Accelerators and Incubators
Accelerators nurture start-ups at a crucial stage in their lifecycle by providing them with an environment conducive to growing their business. Though both accelerators and incubators often focus on technology start-ups, there are some differences between the two.
Generally, incubators are less structured and more focused on providing physical co-working space and access to their networks for very early-stage start-ups, which are idea-based and not making revenue at the time of application. Some incubators provide funding for start-ups in the incubation program but most do not.
Accelerators are also aimed at early-stage companies but ideally at those advanced enough to grow and scale their business, which means the businesses are already making revenue. Accelerators generally take equity in the business in exchange for access to their program, their facilities, and their mentor network, which 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.
Accelerators and incubators typically have a selective application process and start-ups need to prove themselves in order to be granted access. The application process examines the start-up’s business model, its financial performance to date, projections for the future, and the quality of the team. While they are typically well run and help entrepreneurs to refine their business, one downside of accelerators and incubators is that they often require entrepreneurs to spend valuable time away from their businesses.
There are a number of accelerators and incubators in Sudan, the vast majority of which are based in Khartoum. More information are provided in Chapter 5 (Support System and Investor Directory).
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. The same applies to Sudan.
Banks that work with SMEs offer various financial products, including 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 them 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.
Similar to banks, Microfinance Institutions are financial institutions that provide financial services. One of the major differences between the two can be the mandate of the Microfinance Institutions, the majority targeting small businesses, individuals, and vulnerable communities who lack access to credit and conventional banking services. In addition, accessing Microfinance may require no credit history or asset as collateral as opposed to banks.
While the loans provided by Microfinance Institutions are relatively smaller amounts than what is provided by banks, they are easier to access with less strict measures in place.
Sudan has a growing number of Microfinance Institutions, far-reaching into rural communities, a list of which can be found in Chapter 5 – the Investor Directory. The general policy environment is highly supportive of Microfinance, for example, based on the directive of the Central Bank of Sudan, banks have been allocating a sizable percentage of the loan portfolio to Microfinance.
Angel Investor Networks
An angel investor network is a group of individuals (called business angels) who inject capital into an angel network fund or directly into Startups through a network and 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.
Business angels invest in companies with high growth potential, though they tend to look at a wider range of sectors than venture capital (VC) investors, which like to invest in highly scalable sectors like tech. Business angels typically step in to provide funding for companies that have exhausted any friends and family investments or personal savings they may have been able to access before they receive any 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 to ensure not to blindly follow their advice.
There are also angel investors from outside Sudan and a few networks that are established in Sudan.
The Angel Investor Ecosystem in Sudan
Access to capital for Startups remains challenging in Sudan. As there’s a growing number of Startups emerging in Sudan, the need for pools of capital grows further. Fostering an Angel Investor Ecosystem can be one of the solutions to meet the rapid increase in capital in the country. While there is a small number of Angel investor networks active in Sudan, it is expected that more networks may form as the country grows through the current political and economic transitional period. There is also a growing number of Sudanese individuals including those in the diaspora, who have an appetite for investing and supporting local innovative ventures or Startups.
Recently, 249Startups – an incubation and an acceleration hub in Sudan have launched the Sudan Angels Network which supports innovative Sudanese Startups to secure seed and growth-stage funding.
Impact investors invest with the intention of creating a positive, measurable, social or environmental impact alongside a financial return. The expected range of returns for these investments is often below the 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, pension funds, impact-focused venture capital firms, private equity firms, angel investor networks, and development finance institutions (DFIs). Some impact investors are organized in a network, such as the Global Impact Investing Network (GIIN).
Impact investors can also provide a level of expertise to entrepreneurs and project owners in emerging markets, especially when it comes to making sustainable decisions. However, their expertise is likely to be limited, because they tend to be global institutions that focus on impact as well as financial gain. For example, many of GIIN’s members are based in the developed world and therefore may not have the appropriate expertise on the ground. Furthermore, they must spend resources on examining impact, which means potentially fewer resources towards 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 towards achieving these aims, but also how you will measure and prove the impact you want to achieve. That is one of the downsides of accepting impact investment: measurement can be highly onerous.
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 nonfinancial 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 item 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 business, 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, supporters will want to see how their donation will benefit the recipient entrepreneur(s) or people. therefore, while crowdfunding can be effective, it is also highly time-consuming. However, Crowdfunding platforms can be useful in various aspects, for instance, creating social capital, and increasing your chances for funding from mainstream investors in case successfully accessed funds through Crowdfunding platforms. In addition, it could also be a useful tool to establish or test a beta version and getting traction. To increase your chances for a successful Crowdfunding campaign, do some research and choose the most suitable platform for your needs, cross check how successful startups presented themselves in their campaigns, and in case you are offering rewards, offer attractive but fair rewards. Think carefully and wisely of your funding ask and set a duration that can assist you in meeting the timelines you established for your expansion.
While there are a few online crowdfunding platforms in Sudan, some entrepreneurs may be able to access international platforms for crowdfunding, although this has been strictly limited to reward or donation-based campaigns. Diaspora funding can be a solid strategy for some companies looking to crowdfund if they are able to access networks of Sudanese living abroad.
Foundations are non-profit charitable organizations that are founded with an initial endowment, typically made by an individual or business. 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 in, so it is important to know whom 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 on the funding application.
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 funding 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.
Venture Capital Firms
Venture capital (VC) is a type of private equity and refers to investments made in exchange for equity in early-stage businesses. Venture Capitalists (VCs) are focused on funding, developing, and expanding early-stage businesses.
VCs tend to invest in adolescent stage start-ups which have the potential to grow rapidly and earn the investors 10 times to 30 times return on their capital over a fairly short period of three to seven 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 information technology (IT) and software companies as a result. As the percentage of companies that can earn such profitable returns is small, VCs tend to diversify their investments across multiple firms, often co-investing with others to minimize 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 to formulate and implement the business strategy, and aid in appointing the management team. However, given their influence on an early-stage business, VCs can be overly controlling and influence decisions in a way that benefits them more than the business itself in the long term.
There are a few VCs currently active in Sudan, for example, Anafi Capital, a Sudan-based initiative by a group of companies (Elnefeidi Group, Elbarbary Multi Activities, Moez Ali, and Darwish Bros) and GlobeTech While they may have invested in a handful number of Startups, it is beneficial to reach out and explore the possibility of accessing funds.
Private Equity Funds
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 High Net-worth Individuals (HNWIs) providing funds for partners to manage. As PE firms invest in more mature companies and sometimes acquire a 100% stake in these companies, they tend to invest much larger amounts than VCs – up to SDG 2.2 Billion (USD 5 million) 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 involved in the management of the companies. They usually focus on larger, more established companies that they feel can improve operations and become more profitable.