As the start-up scene continues to grow in Rwanda, it is attracting growing interest from both local and international investors. This has generally been a good thing: greater competition among investors and increased capital flows mean better opportunities for start-ups. But, generally speaking, there are differences between what local and international funders offer to start-ups. Here are a few things that we have observed:
International investors are more founder-friendly
- They typically take a smaller equity share and are more comfortable investing in the potential of the idea, rather than the current market share or traction to date. They may also be more comfortable with waiting longer for an exit opportunity. This often stems from having a deeper insight into the nuances of tech investing and more experience of coming in early and working with founders to build a business.
Local investors know the market better
- Although this is quite obvious, it is overlooked at times when doing an assessment of value add. If you are creating a product exclusively for the local market, most international investors will be limited in the amount of support they can provide in relation to making local connections or local industry expertise. This is especially true for B2B start-ups, where getting the right contract can pay the bills for a long time. Often, it is better to take less money at worse terms and get the right investors’ connections, than to be lured by a large cheque.
International investors may not understand the country context
- When pitching to them, you will need to explain not only your idea, but also the market structure and how your idea can be developed into a profitable product. Furthermore, you may need to explain macroeconomic developments when presenting your progress.
International investments mean you are exposed to currency risk
- The Rwandan franc performance against the dollar, pound and euro has fluctuated dramatically over the last 5 years. These fluctuations can either enhance or reduce returns. Investors are often cautious of this which is why typically their interest lies in later stage businesses with significant growth potential. What does this mean for you? The depreciation of the Rwandan franc against foreign currency can mean that, although your business may be growing and performing well, your gains may not be reflected in returns against the dollar.
While the number of investors is growing, the demand for money still outstrips supply, meaning investors have more negotiating power and generally get to shop around before they find a start-up in which they want to invest. That has led some entrepreneurs to chase investors that may not be a good fit. This can be detrimental to a company. Ideal investors should be able to offer a start-up time and access in addition to money. If an investor has never been active in a start-up’s market, he or she is unlikely to be able to provide the type of mentorship support that a start-up may need, and therefore you will also need to provide them with some guidance on how they can support you better. And if the investor doesn’t know anything about your market, the advice he or she provides will be limited in value. This has made accelerator and incubator programmes more important, and it has meant a big role for angel investors to fill the gap.