Lessons learned from Angel Investor Bootcamp in South Africa

On 27 August the third session in a series of Angel Investor Bootcamps leading up to the ABAN Investor Summit at DEMO Africa was hosted in Cape Town. The Bootcamps are organised by the African Business Angel Network (ABAN) in partnership with VC4Africa, Intercontinental Trust and the LIONS Africa Partnership. The Cape Town edition was hosted together with the Silicon Cape Initiative.

Alexandra Fraser, past-chairperson of Silicon Cape, welcomed an audience of angels, entrepreneurs and potential investors who were there to learn more, share experiences and to network with each other. “Angel investing is never just about the money” said Fraser. “It’s about bringing mentorship, experience, expertise and an established network of contacts to the relationship.”

Fraser introduced FNB Cape Provincial Head, Stephan Claassen who emphasised the need for entrepreneurial growth in South Africa. “South Africa needs entrepreneurship and FNB is committed to supporting entrepreneurial development,” said Claassen. He added:

We wanted to be part of creating this platform with Silicon Cape. We like innovative business. It’s an opportunity for us to attract new business and to invest in innovation. We have clients who are looking to invest so it’s relevant to our current clients’ needs.

ABAN’s objective is to promote a culture of early stage investing across Africa. “The concept behind our Masterclasses like this, is that we’re able to have conversations with, and learn from the local community,” said David van Dijk, ABAN’s co-founder and director. “We’ll take the lessons learned to an annual summit taking place on 23 September 2015 in Lagos, Nigeria”.

Read more: Lessons learned on building a pan-African network of angel investors

Van Dijk introduced keynote speaker, Selma Prodanovic, also known as the Business Angelina or Startup-Grand-Dame. Prodanovic is a co-founder of the Austrian Angel Investors Association, board member of the European Business Angels Network (EBAN), and founder of Brainswork. Prodanovic describes herself as an ‘absolutely passionate entrepreneur’.

“I believe entrepreneurs and startups are the ones who creating solutions to problems. And we need to help and support them,” Prodanovic said.

Having attended a panel discussion at the SA Innovation Summit earlier in the day, Prodanovic realised that many of the challenges that local South African entrepreneurs are facing are in fact, global issues, such as the need for education and infrastructure.

“But then, what are entrepreneurs? Entrepreneurs create what they want to create, against all odds and no matter what,” she said. “At the end of the day, if it was easy, then everybody would do it.”

“A business angel means more than just cash-in-cash-out investing. They’re bringing much more to a startup,” said Prodanovic.

She explained that business angels bring three types of capital to a venture. Financial capital (cash); social capital (a network of high-level contacts) and human capital (knowledge and experience).

Being a business angel is a fantastic thing to do. You’re able to enable entrepreneurs to follow and build their dreams. But it’s important to think about why you are a business angel. If for example you are in New York, you will say you’re in the exit business. It’s all about making money at the end of the day. But I totally disagree. The exit is a result, but not the main purpose. I think that business angels are in the business of creating great businesses.

Prodanovic urged the audience to think of themselves as potential business angels. “It’s not about investing huge amounts of money.”

Also, Prodanovic would like to see more corporate CEOs becoming angel investors: “They have the expertise, the networks and relationships with international corporates, so they can facilitate international relations and open doors for startups, which makes it much easier for the startups to grow.”

She elaborated:

We need a diversity of business angels to be enable a diversity of startups. Globally, women are under-represented in the startup space. And we’ve got to change that. The Rising Tide is a global fund and training program created by 99 women angel investors with the objective of increasing women’s participation in angel investing and educating a new wave of angel investors. It’s not about investing as a female. It’s about having female investors, which in turn encourages more female founders to enter the start-up space.

Read more: 7 things you need to know about pitching to South African angel investors

Following the keynote, a panel discussion on angel investment took place. Facilitated by Fraser, it featured panellists Prodanovic and investors Daniel Guasco of Team Africa Ventures, Justin Stanford of 4Di Capital, Ernst Hertzog of Action Hero Ventures and Willem du Preez of Intercontinental Trust.

The panel agreed that it’s crucial that both angels and founders are aligned with similar values, expectations and a common end goal. That alignment needs to be outlined in the terms, because if there is not alignment, it can lead to expectations not being met, and that can cause a venture to derail. The panellists addressed the importance of encouraging corporate executives to become angel investors. “In my experience, there is a lot of capital available,” said Hertzog. He added:

But the problem is to get executives to donate their time. And that’s what you’re after. There’s no point making this type of investment if you’re not involved. They need to find the time to add value to their investment portfolio.

Stanford advises entrepreneurs to prioritise what they need from angels according to their strengths and to ask for targeted advice addressing specific queries, rather than to expect what he called an all-encompassing flow of feedback from the angels. He believes that one of the biggest errors you can make as an investor is to make decisions for the management team.

“You can make suggestions,” Hertzog said. “But management must always own the outcomes. Make sure you’re giving advice and not instruction.”

Angel investing is not about overnight success and is high-risk. It can take up to ten years to build a sustainable and successful venture and it usually requires a lot more investment than initially planned for.

“Investors need to be aware that the first cheque is never the last cheque. When you make an investment, you buy the obligation to put more money in,” said Stanford. “Usually it makes half the revenue and takes double the cost and double the time,” he said.

Prodanovic is committed to increasing the visibility of angel investing and start-ups and initiated the one million startups campaign to extend this awareness:

We’re still in the minority and we need to create awareness in the outside world. The majority of people do not realise the importance of startups in terms of the solutions they offer. Big corporates are no longer able to create jobs and are mostly not creating innovation, whereas entrepreneurs and startups are able to create and deliver innovation in a much faster turnaround time.

“The world needs to recognise that startups are an important part of the solution to our problems.” she said. “Anyone can become an angel investor. It’s the best way to make a better tomorrow.”

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This article by Bettina Moss first appeared on VC4Africa, a Burn Media publishing partner. Photos by Hannes Thiart.