Duo connects start-ups to network of angel investors

After years of working with startup companies, two Nairobi-based innovators realised that many new companies crumble few miles down the road after being set up. One of the reasons, the duo realised, is that the founders of the startups struggle to raise capital to sustain the business.

After a stock take, Stephen Gugu and Yaron Cohen realised the startups were missing out on a key part of the equation by not building the investor ecosystem simultaneously.

This is how they started ViKtoria Business Angel Networks (VBAN). This is a network of angel and potential investors, both individual and institutional, that syndicates local and international investor capital into seed stage investments in East Africa. It also considers formal and semi-formal groups such as chamas that are already investing in the region.

Mr Gugu is an innovator with a background in law and accounting while Mr Cohen’s profession is finance, and his role has been connecting international investors to co-invest in early stage funding.

“Prior to establishing the network in 2017, our engagement was in the early stage space through ViKtoria Ventures. Through 2012 to 2015 we engaged in a range of consultancy assignments focused on entrepreneurial finance in the Kenyan tech startup ecosystem including private equity and venture capital funds, incubators and accelerators as well as directly with entrepreneurs,” says Mr Gugu when he spoke to Enterprise.

Based at Methodist Ministries Centre in Lavington, Nairobi, their overall objective is to spur local capital to support early stage companies by increasing the number of active angel investors, the number of deals being done and the total amount of cash being invested in these deals.

An angel investor is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership of equity.

“We hope by doing this we shall create a new crop of angel investors and help the ecosystem get more local founders funded hence increasing their success rates and their impact. A good number of jobs will be created as a result of angel involvement in support of these young businesses,” says Mr Jason Musyoka, the VBAN manager.

Structurally, VBAN is a gathering of angel investors exploring the early stage space and not a fund. What this means is that costs associated with operating a fund structure, such as management fees, are not part of a network structure.

Individuals and institutions keen on subscribing to the network pay a registration fee and commit to adhere to certain code of conduct.

“Currently, we have two membership offerings; deal-flow membership for Sh30,000 and full membership for Sh50,000. Our preferred member would be an investor willing and able to invest at least Sh500,000 annually; committed to provide non-monetary support to portfolio companies,” says Mr Musyoka.

So far, the venture has attracted 32 from sectors such as oil and gas, banking and insurance, but registration turnover is not a success metric for them.

Their biggest triumph was closing two deals. One is Buymore Ltd, a tech startup founded in 2013 to provide Point Of Sale (POS) and mini Enterprise Resource Planning (ERP) solutions to micro retailers to enable small businesses to grow by providing technical solutions.

The other one is Livestock Trade Services, which ensures disease-free livestock trade through serving the export import industry by introducing modern technologies including traceability systems, pen-side diagnostic tests, and laboratory backup to ensure that livestock are disease-free

“We have trained, coached and organised demo days with institutions like mLab, iHub, Make IT in Africa, Tangaza College, Ibiz Africa and more, and collectively we have impacted over 1,000 entrepreneurs,” says Mr Gugu.

Unlike a fund, angel investors take individual risk while placing bets on companies in the hope that they will make a return on investment. A syndicate act provides a level of de-risking of the investment. By spreading the risk among several investors, an individual’s exposure is reduced.

“It is at start-up level where the biggest funding need exists, access to capital is limited and this is where angel capital is crucial. We strongly believe in encouraging Kenyans to invest in their fellow Kenyans,” Mr Gugu says.

Currently, the venture is looking to increase the number of active angel investors and the capital being channeled to local founders. “This means doing more deals as a network to fully realise the advantages of network effects.”