March 13, 2023
SME Guides
Introduction to angel investors in South Africa
While it remains a niche way to fund a startup in South Africa, angel investors are an important part of the country's startup ecosystem. These types of investors typically invest in early-stage companies that are riskier than most financiers want. As a result, angel investors help bring to life companies and innovations that might otherwise never get funding.
What are angel investors?
Angel investors are usually people with a large network of contacts and interest in business. Most are former entrepreneurs or corporate executives who use personal funds to provide capital to startups in exchange for shares.
The angels came very early in the startup journey and provide support to founders taking their first steps. In fact, they incubate early-stage companies, providing not only capital but also market access and mentoring. Angels will often also share their industry connections, as well as their skills and experience.
In return, the startups they invest in must be able to generate a good return. Investors expect approximately a 30-40% annual return on their investment over a period of three to seven years. In three to seven years they will leave a company.
One of South Africa's best known and most prolific angel investors is Vinny Lingham. The Silicon Valley-based tech entrepreneur is behind tech companies Yola, Gyft and Civic. linham hasinvested in more than 40 companieslike an angel.
On his website, Lingham provides insight into how he makes his investment decisions and what he has to offer as an angel.
“I'm looking for high-quality teams that tackle really tough problems in high-growth areas. I'm based in Silicon Valley and I access the flow of business through my relationships with people on the ground. I like to start early and help founders think about their business from an execution perspective.”
Angel investors in South Africa
As South Africa's startup ecosystem has grown, so has the number of active angel investors, said Christopher Campbell, co-founder of the South African Business Angel Network (SABAN) in the article "Everything you ever wanted to know about angel investors in South Africa". Africa'. Even so, financing from angel investors is still relatively unknown in the country. The practice is more common in developed markets such as the United States and the United Kingdom. This is mainly due to a lack of awareness among entrepreneurs and the perceptions of angel investors, says Campbell.
“Angel investors in South Africa have long been seen as a private club for the rich, but there are plenty of angel investors who support entrepreneurship.”
The practice of angel financing also remains somewhat limited, serving a small number of start-up companies. Therefore, it is important that entrepreneurs understand the funding model, especially that it is not a charity and that investors want to see their money returned with some return.
See also:Find the right business loan product for your business
The difference between angel investors and venture capitalists (VCS)
While both angel investors and venture capital firms expect significant growth and returns on their investment, they differ in several important ways. First, VCs are portfolio companies that invest in multiple companies, with a team making the investment decisions. Angel investors are more independent and the individual has all the power, which often means a faster decision-making process.
Angel funds are also typically smaller than VC funds, so they typically invest less money than a traditional VC. Finally, angel investors are at a much earlier stage of business development compared to venture capitalists who wait for traction and clear growth potential before investing.
File:Venture Capital Funding in South Africa
The benefits of angel investing
Below are the biggest benefits angel investors have to offer to startups.
Ideal for high-risk businesses –Angel Investing is especially suitable for high-risk companies that are at a very early stage of development. An angel investor investing their own money does not have the same extensive list of requirements as a VC or traditional bank. Also, if the venture fails, an angel will generally not request a refund.
Maintain control of the companyAngels typically invest small amounts compared to venture capitalists, so a startup doesn't have to give up a lot of capital. This means that a founder gets more control over the company from him, making it a more attractive investment option for early-stage startups.
Access to business experience:Most investors have a corporate background and often other portfolio companies as well. This makes them an invaluable source of knowledge and skills for new founders. In addition to money, startup founders should also expect business development and strategic guidance, as well as access to the vast network of investors.
File:The big questions you need to be able to answer to get that funding
The Disadvantages of Angel Investing
Despite the various benefits of Angel Investing, it is critical that founders of new companies are aware of the following potential risks.
Lost of control -As a startup founder, you never want to give up more capital than you need. Sacrificing too much capital can result in you no longer being the primary decision maker and losing majority ownership. Giving up too much capital early on can also make it more difficult to attract other investors later.
Wrong angel investor -Finding an angel investor who adds little value to the business beyond financing is another potential downside to this type of financing. The real value of an angel investor is the additional benefits they bring, such as their network and experience, which can support the growth of your startup.
How to Get Funding from Angel Investors
The key to accessing funds from an angel investor is to demonstrate that you have a good product, a solid business model, and a market-appropriate product.
Investors also want to support a founder who is fully committed to the company and has a strong management team behind him. They need to be sure that he has a team that can build a successful business that can generate solid returns. Some angels will look at your history as a founder and any previous startup experience.
The team at Angel Hub Ventures, an angel seed fund, advises founders to first consider the followingpartner with an angel investor.
“If you are considering investing through an individual angel or a group of angels, ask yourself: Are you willing to relinquish some ownership and control of your company?
“Can you demonstrate that your company will generate significant returns for investors? Are you willing to take advice from investors and accept board decisions that you don't always agree with? And finally, do you have an exit plan for the company that will take you out of it in three to seven years?
Finally, it's a good idea to give your angel investor a reason to invest more than just money in your startup. For example, highlight how your innovation aligns with your personal or professional mission, showcase the exciting technology behind your startup, or mention if the company can make a difference in the community.
build your pitch
The general investment process varies by investor, but founders will generally need to make their pitch first. The pitch should explain your startup idea and provide an overview of your business model. The proposal should also describe your monetization model and show how you plan to scale. Finally, you must provide the investor with a viable exit strategy.
It is critical that after your presentation, the angel has a full understanding of your business and its potential for success. To do this, you may need to add supporting documents such as executive summaries and business plans.
During the filing process, entrepreneurs should be careful about protecting non-proprietary intellectual property, the Angel Hub Ventures team warns in a previous article.SME South Africa article.
"It's best not to disclose [your intellectual property] to the angel group when you first pitch your company for investment."
The founders can require the angels to sign a confidentiality agreement to protect their confidentiality.
File:We answer all your Angel Investor questions
How to find angel investors in South Africa
As mentioned above, angel investors remain a rarity in South Africa, despite some growth in the industry. Most introductions to angel investors still happen through professional and personal networking, Campbell says.
"Angels and angel groups are more likely to invest in businesses recommended by people they know and trust, it's important to network in your community to get a referral."
More organizations have been launched that connect entrepreneurs, who do not have access to this type of network, with angel investors. Below are three angel investor platforms operating in South Africa.
The South African investment network
SAIN connects entrepreneurs with angel investors from around the world through a paid membership platform. To raise capital on the platform, founders must present their startups and indicate the amount of investment they need.
His process connects startup founders with the right investor that fits their criteria and needs across all stages of development and industries. According to their website, they have successfully secured over R4 billion for their members.
South Africa's first women-focused angel fund, Dazzle Angels, was founded by Alexandra Fraser, Adi Zuk, Lee Zuk and Charlotte Luzuka. Its mission is to "resolve radical gender inequality in the management and implementation of early-stage investments."
According to the website, the organization consists of a group of 20 angels. They invest not only money, but also "their time, skills, and networks" to build early-stage businesses.
The group's first investment was in the Startup Sorted vehicle licensing platform. Sorted automates the license renewal process for both individuals and businesses. The startup was founded in 2017 by Daniela Morris and Loyiso Bikitsha.
South African Business Angels Network (SABAN)
SABAN is a pan-African trade association representing the angel investor community in South Africa. The organization supports the development of early-stage investor networks across the continent. The group believes that the angel investor is essential to help launch new companies. In addition, they see the sector as crucial to boosting the economy through the creation of wealth and jobs.
SABAN's objectives are:
- Knowledge of angel investing activities
- Capacity building / training
- Planting angelic groups in the main economic centers
- networks with peers
- Investigation
- accreditation
- Lobbying for regulatory improvements
- Recognize the feats of angels.
FAQs
What percentage do angel investors take? ›
What percentage do angel investors take? The percentage of ownership that angel investors typically take in a company can vary, but typically it is between 10-20%.
Where to invest money to get good returns in South Africa? ›- Government of South Africa Treasury Bills. ...
- Money Market Funds. ...
- RSA Retail Savings Bonds. ...
- Fixed Annuities. ...
- Dividend-Paying Stocks. ...
- Real estate investment trusts (REITs) ...
- Unit trusts. ...
- Exchange-traded funds (ETFs)
Who can be an angel investor? Angel investors are often accredited investors, which is a designation that requires a minimum net worth of $1 million, at least $200,000 in annual individual income or at least $300,000 in annual joint income (see the Securities and Exchange Commission website for details).
What is angel investors in South Africa? ›Angel investors are usually high network individuals with an interest in business. Most are former entrepreneurs or business executives who use personal funds to provide capital to startups in exchange for equity. Angels came in very early in the startup journey and provide support to founders taking their first steps.
How much equity should I give to angel investors? ›There are, however, a number of words of wisdom to take on board and pitfalls for a business to avoid when taking their first big step. A lot of advisors would argue that for those starting out, the general guiding principle is that you should think about giving away somewhere between 10-20% of equity.
What are the disadvantages of angel investors? ›Disadvantages of angel investors
This may put the business and its promoters under extra pressure. Prior to accepting funding, it is important to determine whether the business can grow at the rate an investor would expect and establish growth expectations. The other drawback is a loss of control in the business.
“Effectively, you're standing still,” Ingram points out. As an example, with an interest-focused investment of R1 million, generating a return of 6.7% over 12 months will mean a return of R67 000 for the year.
What is a good ROI in South Africa? ›You can choose a short-, medium- and long-term investment — either way, you're sure to get great rates from us. What is a good investment rate? Investors generally consider a return of 7% per 12-month period to be a good rate of return.
Which investments have the highest interest rate in South Africa? ›1. Access Bank. The highest interest rate in South Africa for a fixed deposit account is the Access Bank 60 months fixed deposit account which offers an interest rate of 11.60% pa. The account allow account holders to withdraw or recapitalise their interest.
Do angel investors use their own money? ›Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
What are the rules for angel investor? ›
Usually, meeting the standards of being an accredited investor is a prerequisite for becoming an angel investor. This means that your earned income must be $200,000 or more for the past two years ($300,000 with a spouse) or your net worth, alone or with a spouse, must surpass $1 million in investable assets.
How old is the average angel investor? ›These individuals have had many years of professional experience to amass their wealth. The mean age at which angels make their first angel investment is 48 years old.
Who are the best investors in South Africa? ›| Full Name | Primary Organization | Primary Job Title |
|---|---|---|
| Phillip Sebole Masango | Black Silver Capital | Executive Director & Founder |
| Michael Jordaan | AngelHub Ventures | Partner |
| Zachariah George | Startupbootcamp Cape Town | Co-Founder, Partner and Chief Investment Officer |
| Lillian Barnard | Microsoft | Chief Executive Officer and Board Member |
The 2022 Alexforbes Manager Watch Annual Survey revealed that Ninety One, Stanlib, and Sanlam Investment Management (SIM) are the largest asset managers in South Africa.
How much is typical angel investment? ›A typical investment is between $15,000 and $250,000, although it can vary significantly. Usually angel investors contribute a relatively small amount of capital into a startup company. Angel investors are often friends or family members. They might also be experienced venture capitalists or entrepreneurs.
What ROI do angel investors expect? ›On average, potential angel investors expects to see a return of about 27% or 2.5 to 3 times their initial investment within 5 to 7 years. This means that if an angel investor invests $100,000 into a company, they expect to see a return of $250,000 to $300,000 over the next 5 to 7 years.
What is the biggest drawback of using angel investors? ›The primary disadvantage of using angel investors is the loss of complete control as a part-owner. Your angel investor will have a say in how the business is run and will also receive a portion of the profits when the business is sold.
Are Shark Tank angel investors? ›For nearly 15 years, the business reality television show Shark Tank has introduced the angel investment process to general audiences by spotlighting entrepreneurs as they pitch their products or services to investors.
Where can I get 7% interest on my money? ›7% interest isn't something banks offer in the US, but one credit union, Landmark CU, pays 7.50% interest, though there are major requirements and stipulations.
Where to invest a million rand in South Africa? ›- Absa Relationship Banking.
- Discovery Invest BIC.
- FiveWest.
- Laurium Capital.
- Moti Group.
- ROSE Foundation.
- Santam Specialist.
- Stanlib.
How much interest will I earn on R500 000 in South Africa? ›
Without taking tax or investment fees into account, a R5 000 yield per month (R60 000 per year) from an investment of R500 000 would require an annual yield of 12%.
How much interest will I earn on 2 million rand? ›Factually, however, you can presently expect to earn interest of around 5%-6% pa (say 5,5%) which would equate to around R5 500 pm (before tax) on R1,2m. This rate only just matches the current inflation rate.
What is the safest investment with highest return? ›High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
What is the best 3 year investment in South Africa? ›The best 3 year fixed deposit interest rate is 10.49% offered by Sasfin. This is the effective annualised rate. You will need a minimum investment of R20,000 to get that interest rate. Check out the fixed deposit calculator to see how much interest you will earn for your investment amount.
Which bank is the best in South Africa? ›Capitec Global One Account
With over 14 million customers, Capitec Bank has gained a reputation for being one of the most affordable and customer-friendly banks in South Africa. The Global One account offers a simple, transparent fee structure and an array of features that cater to a wide range of customers.
South Africa Prime Lending Rate data is updated monthly, averaging 10.500 % pa from Jan 2000 to Mar 2023, with 279 observations. The data reached an all-time high of 17.000 % pa in May 2003 and a record low of 7.000 % pa in Oct 2021.
Do angel investors have to pay taxes? ›If an angel investor receives equity in exchange for their investment, then any profits from the sale of that equity will be taxed as capital gains. If an angel investor receives convertible debt in exchange for their investment, then any profits from the repayment of that debt will be taxed as ordinary income.
Do angel investors pay taxes? ›Both of those sources of money are taxable, at different rates, through income taxes and capital gains taxes. Angel investing falls into the second category. If you invest in a startup, and it gets sold, and your share is worth a lot more money than you paid, you'll pay capital gains taxes on that amount.
What percent of angel investments fail? ›50%-70% of individual angel investments result in a loss of some capital, according to the most authoritative academic data; the same is true for VC deals.
Is investing in South Africa a good idea? ›South Africa is one of the most sophisticated and promising emerging markets globally. The unique combination of a highly developed first-world economic infrastructure and a huge emergent market economy has given rise to a strong entrepreneurial and dynamic investment environment.
What attracts investors to South Africa? ›
As the most advanced and broad-based economy on the continent, South Africa offers exporters and investors a diverse and mature economy with proven financial and other service sectors, as well as preferential access to export markets in the European Union, and the Southern African Development Community (SADC).
Who is the most successful investor in South Africa? ›Johann Rupert is one of South Africa's most successful and best-known businessmen with investments in many top South African and international companies. He ranks second on the Forbes African Billionaires List with an estimated net worth of around $11 billion (R205 billion).
How can I make money fast in South Africa? ›- Utilize money-making websites. ...
- Affiliate marketing. ...
- Earn by watching videos. ...
- Earn by listening to music. ...
- Use apps to make money. ...
- Freelancing. ...
- Become an online tutor. ...
- Amazon Kindle Book Publishing.
- ✅ Gold Fields Limited – Leading Mining Company listed on the JSE.
- ✅ Naspers – High Revenue JSE Listed Tech Company.
- ✅ British American Tobacco – Largest JSE Listed Tobacco Company.
- ✅ Tesla – Most Popular JSE Listed Share.
- ✅ Anglo American Plc – Popular Shares to Trade in South Africa.
The largest holders of foreign assets in Africa remained European, led by investors in the United Kingdom ($65 billion) and France ($60 billion).
How do I choose an angel investor? ›- Finding an angel investor can deliver strategic value such as connections, guidance or leads.
- Be discerning, setting up meetings with the best prospects, but also plan for volume.
- Don't ask for money first; use conversations to get advice and hone your pitch.
The bottom line. Angel investors make money by backing very early-stage startups they find promising, with investments typically ranging from $5,000 to $150,000. In exchange, they receive an ownership stake in the company and expect returns if the company succeeds.
How hard is it to get an angel investor? ›Finding an angel investor is not a particularly easy task, but the effort will really pay off when you find the angel investor who is willing to invest in your business. Besides providing the capital your business needs, the advice and know-how of an angel investor can be key to shaping your company's success.
What rate of return do angel investors expect? ›What Percentage Do Angel Investors Want? The more money an angel investor gives your business, they more they'll expect a bigger return on investment (ROI). The ROI expectation varies between angels and the specific investing opportunity. It's not uncommon for an angel investor to expect a 30% return on their money.
What does a 20% stake in a company mean? ›Let's say a company is looking to raise $50,000 in exchange for a 20% stake in its business. Investing $50,000 in that company could entitle you to 20% of that business's profits going forward.
Do angel investors get diluted? ›
When angel investors invest in your startup, they are typically buying shares of common stock. This means that the ownership of the company will be diluted among all the shareholders. The more shareholders there are, the less each one owns of the company.
What percentage should investors take? ›Our advice is to stick to the general rule of 20 to 25% of businesses income. If your investor is more interested in cashing in on equity growth, you can offer 15% of the business or more, depending on how much money the investor provides.
How much is the average angel investment? ›Individual angels usually invest between $5,000 and $150,000. A round of angel funding relies on more than one person. A typical round can bring in three to five different investors, with the total investment averaging between $100,000 and $250,000. The investors receive equity commensurate with their contributions.
How long does it take for angel investors to make money? ›In the technology space, this generally takes 5 to 10 years. Whether you work with an angel investor, venture capitalist, or friends and family, they can expect to make money when the company makes a successful exit. An exit is an opportunity for a company to liquidate shares or equity in the company.
How much is a business worth with $1 million in sales? ›The exact value of a business with $1 million in sales would depend on the profitability of the business and its assets. Generally, a business is worth anywhere from one to five times its annual sales. So, in this case, the business would be worth between $1 million and $5 million.
How much is 100000 for 10 percent stake? ›So, if the entrepreneur is asking $100,000 with 10% equity, $100,000 is 10% of the company's valuation — which in this case is $1 million ($100,000 x 10). This is where the sharks usually ask how much the company made in the prior year. The valuation is then divided by that amount.
How much is 100000 in stake? ›The stake that someone has in a company refers to what percentage of it they own. If you own a 10% stake in a company worth $100,000, your stake is worth $10,000.
Where do angel investors get their money? ›Angel investors make money by backing very early-stage startups they find promising, with investments typically ranging from $5,000 to $150,000. In exchange, they receive an ownership stake in the company and expect returns if the company succeeds.
What is the 70% rule investors? ›The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.
What is the 7 percent rule investing? ›Assuming that you have $100,00 in your retirement savings account, you should withdraw 7%, which is $7,000 every year. Suppose the market gets volatile in the future, and your portfolio value falls to $82,000; the $7,000 withdrawal limit will represent 8.5% of your present portfolio value.
What is the 4 percent rule investing? ›
What is the 4% rule for retirement? The 4% rule states that you should be able to comfortably live off of 4% of your money in investments in your first year of retirement, then slightly increase or decrease that amount to account for inflation each subsequent year.