It's no secret - one of the biggest issues that startups face is getting off those starting blocks. In South Africa this is exacerbated by a number of factors that seem to make the gap bigger and bigger. Luckily, there is hope on the horizon.

Early-stage funding is normally pretty hard to come by, as many entrepreneurs will tell you. As you move beyond the "Friends, Family and Fools" first round, you ideally want to start looking at grant - or better yet, angel funding.

Angel funding got its name from rich individuals who used to back London Broadway shows where the rewards were said to only be returned in heaven. But angel investing can be fairly profitable nowadays. Angels provide the critical stage of funding that will allow you to get a prototype developed or refined, get some initial market traction and prepare you for a Venture Capital round. More importantly, they can provide invaluable advice and insight for your business, and open doors to partnerships. Many angels are passionate about starting businesses, and are often in it for the “love of the game” just as much as to make money.

Local angels are particularly hard to get in touch with, partly due to there not being too many, but also due to the fact that if they were more prominent they would be flooded with requests from eager entrepreneurs. A process is needed – firstly to increase the number of investors, but also to provide some structure by which they can manage the flow of deals and get familiar with this form of investing. Internationally, this has been solved for the most part by “angel groups”.

Angel groups consist of affluent individuals who combine their resources and skills to filter and select promising prospects, support the entrepreneurs and manage the deal flow. It’s handy for the entrepreneurs - it provides a channel through which they can approach many different angels at the same time. They are also more likely to get a better match of skills and support for their funding.

Recently, PoweredbyVC’s Keet van Zyl and Eben van Heerden, and MyTrueSpark’s Brett Commaille and Wesley Lynch, created what is to be South Africa’s first angel group, AngelHub. With a focus on both Cape Town and Johannesburg, it will be a network of angels across South Africa. They will support entrepreneurs and will provide a range of support, advice and match-making for entrepreneurs. While AngelHub has not started its funding rounds yet, they have received real interest from a wide range of individuals who are interested in investing at least the minimum of R300k per year.

With the support and backing of Craig Mullet and some international angel groups, AngelHub will aim to make the most of existing networks and government funding incentives. They are building up the required structures and systems gradually. Says Brett: “This will ensure that it’s not just ‘the next flavour of the month’, but that it will grow solidly and sustainably to build confidence in the market for early stage investment."

Due to the high involvement of the angels, it is a very personal transaction where both the entrepreneur and the angel have to agree on the deal terms. While they are not currently open for applications from entrepreneurs, they are looking for interested angel investors. The areas of interest will be high-growth businesses – due to the risks involved, a business should be able to grow its value by 10 times in 5 years (return “10 times money”). Although AngelHub will not be limited to one sector, it is expected to have a high IT content due to its inherent scalability.

There is no quick fix to bridging the funding gap in any country, but through initiatives like this, we are making a significant move in the right direction. Watch this space.

For more information, or to get in touch with AngelHub, visit http://angelhub.co.za/.

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