2 Deals and Counting: Lessons from Group Angel Investing

After 4 years consulting for early stage startups, Viktoria Solutions rebranded to Viktoria Ventures. This was a strategic move; taking into account our experiences, lessons learned and challenges facing early stage tech entrepreneurs in Kenya and across Africa.

2010 – 2014

We started out working with incubators and accelerators acting as their ‘entrepreneurship activation team’. We trained, coached and organised demo days with institutions like mLab, Tangaza College, Ibiz Africa and more. Collectively we impacted over 500 entrepreneurs.

Into 2014, as we were reflecting on how things had gone, we felt that we had not had the impact we wanted. While a number of entrepreneurs had passed through our hands, the impact was not what we expected. When we considered the number of entrepreneurs who had gone on to found businesses we thought were scalable and sustainable, raise funding, create killer teams for their startups etc the evidence just simply was not convincing. Soul searching revealed that we may have fallen into the hope trap. We ‘hoped’ that once we had successfully worked on the entrepreneurs, they would somehow raise funding from investors we did not know and really that were not present in the ecosystem (now we know 😊). We also ‘hoped’ that these investors would understand how to invest in early stage tech startups.

The result of our three years in the trenches therefore, was that most of the entrepreneurs we had interacted with (trained, coached, mentored etc) were not able to raise funds and many founders ended up working at technology companies in the region. Anyone with knowledge of the Kenyan tech ecosystem can attest to availability of money for startups (or lack thereof). What is not known is that much of this is foreign money which comes with overestimated expectations for local companies.

Lesson 1: We were missing out on a key part of the equation by not building the investor ecosystem simultaneously.

This key lesson is what spearheaded the change of brand from Viktoria Solutions to Viktoria Ventures and with it, a focus shift from startups to investors as our primary clients. We have spent the last 3 years engaging active and potential investors with an aim to propel the destiny of startups in our ecosystem.

2014 – 2017

Lesson 2: Education is key to fostering an effective angel network.

In September 2014, we organised a pitch session with 20+ potential investors in attendance. We had good relationships with the startups pitching and were sure they would all be easy sells to the investors. The event instead showed us how large the knowledge / expectations gap is between tech startups and angel investors.

Investor questions ranged from needing guarantees for their investments, to valuations which implied founders would have to cede up to 50% of their companies in the first round of funding. Potential investors were not comfortable with key investment terms such as convertible notes, cap tables, pivots and more. The investors had also not thought definitively about an investment strategy. This pointed to the fact that while most investors were seasoned in traditional sectors e.g. stock, real estate, bonds and treasury bills, early stage investing would need a bit of hand holding, at least at the start.

Lesson 3: To close a deal, a champion is needed to manage the investment from start to exit.

The champion answers questions such as: What does due diligence say about the founder and the business? Are the investment terms fair? Where does the cash get deposited? Who will manage all the legal documentation and get the deal closed?

On following up after the pitch, there was some interest from the investors and introductions were made but no deals came out of it. Upon investigation we found that we had not figured out a solution to help investors participate in early stage investing. While we showed them the opportunities we did not help them close the deals, hence the need for a champion.

Lesson 4: Skin in the game.

We toyed with a number of models to accelerate closure of deals and ensure whatever model we went for was a sustainable one. At first we thought we would get paid by founders for helping them raise cash as we got angel deals done. This did not work because we were raising such small amounts that typical transaction fees were not enough compensation. The second hurdle we faced was that angels felt the transaction fees were not good use of their money. They expected it all to go into the company. They also felt a lack of commitment from our end if we got paid cash and walked away. What assurances would they have that we would stay impartial and only recommend the best deals?

We needed skin in the game which led to our next pivot. We decided we would not take out any cash. Any fees earned to getting the deals done would be considered part of our investment in the deals. We still hit a wall. Angels wanted us to put in actual cash in the deals.

This meant that our model would therefore include us putting in cash and taking transaction fees that would convert into part of our investments.

 African Business Angel Network (ABAN)

We have been fortunate to have ABAN help us through these tough questions. Together, we organised several master classes led by both us and world renown angel investors like Brigitte Baumann who runs Go Beyond Investing.

These master classes were very instrumental in getting us started. Advice we received from Brigitte was to start because the only way to answer our questions was by getting our hands dirty.

This is why at the beginning of 2017 we decided that we knew enough to get deals going and set the goal of closing 3 investments. We have since invested in 2 companies: Buymore and Livestock Trade Services.

How did we do this?

Education: We launched information sessions to share key angel investing skills with potential investors led by experienced angel investors. We have had discussions on topics such as Introduction to Angel Investing, Creating an Angel Investing Strategy, Valuation, Deal Structuring and Value Addition. Going forward this will remain a regular part of our network. See details on future sessions on our website.

Championing: After many iterations, we decided that we would be the champions who manage the deals from start to exit. We are compensated a low fee for managing the due diligence process. Our main fee is based on the performance of the deal. Once investors have gotten back their investment, we participate in anything above through carried interest in typical venture style.

We have also made a firm commitment to participate in deals we put forward to our angels, our participation being in cash and part transaction fees as the case may be. We feel that by participating in cash and sweat we are properly aligned with angels.

Viktoria Business Angels Network (VBAN)

Thus, Viktoria Ventures has given rise to Viktoria Business Angels Network (VBAN), a gathering of investors and potential investors from across East Africa. VBAN syndicates local and international investor capital into seed stage investments in tech startups in East Africa.

VBAN members pay a membership fee and benefit from training and networking opportunities with experienced investors, startups and industry leaders.

The Viktoria Ventures team provides deal sourcing, structuring, investor syndication, due diligence, post investment monitoring and leads the investment into every startup presented to network members.

To join the Viktoria Business Angels Network, sign up here



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