Chapter 2: Types of Investors

One of the first and most important decisions that entrepreneurs will need to make when raising money is deciding what type of capital they need.


There are different types of investors that focus on the ِAfrica region. Each type of investor and their funding capacity, as well as their non-financial benefits to borrowers, will be briefly discussed in this chapter.


These are new types of funders that assess their customers’ credit-worthiness through online forms, or data stored on their phones


These are a group of individuals who are willing to invest their spare cash in small-scale businesses


They are a distinguished group of investors looking for both monetary returns on their investment and environmental/social benefits


They are mostly philanthropic organisations that finance certain types of companies or projects


These investors are federal, local and international organisations whose primary focus is to fund small businesses or promote entrepreneurship


These are companies that invest large amounts of funds (usually millions of dollars) in already existing and well-established businesses


They mainly focus on new start-ups by assisting them to enhance their idea/product as well as educating them on how to achieve their goals


They are popular financial institutions that do not normally like lending money to small companies, though a few of them are interested in funding small businesses


These are companies that create their own venture funds, or provide small businesses with funds as part of their corporate social responsibility


These are mobile or online platforms through which funds can be raised for projects and companies from a wide range of investors


They are firms that invest their funds in start-ups and small businesses


These new types of funders use either data stored on customers’ phones (either feature or smartphones), or online forms to determine their creditworthiness. That makes it easier to determine prospective borrowers’ potential default rate, maximum loan size, and loan tenor. These capital providers can access customers that live far away from brick-and-mortar financial institutions. The borrowers can apply for a loan through a phone or online, and will be notified when their application is approved. The money is then disbursed directly into their mobile wallets or transferred into their bank account.

While some of these funders may be able to fund larger amounts, the majority focus on relatively small funding amounts at first, and increasing the maximum loan size as borrowers establish a more solid track record. This is because they do not want to risk too much capital on one borrower before being sure they will get their money back. As they work with more borrowers and get better data on bor- rowers, they will be able to fund larger amounts. In the meantime, however, they can be a convenient (but expensive) source of work- ing capital during periods of tight cash flows.

When applying for funding from these lenders, be deliberate about how you fill in the forms they ask you to submit, as some funders will take into account how a person fills in the form when making the funding decision. Taking a long time and making spelling mis- takes will negatively affect your application and ultimately increase the cost of the loan.

Typical funding instrument: Debt
Typical funding amounts: $10,000
Non-financial benefits: None


These organisations work with early stage start-ups to help nurture them at a crucial stage in their lifecycle. They provide start-ups with a great environment to grow their business. Often, accelerators and incubators focus on technology start-ups.

There are some differences between incubators and accelerators. Generally, incubators are less structured and are more focused on providing a physical co-working area and access to their networks for very early stage start-ups; some fund the start-ups in the incubation programme, but most do not. Accelerators are also aimed at early stage companies, but ideally at those advanced enough to be ready to grow and scale their business. An accelerator generally takes equity in the business in exchange for access to the programme, the facilities, and their mentor network. This mentor network often includes investors and experienced business managers. As opposed to incubators, accelerators usually have a set timeframe, from a few weeks to a few months.

Prior to making an investment, equity investors go through a detailed screening process, commonly referred to as due diligence. At this stage, they look at the potential for a start-up to grow into a highly profitable business. Most equity investors understand that the majority of start-ups fail; therefore, they look for growth potential rather than steady cash flows. Equity investors like to back tech start-ups because of their ability to scale with relatively low capital requirements compared to traditional brick and mortar businesses.

In order to receive equity investment, entrepreneurs will typically need to have an extensive business plan, with strong financial models showing growth projections, competitor analysis, proposed approach to marketing, and more.

Equity is the riskiest type of financing for investors, as the funders stand to lose their entire investment should a company fail.

Typical funding instrument: Grant + Equity
Typical funding amounts: $50,000
Non-financial benefits: office space, mentoring and training sessions, events for start-ups, connections to investors


Foundations are non-profit charitable organisations that are founded with an initial endowment, typically made by an individual or busi- ness. The foundations tend to have a specific goal or sector of interest, and they fund other charities, NGOs, projects, and companies that work toward that goal. (Alternatively, the foundations may also operate projects in their sectors of interest, if they have the capacity to do so.)

The amount of funding they make available varies drastically, based on the foundation’s endowment. Large foundations can fund millions of dollars’ worth of projects, though the vast majority are much smaller.

In order to get funding from foundations, companies will need to go through an application process. Some foundations only accept applications from companies and projects they have invited to participate, so it is important to know who to approach within the foundation to get an invitation. Foundations will typically look for how closely a company’s mission and activities match with the desired outcomes the foundation wants to achieve. For this reason, when approaching foundations, it is important to focus on the impact of your business in the funding application.

Typical funding instrument: Grant
Typical funding amounts: $100,000
Non-financial benefits: Access to foundation network


An angel investor network is a group made up of individuals (called business angels) who inject capital into an angel network fund in order to provide funding for start-ups in exchange for equity. The network is made up of experienced professionals, who have knowledge and contacts in the industry in which they invest.

Angels invest in companies with high growth potential, though they tend to look at a wider range of sectors than VCs, which like to invest in highly scalable sectors like tech. Angels typically step in to provide funding for companies that have exhausted any friend and family investments or personal savings they may have been able to access, and prior to investment from VCs.

While most business angels are engaged and helpful, some may see the start-up as their own company and look to obtain too much control early on. As an entrepreneur, it is important to listen to their feedback, but ensure that you do not blindly follow their advice.

Innovative sites like AngelList and VC4A have helped connect this source of capital to start-ups looking for funding around the world.

Typical funding instrument: Equity + Mezzanine
Typical funding amounts: $50,000 per angel round
Non-financial benefits: Mentorship, connections


Crowdfunding is the practice of raising money from a large group of individuals, typically through an online portal. There are four prevalent models of crowdfunding:

Donation-based: the crowd donates money to a cause, individual, project, or business, without expectation of any financial or non-financial return.

Reward-based: the crowd gives money to an individual, project, or business, in exchange for a non-financial reward. The rewards are generally either items like shirts or stickers, or an early version of a product (essentially, a pre-sale via crowdfunding).

Lending-based: the crowd lends money to an individual or busi- ness, with expectations of getting the principal back with interest.

Equity-based: the crowd invests in a business, with hopes of sharing in the business’s success as it grows.

Depending on the type of crowdfunding campaign an entrepreneur chooses, he or she will need to prepare different types of pitches. For lending- and equity-based campaigns, investors will want to see a strong business plan, financial projections, and a growth strategy. For reward-based campaigns, backers will want to see an innovative product or project in a sleek campaign video. For donation-based campaigns, backers will want to see how their donation will benefit the recipient entrepreneur(s)/people. Indeed, while crowdfunding can be effective, it is also highly time-consuming.

Though there are few home-grown crowdfunding platforms in Africa (e.g in Kenya you’ve M-Changa leads the way; Kiva, GlobalGiving, Kickstarter, and Indie- gogo are some of the leading international platforms), entrepreneurs can access international platforms to get access to funding. Diaspora funding can be a solid strategy for some companies looking to crowd- fund, if they are able to access networks of Africans living abroad.

Typical funding instrument:
Grant, Debt + Equity

Typical funding amounts:
Donations-based $50,000
Lending-based $50,000
Reward-based $100,000
Equity-based $1M

Non-financial benefits: Access to large pool of early adopters, marketing


Public/semi-public capital refers to funding providers where part or all of their funding is received from government sources. The government may place certain restrictions on how the company operates and invests.

This is a broad group that includes a wide range of capital providers. These include fully or partially publicly funded organisations that work in various sectors to promote access to capital and technical assistance. These may include annual government-funded start-up and/or innovation competitions, industry consortiums and devel- opment banks, multilateral aid organisations, credit guarantee schemes, development finance institutions (DFIs), etc.

Because they are backed by the government, they enjoy trust among entrepreneurs and project owners, and can be the first port of call when they look for capital.

Typical funding instrument: Grant, Equity + Debt
Typical funding amounts: $200,000)
Non-financial benefits: Mentorship, access to new investors


Impact investor refers to funds that invest with the intention to create a positive, measurable social or environmental impact along- side a financial return. The expected range of return for these investments is often below market rate or return is measured by a different metric, e.g., social change or impact measurement.

Impact investors include high net worth individuals (HNWIs), family offices, foundations, banks, pension funds, impact-focused venture capital (VC) firms, private equity firms, angel investor networks, and development finance institutions (DFIs).


Impact investors can also provide a level of expertise to entre- preneurs and project owners in emerging markets, especially when it comes to making sustainable decisions. Because they tend to be global institutions that focus on impact as well as financial gain, however, their expertise is likely to be limited – many of GIIN’s members, for example, are based in the developed world and may not have the appropriate expertise on the ground. Furthermore, they must spend resources on examining impact, which means potentially fewer resources toward providing entrepreneurs and project owners with technical expertise.

As social and environmental impact is key for these funders, it is important to show not only how your company will work toward achieving these aims, but also how you will measure and prove the impact you want to achieve. That is one of the downsides of accept- ing impact investment: measurement can be highly onerous.

Typical funding instrument: Grant, Equity + Debt
Typical funding amounts: $50,000 – $2M
Non-financial benefits: Mentorship, connections, support in impact measurement and management


Banks are licensed financial institutions that are able to make loans and take deposits, among other services. In developed economies, banks often step in to provide capital to start-ups and SMEs. In emerging markets, however, commercial banks tend to shy away from the SME sector, seeing it as risky and costly; they tend to work with large firms.

Banks that work with SMEs offer various financial products, includ- ing asset financing and invoice factoring. Like other funders, they want to see a comprehensive breakdown of how the funding will be used, several years’ financial history, and collateral. This is used to estimate the creditworthiness of the business, how long to lend the money, and at what interest rate.

Banks can be an efficient source of capital, but most will charge high interest rates given the risk associated with start-ups. Make sure you calculate how much you will need to pay every month and consider carefully whether that is something your company can afford.

Typical funding instrument: Debt
Typical funding amounts: $250,000
Non-financial benefits: None


Large firms often support entrepreneurs, projects, and SMEs financially. There are various motivations for corporates to fund businesses. One is to ensure they stay up to date on what innovative start-ups are doing in relevant sectors, and get an opportunity to invest in those companies early on. Another is a way to spend corporate social responsibility (CSR) funding. Additionally, corporates can run start-up pitches and competitions.

The fundraising process and amounts will vary depending on the type of funding that corporates employ. When companies are fund- ing companies and projects via their CSR initiatives, they will often act like impact investors, asking not only for a business plan, but also a way to monitor how the money is being used, and whether it is meeting its stated social and environmental goals. Otherwise, corporates will look at how the business they invest in could grow, and how this growth may fit into the company’s long-term plans.

While corporates can be a great partner for your start-up, do make sure you protect your intellectual property (IP) before opening up any business secrets.

Typical funding instrument: Equity + Mezzanine
Typical funding amounts: $1M
Non-financial benefits: Office space, mentoring, market access


Venture capital (VC) is a type of private equity and refers to invest- ments made in exchange for equity in early-stage businesses. VCs are focused on funding, developing, and expanding early- stage businesses.

VCs tend to invest in ‘adolescent’-stage start-ups which have potential to grow rapidly and earn the investors 10x to 30x return on their capital over a fairly short time period: three to seven years (in many other developing countries, that time horizon is often closer to seven to ten years). Typically, VCs look to invest in companies within sectors that have the capacity to tap into economies of scale and expand rapidly, often backing IT and software companies. As the percentage of companies that are able to earn such profitable returns is small, VCs tend to diversify their investments across multiple firms, often co-investing with others to minimise exposure to a single company.

VCs provide several services in addition to providing capital. They play an important role in guiding the company through the later rounds of raising capital, can help formulate and implement the business strategy, and aid in appointing the management team. Given their influence on an early-stage business, however, VCs can be overly controlling and influence decisions in a way that benefits them more than the business in the long term.

Typical funding instrument:
Equity + Mezzanine
Typical funding amounts: $100,00 – $3M
Non-financial benefits: Mentorship, connections, recruiting help, help setting up governance and business processes


Private equity (PE) firms invest directly in private companies. They tend to focus on companies that are more mature than those in VCs’ remit. PE firms are often structured as a limited partnership, with institutional investors and/or HNWIs providing funds for partners to manage. As PE firms invest in more mature companies, and some- times acquire a 100% stake in these companies, they tend to invest much larger amounts than VCs – ($5MM) and above. That makes them an imperfect fit for smaller firms.

Private equity is a catch-all term that captures many types of firms; venture capital, for example, is a subset of PE. As PE funds tend to make large equity investments, they typically get fairly hands-on in the management of the companies. They usually focus on larger, more established companies that they feel can improve operations and become more profitable.

Typical funding instrument: Equity
Typical funding amounts: $1M
Non-financial benefits: Mentorship


Launch: Starting Up Essentials

– What you need to do before fundraising

Chapter 1: Funding Options Overview

– Overview
– Grant
– Debt
– Equity
– Mezzanine

Chapter 2: Types of Investors

– Overview of 10 investor types
– Mobile Lenders
– Accelerators & Incubators
– Angel Investor Networks
– Banks
– Impact Investors
– Corporates
– Foundations
– Crowdfunding
– Public Funds
– Venture Capital Funds
– Private Equity Funds

Chapter 3: Startup Fundraising

– Funding Cycles & Stages
– The Come-Up
– When to Fundraise
– Get Your Pitch Deck Ready
– V is for Valuation