to the funders or investors that the startup is keen about what they do and doing the right thing. Here are some key milestones where funding may be necessary:
1. Idea validation (pre-seed)
This is the stage where the business idea is to be validated by conducting credible market research and developing prototypes where necessary. At this stage, funding ranging from $10,000-$50,000 may be required to facilitate the process.
2. Product Development (Seed)
After the idea has been validated and proven effective and sustainable, this funding stage requires funding amounts of $50,000-$500,000. These amounts are used to develop a minimum viable product, assemble the needed personnel, and refine the business model.
3. Launch and Traction (Early Stage)
At this stage, the company is ready for launch; during launch so many expectations are to be met, especially in acquiring customers and demonstrating reliability. Fundings up to $500,000-$2 million are needed for this stage.
4. Scaling (Growth Stage)
The growth stage requires funding of $2 million-$10 million to facilitate customer base expansion, increase revenue, and enhance operations.
5. Expansion and Growth (Series A, B, C)
The business at this stage must have demonstrated successful market penetration and needs further expansion, strategic partnerships, and new products. Funding amounts of $10 million-$50 million are required for this level.
Local and International Investors Funding African Startups
Local Investors
African Business Angels Network (ABAN)
- Location: Pan-African
- Focus: Early-stage investments in tech, agriculture, healthcare, and education
- Investment size: $50,000 – $500,000
- Notable investments: ITOT Africa, Mosmos
Ajim Capital
- Location: Nigeria
- Focus: Pre-seed and seed investments in tech
- Investment size: $50,000 – $200,000
- Notable investments: Spleet, Clafiya, Collect Africa
Afric’Innov
- Location: South Africa
- Focus: Innovation and technology investments
- Investment size: R500,000 – R5 million (approximately $35,000 – $350,000)
- Notable investments: ASToN, BIOVALOR Project, PETsPoint
AfriLabs
- Location: Pan-African
- Focus: Incubation and acceleration of tech startups
- Investment size: Varies
- Notable investments: Figorr, Koloso
Tony Elumelu Foundation Entrepreneurship Programme (TEF)
- Location: Pan-African
- Focus: Early-stage investments in various sectors
- Investment size: $5,000-$10,000
- Notable investments: Alternative Waste Technologies, Exportunity, Marie-Christiana Kola
International Investors
Accion Quona Inclusion Fund
- Location: USA
- Focus: Financial inclusion, fintech, and digital economy
- Investment size: $500,000 – $3 million
- Notable investments: Sukhiba, Lulalend
Proparco
- Location: France
- Focus: Sustainable development, infrastructure, and innovation
- Investment size: €500,000 – €10 million (approximately $570,000 – $11.4 million)
- Notable investments: Rubyx, MAX
Google for Startups Africa
- Location: USA
- Focus: Early-stage investments in tech and innovation
- Investment size: $50,000 – $200,000
Y Combinator
- Location: USA
- Focus: Early-stage investments in tech and innovation
- Investment size: $500,000 – $1 million
- Notable investments: Flutterwave, Paystack, Kobo360
Seedstars
- Location: Switzerland
- Focus: Early-stage investments in emerging markets
- Investment size: $50,000 – $500,000
- Notable investments: Poa Internet, Beacon, Bizao
Tips for Securing Funding
1. Preparation
To be able to request funding, startups must have developed a solid business plan and long-term financial projections to help the investors understand what their unique value proposition is and their advantage over the competition. This will provide clarity and possibly successful funding by a potential investor.
2. Networking
The importance of networking for startups cannot be over emphasized. By attending seminars, events, conferences, and networking sessions, startups founders can be able to meet potential investors, mentors and partners.
3. Pitching
This is a very important part of the seeking funding process; the ability to present a concise and compelling pitch is paramount. Presenting a good pitch will give the investors’ confidence to invest in the business. A good pitch should showcase the growth process, opportunities and potential of the business while highlighting accomplished and future milestones. In addition, highlighting the team’s expertise and commitment will boost the morale of the investors by giving them assurance that their investments are in safe hands. Finally, be prepared to answer tough questions the investors may have.
Conclusion
In conclusion, securing funding is an important part of the growth process of every startup. With the knowledge of the various funding options available, founders can access their needs carefully and choose the best type of funding that aligns with their goals.
By taking advantage of local and international investors, startups can access the necessary funding they need to scale and make a lasting impact in their industries.
