We Answer all Your Angel Investor Questions
This article was originally published in 2016.
Dragon’s Den SA’s Vinny Lingham is probably one of the country’s most well-known angel investors.
The Silicon Valley-based techpreneur, who is founder of tech companies Yola, Gyft and most recently Civic, an identity protection service, has a long history investing in tech startups.
Lingham who in a 2015 interview revealed that he has invested R5 million (US$415,000) of his own funds into South African startups, is a typical angel investor – a high net worth individual who invests their own money.
Angel investors can, as in the case of Lingham, be current or former entrepreneurs, venture capitalists or business executives with business experience, but they can also come from other professions.
In South Africa, however, angel investing continues to be viewed as an investment option that is out of a reach for most entrepreneurs.
While in the US the number of angel investors the number was estimated to be over 2 000 000 in 2015, according to Marianne Hudsonan, an American angel investor and executive director of the Angel Capital Association (ACA), in an article for Forbes.
Christopher Campbell, co-founder of the South African Business Angel Network (SABAN) which works to encourage and grow the angel investing community in the country, says angel investors are still something of a rarity in the country and estimates the number to stands at between 20 and 50, however there is no firm data.
“There are many more who have made ad hoc, private, early stage investments, but they are not habitually doing so,” says Campbell.
“In more developed markets, successful entrepreneurs often become your most active and attractive angel investors”
SME South Africa speaks to Campbell about what’s behind SA’s shortage of angel investors, and the kinds of returns investors are looking for.
The role of angel investors in an entrepreneurship ecosystem
Angel investors provide capital, business acumen and market access to early stages businesses when the risk of the business failing is still exceptionally high. Angel investors invest their own funds so they are free to absorb as much or as little risk as they would like.
How angel investors differ from traditional lenders
Angels can choose to invest in whatever their risk appetite and interest allows. Private equity firms have partners where there are agreements in place to define the firm or fund’ investment mandate.
The biggest misconception that SA entrepreneurs have about angel investors
That an angel investor’s biggest contribution will be their money. It will not. The market access a good angel investor’s networks provides is far more valuable.
The advantages of going the angel investor route
What other routes are there for a high-risk startup business? Unless you have exceptionally generous, well connected friends and family you need an angel investor. Perhaps you could receive grant money, but that will never bring the market access and business experience that can save an entrepreneur years of pain.
“Returns also come in the form of being part of something cool, making a difference or seeing an entrepreneur you believe in succeed”
Where are all the angel investors?
In more developed markets, successful entrepreneurs often become your most active and attractive angel investors. There are many more successful entrepreneurs and serial entrepreneurs in the US and other countries which in turn leads to more angel investors,” he says.
The kinds of returns angels hope to gain from their investments
It completely depends on the angel and what they are personally looking to achieve. Financial returns are more or less important to different people.
Returns also come in the form of being part of something cool, making a difference or seeing an entrepreneur you believe in succeed. Financially, the returns need to be greater than you could receive in alternative asset – risk versus reward.