It is important to set off on the fundraising journey knowing that “what got you here, won’t get you there.”

Founders need to understand the relevant investors along the way. You must perform research and due diligence on potential investors to establish their mandate, strategy, portfolio performance, and how your own company can add value to the investor.       

Which investor is right for your company? That will depend on the stage of your company. Here are five early stages of a startup’s funding life and the kind of investor they’re looking for. 

Friends and Family – Post Idea 

Founders that are “post-idea”, are busy building a prototype or minimum viable product (MVP). During this stage, funding is almost entirely driven by the founder’s own capital, friends and family, and maybe an angel investor. Those pools of money could range, depending on available contacts and the levels of speculation in the sector. 

Pre-Seed – Post MVP 

The pre-seed stage still has a big friends-and-family component, but this is when you start seeing angel groups and angel networks arrive on the scene of startups innovating on their initial business models.

A number of local angel networks are active in Africa, organised by country or city. That includes the Lagos Angel Network, Nairobi Business Angel Network, South African Business Angel Network, The Cairo Angels, and more. The pre-seed stage is also where incubators and accelerators usually come in.

While many startups at this stage are pre-revenue but post-MVP, a number are post-revenue. It is the rare exception for companies at this stage to have recurring subscription revenue. At this stage it’s typically too early for institutional capital, again with one or two exceptions to the rule ie. select early stage VCs with a specific thesis

Seed – Traction 

Seed stage is considered the first official institutional funding round which is typically raised in exchange for a SAFE note /equity. In the African context, the size of seed rounds is usually variedIn order to raise an investment at this round, founders need to prove a product, with a well-defined service, target market, and business strategy. The business must be ready to grow and go on to scale. From an investor point of view, the round is usually led by a venture capital fund, whether inside or outside the African continent.

Pre-Series A – Bridge      

There’s a stage of funding between seed and Series A. It’s gradually becoming a more common feature of startup fundraising in Africa, driven by startups’ need to: 

• Gain more traction in the market 
• Acquire a sufficiently large customer base 
• Prove the product is ready for growth 
• Attract investors that will write the large checks at the Series A round
        

Series A – Product Market Fit 

In the African context, you’ll usually have a lead VC that commits up to half of the round, then high-net-worth “super angels” or angel networks, perhaps a handful of VCs, making up the rest of the round.       

From there you have Series B, and Series C fundraising rounds, also known as “growth capital”, “growth”, and “late-stage” capital.