Tech startups are the real deal in Africa. It is no news that the tech ecosystem in Africa is rapidly growing. Foreign investors are taking a lot of interest in the success of Africa’s startups. Tony Blair Institute for Global Change predicts that Africa will attract more than $90bn in tech startup funding.

Going by this projection and the $1.5bn cash injection in the first quarter of 2022, we won’t be overreaching if we said that the $90bn mark is attainable. Moreover, there is no sign that the growth of tech startups in Africa will decline soon. As a result, many investors eagerly invest in African startups.

If you are interested in investments or desire to invest in a tech startup, then this article is for you.

Ways to Invest in African Tech Startups

The multi-million dollar question is how to invest in tech startups in Africa. There are so many ways you can invest in a tech startup; we will discuss them below.

Investing in Tech Startups through SAFEs

SAFEs (simple agreement for future equity) is an agreement between an investor and a company that provides rights to the investor for future equity in a company. In this type of agreement, the investor receives future shares when a priced round of investment occurs. The equity can either be at a fixed price or it can be uncapped and determined later in the future.

SAFEs are one of the easiest ways for startups to secure funding as they are standard and quite easy to execute. It defers valuation to later so it’s much easier to execute with zero legal costs.

If you decide to invest by using SAFEs, you should ensure that the scales are tipped in your favour. Set your prices and expectations for the investment agreement.

Become an Angel Investor to Tech Startups

Angel investors are typically high net worth individuals (with assets over $1 million). They invest money into startups from cradle stage. Investors that assume this investment route are called “angel investors” because of the high risk involved.

Angel investors mostly invest in seed-stage tech startups. This provides the extra cash flow these startups need to achieve technical development and market entry. To become an angel investor, you must be certified as an accredited investor.

An accredited investor is an individual who makes $200,000 per year or more in income, or has $1 million in liquid assets. Typically, an angel investor is expected to invest between $25,000 to $100,000 in each startup investment deal. Although this isn’t a fixed range as smaller investments occur sometimes.

How to Decide Which African Tech Startups to Invest In

We all want to make profits when we invest our money. Here are some characteristics that determine if a company is worth your investment or not.

Experienced Founders of Other Tech Startups

Founders that have grown a startup before, have an advantage over novice founders. They have mastered how to make profits and they are rare to find. To these types of founders, failure is not the end of the road. They are ready to fail and rise again the moment they learn from their mistakes.

This is a trait you want to look out for. This kind of people will be very committed to making the company survive. They are not quitters and definitely won’t stop putting in efforts until they succeed.

Investing in a company where the founder has the knowledge to navigate the industry gives you an edge. There’s that assurance that they know exactly how to play the business game with finesse. Repeat founders usually have the confidence to take on challenges and understand their markets.

Product-Market Fit

You need to assess the company and ascertain if the product they are offering is a strong product-market fit. Check the track record of sales or profit generated by the company and the target market. You will also need to check the demand for the product.

Founder’s Connections

Networking is an important skill that every founder should have. It shows the ability to reach out for help when there’s a problem. The good news for founders who do not have it is that it can be learned over time. 

Founder’s Behavioural Traits

You will also want to look into the quality of the founders before you even consider the idea. If a bad founder launches a product into the market they will most certainly fail and quiet. Unlike exceptional founders, they find it difficult to pivot and move on to something more important.

Summary

The startup market in Africa keeps thriving and growing exponentially. With adequate funding, venture-building support and favourable regulatory policies from the government, African startups will be well-positioned to secure their spot on the global scene.

We are sure that if you follow the tips we have discussed in this article, you will be able to make the right investment choices without any regrets.