Essentially, angel investors are the opposite of venture capitalists. Angel investors in Kenya are also known as informal investors, angel funders, private investors, seed investors or business angels.
These are affluent individuals who inject capital for startups in exchange for ownership equity or convertible debt.
This type of investors looks for the potential for a Solid Return.
Investing involves a high degree of risk, so angel investors have the expectation of doing more than just getting their money back when they invest in an enterprise.
They are looking for a higher return on their investment than they can get on the stock market, for example.
Understanding Angel investors in Kenya
Angel investors are individuals who seek to invest in the early stages of startups.
These types of investments are risky and usually, do not represent more than 10% of the angel investor’s portfolio.
The investors provide more favourable terms compared to other lenders since they invest in the entrepreneur starting the business rather than the viability of the business.
What are Angel investors looking for?
- The potential for a solid return: Angel investing involves a high degree of risk, so angel investors have the expectation of doing more than just getting their money back when they invest in an enterprise. They are looking for a higher return on their investment than they can get on the stock market.
- A solid business plan: Angel investors want to see a business plan that’s both convincing and complete. They want to see things such as financial projections, detailed marketing plans, and specifics about your market.
- A viable exit strategy: Before he or she invests in your business, an angel investor will expect to see an exit strategy. The sale of shares to the company’s principals is a common exit strategy for angel investors who hold equity ownership positions; the sale or merger of the company is a common exit strategy for debt-holding investors.
- The opportunity to be actively involved: For many angel investors, it’s not just about the money; they want to participate in developing your business actively. This often translates into the angel investor having a seat on your Board of Directors.
- An experienced, solid management team: A solid, complete management team with leadership ability is a must. Essentially an angel investor is investing in people, so he or she needs to see the evidence that your business is in the hands of people who are knowledgeable, experienced, competent and trustworthy – and possess the skills to lead your business to the next level.
- Document all aspects of your business: Investors want to make sure that your business is going to make them money. To help with this process, document everything from your expenses, cash flow and industry projections. Also, don’t forget seemingly minor details like your location strategy and licensing agreements.
- Have a strategic marketing plan in place: A great business plan will always include a strategic and aggressive marketing plan. This typically includes achieving marketing objectives such as:
- Introducing new products
- Extending or regaining the market for existing products
- Entering new territories for the company
- Boosting sales in a particular product, market or price range. Where will this business come from? Be specific.
- Cross-selling (or bundling) one product with another
- Entering into long-term contracts with desirable clients
- Raising prices without cutting into sales figures
- Refining a product
- Having a content marketing strategy
- Enhancing manufacturing/product delivery
Sources of funding for Angel Investors
Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
Though angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability company (LLC), a business, a trust or an investment fund, among many other kinds of vehicles.