According to Crunchbase, Ethiopian organizations, have raised close to 1 billion dollars in funding since it started collecting data. The company insight platform lists 70+ Ethiopian private companies, both startups and established ones, that have raised some form of capital.

The amount raised by the companies ranges from as little as 50k$ grants to a multi-million dollar debts.

For the past 4 weeks, I have dedicated countless hours to study the story of every Ethiopian company that has been listed on Crunchbase. I have tried to search for key insights, and patterns from each story.

What you are about to read is the final fruit of that research. In this Fundraising 101 guide, you will learn all the fundamental knowledge you are going to need to be able to fund your companies. Weather you are an established company looking to expand your market, just an aspirant entrepreneur looking to fund your startup idea, or anything in between this guide will give you everything you need to know about the process.

So let’s dive in.

Who Gets the Money?

The money is out there, but you have to search for it, and deserve it, before you can actually find it.

But, before I tell you where to look here are some basics.

Fundraising is the process of convincing a person, or a group of people to give you their money so that you can do business with it. Usually, the people who are handing you their money will expect something, such as a share in the profits of the business, in return for it. We call these people “Investors.”

Any fundraising involves three crucial steps.

First you need to have an idea, or a business worth investing in. Second you need to find people who are willing to invest on ideas and businesses, third you need to convince those people to trust in you and give you their money. Now there is a forth additional step, and that is putting the money you have collected into proper use, but that will be beyond the scope of this guide.

You Need to Have a Great Business(Idea) with Proof to Back It

This is the first, and most important step in the whole process. You can completely mess up the second two steps and still be able to raise a lot of money if you have got this one right.

If it isn’t already obvious, you will be asking for somebody else’s hard earned money. You need something really cool, and exciting that would convince some stranger that they would get some nice returns(profits) if they let you play with their money.

And, just a good idea is not enough. You must have some solid proof that clearly shows your idea has a great potential.

The best proof is some kind of data that proves that there is a huge market for your product, or service. If you have solid proof that a lot of people are ready to buy the product your business will be providing, you will have done 75% of the work before asking for anything from investors.

This situation, where you have discovered something a lot of people want, but no body is giving it to them, is called “Product-Market Fit(PMF).”

Every angel investor(Individual investor), Venture Capitalist(Institutional investor), or the general public(for Crowdfunding) will almost certainly ask if you have found “Product-Market Fit” before giving you a penny. Hence, the greatest secret of fundraising is finding “Product-Market Fit.”

Here’s how this works in the real world.

We all know the story of a Harvard nerd named Mark Zuckerberg who got a billionaire named Peter Thiel to invest 500k$ in his 5 months old startup called “The Facebook.” But, that 5 months old social platform wasn’t simply a cool idea that came from a Harvard genius. Facebook had already accumulated 1 million users within the 5 months that preceded Peter’s investment, all that with no marketing.

There was an unmistakable sign that “The Facebook” was going to become something really big. Peter Theil was smart enough to notice that, and he invested his 500k for 10% of the company. In 2011, 7 years after Peter’s initial investment, his share at the company was valued at 2 billion dollars. This was a 2000x return on his total investment.

This is what investors are looking for. A product or a service that is so valuable that they would be able to get 10, 100 or even 1000 times their initial investment if they invest while the business is still small, even just an idea.

Here’s another local example.

Everybody knows Hulugram, Ethiopia’s Telegram super app. Hulugram has recently raised 100k+ dollars from CRE Ventures, one of the largest Venture Capital firms in the continent, and some additional angel investors.

What did Hulugram have to deserve this 100k: 1 million app downloads, 30% Monthly Active Users, average of 40 minutes spent on the app per day and 15 times per day usage, ranking it above WhatsApp, Instagram, Snapchat, and Twitter. This is “Product-Market Fit.” And where ever there is PMF, there will be the money.

You don’t need to build a full-fledged product like Facebook, and Hulugram to prove that you have customer interest. You can do this through a cheaper version of your product or with some data.

Although it may be much less effective than showing actual user(customer) data, it is possible to use research data to prove that there is a huge market for your business idea. For example, Habtamu Tadesse, founder of ArifPay, was able to raise 3.5 million dollars before building the M-Pos platform. This is a the fruit of both having solid proof of market potential, and the founder’s personal credibility. Thus it is indeed possible to raise money with just an idea, but you will have to build great personal credibility, highly respected board members, a track record of getting great things done, and solid proof of market potential.

One final note on PMF is that, if you depend on marketing to grow your customers, then you probably haven’t found PMF yet. In Silicon Valley, big marketing campaigns to grow users are a big NO NO. It has to be as organic as possible. This holds true in most places. Your first customers have to be acquired either by recommending each other, through unpaid or very cheap social media ads, or by directly asking certain people to use your product, these initial customers should then spread your product through word of mouth. Then once your customers start growing naturally, investors want to see growth similar to this:

To summarize the whole idea: Where ever there is a great idea, there is a clear sign of “Product-Market Fit,” and where ever there is “Product-Market Fit” there will the money go.

Now that you know what you need to get an investment, it’s time to know how to find the people who are going to give you their money.

Who is Going to Give you the Money?

Once you have made sure that you have a business or an idea worth investing in, the second step is finding investors and asking them to hand over their money.

In general, there are 4 main ways you can raise money from investors. The first one is by asking individual investors, also known as angel investors, to invest in your company. Second, you can ask institutional investors, or venture capitalists, to invest. Third there are companies known as accelerators. These are organizations that are dedicated to training and financing startups, and the forth technique is asking the general public to invest in your startup business(idea), this is known as crowdfunding.

1. Raising from (Individual) Angel Investors

Angel investors are wealthy individuals who invest in small businesses and startups. They may have made their money through a variety of means. They use their accumulated wealth to make early investments into startups expecting huge returns if the startup succeeds.

Peter Theil, the former PayPal CEO who was the earliest investor in Facebook, is a very good example of an angel investor. He became a multi-millionier after selling PayPal to Ebay. Then the Facebook founders approached him asking to invest in their new social platform that was growing very fast. He saw their potential, and invested 500k of his money into their startup in return for 10% of the shares.

Here’s another local example. In 2021 an Ethiopian super dialler app called EPhone was able to raise 200k$ pre-seed funding from Amadou Daffe, co-founder and CEO of Gebeya, and two middle eastern angels named Faisal Al-Abdulsalam, and Ahmed Al Alola. This silent giant was valued at 1.9 million dollars. Here Amadou Daffe, Faisal Al-Abdulsalam, and Ahmed Al Alola are all angel investors. The founders of EPhone, Nohe Fekede, and Haileyesus Shitalem approached the angels asking to invest. The angels saw that EPhone had great potential, so they invested their money in exchange for a little more than 10% of the company.

Needless to say, EPhone had achieved clear product market fit before raising any investment. The app had already reached 150k users within 21 months, and was making a lot of profit long before raising funds from investors. The investment money was only necessary to expand to new markets in other, and fuel more growth.

Another very special startup that was able to raise funds from angels is ArifPay. The M-Pos platform was able to raise 3.5 million dollars from individual investors, both locals and the diaspora, even before launching its platform. This is a great example of demonstrating potential without having to build an actual product.

In addition to the ones mentioned above, there are dozens of other startups, from Eshi Express to Hulugram who have been able to raise funds from angels.

How Do You Meet with Angels to Pitch Your Startup?

There are a number of different ways to meet potential investors for your startup.

The most effective way to approach an investor is through another investor, ideally who has already invested in you. This kind of investors are known as “Lead Investors.” If you can secure an investment from one angel, then that angel can use his network, and credibility to find more investors for you. But, let’s be realistic, if you had already secured investment you wouldn’t be reading this 101 guide. So, how do you do that if you have no investor connections.

Well the second best way is to approach an investor through a founder who has already secured an investment from that individual. If you can get a connected founder to recommend you to investors, then you will have good chance of securing a meeting to further discuss your request. But still, most of you reading this will not have this kind of connection either.

So here’s the third, most common, way to approach individual investors: directly asking them to invest in you.

Once you have made sure you have a great business(idea), prepare a list of angel investors who you would be interested in your idea. You will need to conduct some research so as to list as many potential investors as possible, along with their contacts.

Ideally you would collect hundreds of potential investors, because you are going to get a hell lot of rejections. Once you have prepared the list, the next step is to send them very brief, and eye catching requests about what you are trying to do. You can use LinkedIn, emails, or any other means to contact angels. Since most of them probably get dozens of DMs and emails every day, you will need to have something that stands out. But, even then you will still need to approach dozens if not hundreds of investors. You are trying to sell your business(idea), and sales requires a lot of persistence.

Nohe Fekede, the co-founder of EPhone, had to contact 100s of international investors on LinkedIn before getting a commitment from the middle eastern angels. This is almost always the case when you are trying to raise funds from both individual and institutional investors.

The most common thing the angels will ask you before investing is to send them a some thing called a “Pitch Deck.”

A pitch deck is a presentation document that has 10-15 slides. The document should outline why the investor should care about your business over hundreds of others in no more than a couple of slides. This document should include things like the problem you are solving, the solution, target customers, competitors.

Here’s a very long list of pitch decks used by the most successful Silicon Valley startups.

Once you have sent your pitch deck to as many investors as you can, all that’s left is to wait and pray. Most of the investors will ignore you, some will say no, and if you are among the one percent, you will get several investor who are interested in your business(idea). You will then be asked for a follow up meeting, virtual or in person, in which you are going to give a slightly more detailed presentation.

If the investors like it they may decide to commit immediately or schedule yet another meeting. Once you have secured a commitment, the investors are going to do something called “Due Diligence.” This is the hardest, and the most time consuming stage.

During this stage, the investors will request every data available about your company. If what you have is just an idea, or an early prototype, it may not take as long, since you don’t have much to show. But, if you are raising for a running business, you will be requested to present a lot of legal, financial, customer usage and every other kind of data about your business. This is when most fundraising attempts will fail. The investors will look into every detail: your legal compliance, your financial status, usage data etc.

Once the due diligence is finished, all that’s left is for the investor to wire the funds to your bank account.

One question that bothers a lot of aspiring entrepreneurs is: “Do I need to get legally registered to raise funds?” and the answer is both yes, and no. A lot of investors will set registering the business as a precondition, but some may be willing to agree on the investment first, and then have you register your company. In either case, you will eventually have to get your company registered.

Now, if you are raising from foreign investors, there might be some additional steps. Once you have secured an investment, you may have to register your company in a foreign country, usually in Delaware, U.S.A. In addition, you may want to open a foreign bank account, usually in some startup bank in USA too. But, if you have already gotten this far, you have already done most of the work, and it won’t be much of a difficult task. Moreover, since the investor is now your partner, they will guide you throughout the whole process.

Raising from Institutional Investors(VCs)

Institutional investors, or Venture Capitalists, are professional investors who invest on behalf of a lot of other wealthy people. They are trusted individuals who form companies known as VC firms. These firms collect a lot of money from other wealthy people or institutions, and invest it on early stage startups with the hope of getting very high investment returns.

A very well known local VC firm is Kazana Fund. Kazana Fund is a venture capital firm established by some of the biggest players in the country’s startup ecosystem. The firm has already invested in 9 Ethiopian startups according to it’s website.

Inclusion Japan(ICJ) is another VC that is known for investing huge sums in Ethiopian companies. Very well known startups like GoodayOn and Gebeya. The Japanese VC firm has partnered with Kazana Fund to invest 100 million dollars in early stage Ethiopian startups that have demonstrated high growth potential.

Hulugram, beU Delivery, Qene Games, Hello Doctor Ethiopia, Deliver Addis, and Askual Tech are some Ethiopian startups that have been able to raise money from VCs.

The fundraising process is not much different from angels.

As in angels, you will have to prepare a very long list of potential VC investors. Then you use their emails, websites, or social media accounts to present your request. Similar to the angels, the VCs will ask for a “Pitch Deck,” so make sure you send that along with your request.

The rest of the process if very similar to what we have seen in the angel section. You wait for some response, and if some one is interested they will ask for a meeting. You present your startup pitch, and they like it they will give you a commitment. Finally they do some very detailed due diligence, and if all is okay, you get the money.

In addition to contacting the VCs directly, there are some other ways through which you can present your startup to them, and that is through pitch competentions. A lot of VCs prepare startup competetions so as to find great startups that they could invest in. These competetions are usually annonced on social media, and business magazines. So make sure to keep an eye for these competetions.

Like I have mentioned in the angel section, international VCs may ask you to incorporate in Delaware, USA before wiring you the money, so keep that in mind.

Accelerators

The third place where you can raise funds from are Accelerators. Accelerators are 3 to 6 month programs that provide mentorship, and funding for early stage startups.

There are many different types of accelerator programs scattered throughout the world. Some are run by corporations or venture capital firms while others are government- or university-sponsored.

Business accelerators generally focus on either growth or market access. They do this by providing things like funding, training, networking, and even the opportunity to pitch your business to investors when the program concludes.

These programs can be especially very instructive, often involving three to six months of intense coaching, mentorship, required meetings, and more.

Many accelerators work with or are founded by angel investors or venture capital firms, providing an invaluable network for startups to tap into even after the program has ended.

Accelerators provide a way for startups to fast-track their growth. In addition to the resources and mentorship they receive, being part of an accelerator can also help startups validate their business idea, build a customer base, and raise capital.

If you are still struggling to build your product, or find customers, accelerators are the best place to get some initial funding. Unlike VCs, and angels, accelerators will help you achieve Product Market Fit instead of setting it as a precondition for investment.

Several Ethiopian startups have raised money from both local, and international accelerators. For example, the delivery giant beU Delivery has raised 2.5 million dollars from the Y Combinator, the largest accelerator in the world. Another Ethiopian startup, BeBlocky, has raised 25k$ from Baobab Network, a leading African tech accelerator.

Some accelerators may accept applications all year round, others will be open for several weeks every year.