How African Start-Ups Raise Capital

When it comes to raising capital for their businesses, it is a mixed picture in Africa. On the one hand, more money is flowing into Africa than ever before. 2016 was a record breaking year with the Venture Capital funding raised by African start-ups totaling $366.8M, according to a study by Partech Ventures. On the other hand the majority of start-ups, especially smaller ones, are dependent on their founders’ pockets: 57% have founders’ cash as their main source of income, way ahead of grants, borrowing, funding from family and friends. Regardless, African entrepreneurs are making it work for them and the start-up scene is only growing. Lets look at these methods of raising funds and how African entrepreneurs make it work for them. 

Borrowing
How small businesses borrow in Africa is interesting. It can be tough for small businesses to borrow from banks in Africa, leading some fledgling businesses to despair. Despite this, many African entrepreneurs are taking advantage of creative alternative forms of borrowing. For example Aliko Dangote, Africa’s richest man, started his business by borrowing 500,000 Naira from his grandfather in 1974. That’s about $1400 today. He worked hard and paid his grandfather back in 6 months. Microfinance banks are also rising across Africa and filling in gaps the big banks have deliberately ignored.

Investment
For many overseas investors Africa is still perceived as risky but luckily the perception is slowly changing. This is partly thanks to investors who see Africa’s long term potential as an emerging market. Many private investors are now scouring the continent for opportunities. This is even leading to foreigners learning how to adapt to African culture: it is now not uncommon to see find money managers in New York or London taking crash courses in Swahili. Thus far investment has tended to go into fixed assets such as mobile phone masts or services search as health clinics or universities. Infrastructure is also popular. If your business meets unmet needs it will likely be more attractive for foreign investors so consider this income source. 

As we move further into the twentieth century, Africa’s long-term potential will surely become present day success. With entrepreneurs providing jobs and much needed services, start-ups will lead the way. Hopefully securing capital need not be a barrier to success.