Raising equity in Africa: what an investor actually looks at

Equity is the funding route people talk about most and understand least. It fills the specialist press while concerning only a minority of projects, and that gap between visibility and reality costs founders months they should have spent knocking on a different door.

This article sets out what an investor actually checks, what makes conversations fail in Africa, and above all when you should not go down this road at all.

What you are selling is not your project

First confusion to clear. When you apply for a grant, you sell the usefulness of your project. When you open your capital, you sell a share of a company and the promise that it will be worth far more in five to ten years.

An investor does not fund a need, however real. They buy a fraction of a company they hope to sell on for more. That mechanism, and it alone, explains every question they ask.

Direct consequence: a perfectly useful, profitable and stable project can be an excellent project and a poor investment case. That is not a judgement on its worth, it is a mismatch of mechanism.

The four questions you must answer

1. Traction, before anything else

This is the question that ends most conversations, and it always comes first: what do you already have, without money?

Users who come back. Customers who pay. A curve going up, however modest. An investor looks for proof that something already works and that their money will accelerate rather than discover.

An idea without traction does not raise equity. It raises donations, a grant, a competition prize, or your own means until you have that first proof.

2. Market size

Venture mechanics require that a few holdings return enough to cover all the others. So an investor looks for companies capable of becoming very large.

A market of a few thousand possible customers can comfortably support a business and its founder. It will not make an investment case. Again, this is not a criticism of the project.

3. The team

At early stage the team weighs more than the product, because the product will change and the team will remain.

What gets looked at: complementary profiles, the fact that at least one person can build what you sell, and time already spent on the subject. A solo founder, on a technical product they cannot build themselves and outsource, is the hardest profile to fund.

4. Unit economics

What a customer costs you to acquire, what they bring in, and over what period. If you cannot answer, the conversation stops there.

Revenue growing on negative margins impresses no one: it shows that each additional customer deepens the hole.

The four most common blockers in Africa

They have nothing to do with project quality, and they are what sinks most deals.

Legal structure. Many international investors cannot, by their own statutes, invest in certain local company forms. Settle this before conversations, not during. Find out early what your jurisdiction allows.

The accounts. A company with no bookkeeping, with no statements separate from the founder's personal account, does not pass due diligence. It is the most ordinary and most avoidable blocker. Separate the accounts from day one.

The cap table. A founder who gave away half the company very early, to a first partner long since gone, makes the company hard to fund. The investor sees that there will be no room left after them, and that the person doing the work is not the person holding the shares.

Ownership of the product. If the code, the brand or the patents belong to a contractor or an individual rather than the company, there is nothing to buy. This can be checked and fixed, but beforehand.

The real price: dilution and control

Equity is the only route with no ceiling on the amount. It is also the only one that costs you a permanent share of your company.

A simple example. You give up 20% in the first round, then 20% in the second. You do not hold 60% but 64%, because the second dilution applies to what remains. After three rounds, a founder frequently drops below half.

That lost share never comes back. And it is not limited to the percentage: a shareholders' agreement frames major decisions, and you no longer quite run things alone.

Time matters too, and is rarely anticipated. A raise often takes six to twelve months between first contact and money actually available. During that time, someone is not running the company.

When it is the wrong route

Let us be direct. Equity is probably a bad idea if:

• Your project is profitable and stable without explosive growth. A loan costs less than a permanent share.
• You have no traction to show. Find the proof first, through a grant, a competition or a campaign.
• You want to keep control of your decisions. That is a legitimate goal, incompatible with this funding.
• Your need is one-off: equipment, stock, premises. Those are loan needs, not equity needs.
• Your project is non-profit or public interest. Grants exist for that, and they dilute nothing.

In four of those five cases another route exists and costs less.

Where to start in practice

Before looking for an investor, put in order what blocks: separate and maintained accounts, up-to-date articles of association, product ownership held by the company, a cap table consistent with who does the work.

Only then look for the right counterpart. Accelerators are often the best first step: they bring early funding, but above all the structuring and the network that make the next raise possible. Our opportunities directory lists open programmes, including several accelerators active on the continent.

Going further

Our article on how to fund your project in Africa compares the seven possible routes, and the one on crowdfunding versus a bank loan covers the choice between the two most common routes. If your project is not ready for equity yet, the application file explains how to win a grant, which takes no share at all.

Our country guides detail legal and currency constraints market by market.

Join the waiting list to launch your project on Amorcia as soon as it opens.