African Tech startups need funds as any other startup situated in other parts of the world.
However, a peculiar element the African Tech startups faces is their location. Africa still has lots of underdeveloped and developing countries, and the environment to a large extent affects the startup.
When investments are about to be made, the dilemma of which works best comparing impact investing to traditional investing arises.
Impact investing is a form of investment where the primary aim of the investor is not for profits but rather for positive social or environmental outcomes.
This doesn’t mean that profit is not made but profit rather, is a much-needed icing to the cake.
In an impact investment, the investors are looking for the startup to solve some of the problems of their environment ranging from quality education, renewable energy, access to good healthcare systems, sustainable agriculture, or even climate change actions.
Also read, Is Revenue-based Financing an Alternative to Traditional Equity Funding for Startups?
This way, though the investment funds the activities of the startup, it also solves the pressing environmental challenges and both make a positive change in society and the world.
Traditional investing, on the other hand, is a form of investment with the aim of generating profits. It is a means that investors usually grow their money, as in startups, these investors fund the startup in exchange for some percentage of equity.
There are other forms of traditional investing that can happen for startups, but the goal of having huge financial returns remains the same.
In recent times, impact investing has grown rapidly globally and this is estimated to continue in the coming years. It is advisable that the African Tech startups should position to tap into that as it will benefit the continent as a whole.
There are various developmental and environmental deficits in Africa that having investors focusing on impact investing when they want to invest in African Tech startups will greatly improve.
Now, these investors would not be looking at the startup’s financial performance, market share only, they would also be looking at social outcomes such as job creation, lives impacted, sustainability, and so on.
A challenge that impact investing might face would be impact measurement, but this can be resolved by having a third-party organization that monitors and evaluates the impact.
There are high chances of low financial return or even financial loss, but then no business venture is without risk.
Traditional investing can also play a huge role in the economic growth and development of Africa, as investing in startups encourages innovation and its ripple effect would better the lives of people on the continent.
There is also increased capital which will encourage diversification, and reduce the continent’s dependence on few sources for revenue and economic growth.
Both impact and traditional investing are vital to African Tech startups as well as the continent as a whole. It is therefore pertinent to have a balanced approach in deciding the type of investment to be done.
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