Founder's Guide to Fundraising in Ethiopia

The last few years have seen big changes to Ethiopia’s innovation and startup ecosystem. The opening up of the telecommunications sectors and the wave of regulatory reforms to promote entrepreneurship are ushering in a new era in Ethiopia. However, funding still remains limited. Since 2015, startups in Ethiopia have raised $14m. The majority of which has gone into a few deals for Fintech companies. Funding for early-stage startups is limited and development financial institutions (DFIs) play a large role in supporting the nascent entrepreneurial ecosystem. Even at the later stage international investors are still cautious to invest in Ethiopian startups. 

But pockets of funding exist if you know where to look.Development finance institutions (DFIs), diaspora and angel investors are all contributing to startups currently. Further, there is a strong pay-it-forward culture amongst startups so learning from your peers is also a good starting point.. Overall, founders need information and knowledge on how to navigate and find these opportunities.

In response to this, Shega in partnership with the GIZ project Make-IT in Africa and Briter Bridges has developed guidance for early-stage startups looking to fundraising in Ethiopia. The Founder’s Guide to Fundraising in Ethiopia brings together lessons and best practices on fundraising in Africa, information on the preferences and focus of investors in Ethiopia startups and insights on the funding and technical support available to startups operating in Ethiopia. The guide aims to provide startups with the information they need to successfully raise funds. It is anchored in the unique context of Ethiopia.

The guide identified three key insights that every founder looking to fundraise in Ethiopia should know. 

1. The startup ecosystem has growing support systems and institutions, but specific fund-raising support isn't always available. 

• Many organisations, including hubs, universities and donors, provide support for the ecosystem and individual start-ups. The support is mostly technical and sometimes some grant funding is provided.

• Hubs and accelerators are an excellent way to scale up your startup if you can get access to them.

• On average, more support is available for digital startups than for other sectors. 

2. Funding options are limited, and some viable options are not being seized. 

• Various types of equity investors are the primary sources of funding for Ethiopian startups. 

• International investors don’t fund Ethiopian technology startups often. But the few that do tend to be angels rather than institutional investors. 

• International angel investors can invest in Ethiopian companies and provide a wider funding alternative for early-stage startups that need smaller checks. Although this route is less travelled than other options.

• Local institutional funding is quite limited. Angels and other individual investors are a better option to get funding.  

• The Ethiopian startup scene is driven as much by donor support as investor capital. Many donors have contributed capital either directly to start-ups or to the ecosystem in general, in addition to the technical support some of them provide. Thus, grants and other donor support available in the market should be fully explored by startups. 

3. There are many regulatory restrictions currently, but upcoming regulations offer much support to start-ups. 

• Minimum capital requirements for foreign investors have put limitations on raising money from abroad. 

• Certain start-ups in ICT have tax exemptions and breaks in general regulations, but the details haven’t been announced yet. 

• The upcoming start-up act includes several positive developments, including a start-up fund, incentives for investors, more inclusion of foreign investors, and tax breaks. It also removes the requirement to get a business licence before starting operations.