Types of Equity Funding and some of our favorite funds deploying in Africa now

Raising for your startup? Look no further.

Equity financing is when you raise capital by giving up a piece of your company.

Investors give you money today in exchange for owning a share of your upside tomorrow.

No repayments, no interest, and no collateral. But they’re not just giving you money - they’re buying influence, access, and decision-making power.

Some of the best partnerships (and companies) in startup history were built through equity investments. And some of the biggest regrets too.

On top of getting money to fuel your growth… you’re also bringing others into your cap table. So it’s important to think about who you’re bringing into your business, why, and at what cost.

99.9% of Equity investors (other than some revolutionary models like Africa Eats, Kuzana.Co, and Berkshire Hathaway) want exits. That means that they invest hoping that your business will eventually be bought out by a bigger one or you’ll make it to an IPO.

Raising equity for your business? We can help. Get in touch with us at daniel@thegrant.co.

Different Types of Equity

Straight Equity (or just “Equity’)

What it sounds like. An investor gets a piece of the company for a certain amount of $$$. The investor becomes a shareholder and owns a percentage of your business—along with the rights, risks, and (hopefully) future upside that comes with that.

These are usually structured as Pre Seed, Seed, Series A, Series B, etc rounds of financing.

• Pre-Seed: You’re still validating the idea. Likely friends, family, angels, or early believers. Small checks, big faith.

• Seed: You’ve got some traction; a prototype, pilot customers, and/or a small team. Raising to prove the model and prepare for scaling.

• Series A: You’re growing. Real revenue. Clear product-market fit. Now you need capital to scale operations, expand markets, or build out your team.

• Series B and beyond: You’re in the big leagues now. Investors are backing your growth engine. But expectations are higher, and the terms get tighter.

Usually, the later rounds have preference over the earlier ones. That is, when the company is sold, the Series B investors are paid before the Series A investors. If the company is sold for a small amount it might be that the Series B investors get their money back but the Series A investors get nothing.

Our favorite equity investors (deploying money now) in Africa below 👇 (for premium subscribers).

Strategic Equity (or Corporate VC)

When a corporate or large company invests in your startup—not just for returns, but because it aligns with their business, expansion strategy, or CSR goals.

This is great for companies that want more than capital — distribution, technical expertise, and/or integration into an existing value/supply chain.

Strategic investors often have longer time horizons but may require exclusivity or other restrictions, so read the fine print.

Some notable examples of Strategic Investments in African Startups

• Uber led Moove’s $100M Series B Round

• Goldman Sachs led Kobo360’s $20M Series A Round

• Google's Africa Investment Fund invested in Leta, MoniePoint, and SafeBoda

A strategic investment is often like a dating phase. The corporate may want to observe how the company performs, understand its team and culture, or monitor the market opportunity before committing to a full acquisition.

Convertible Debt

An investor gives a loan to a startup with the agreement that it will be converted to equity at the next “Priced round”… at the value of the loan plus interest.

This is because an early stage start-up is hard to value so both parties agree to kick the can down the road. If there is not a priced round the startup just needs to repay the investor’s loan (which often never happens since if the startup can’t raise more they are usually dead). Convertible debt is dedicated to very early stage startups, usually, and often by Angel Investors.

Our favorite Angel investors and networks (deploying money now) in Africa below 👇 (for premium subscribers).

SAFE (Simple Agreement for Future Equity)

Developed by Y Combinator, SAFEs allow investors to put in money today in exchange for the right to future equity, without the legal complexity (or pretense) of a loan.

Same as convertible debt but without the charade of the debt. These are increasingly common.

Quasi Equity

Revenue-Based Financing, Mezzanine financing, Convertible debt, Junior debt, debentures are examples of this. We talk about more here in our post on Debt financing.

Revenue-Based Financing

Instead of getting a percentage of equity, the investor gets a percent of revenue. For example, 5% each month, until some multiple of the financing is paid off, usually 2-5x the original financing.

It’s an instrument that blends the best of both worlds: growth-aligned investor returns without permanent dilution. Effectively a loan. Flexible, but quite costly. Fairly rare.

Family Office

Family offices are private wealth management vehicles for high-net-worth individuals or families, often deploying capital with fewer layers of bureaucracy than traditional VCs or funds. Same as above but they want more of a financial return.

See 7 tips for dealing with family offices here.

Employee Stock Option Plan (ESOP)

An ESOP allows you to offer your team a stake in your company’s future, without giving away equity today. Instead, they get options—the right to buy shares later, at a fixed price.

This is a powerful incentive in startups where salaries might be below market, but the long-term upside can be significant.

Some countries have an exemption where companies can give their employees stock options which aren’t taxed until they are sold.

Phantom equity

If an employee is awarded shares of a company, that counts as compensation and the government wants to tax it. But this causes a cash-flow problem as the shares are not liquid and cannot be sold for $$$. Ideally, the employer creates an ESOP but these are expensive and not suited to small companies. Also many countries in Africa do not have a provision for ESOPs.

A solution is Phantom equity where the employee gets a percent of profit as if they were a shareholder and gets a check if the company is sold, but doesn’t actually own the stock. This avoids the upfront tax on a stock award.

Recap

Lots of different types of equity funding out there. For more information on grants check our post here (and all over this website) and for debt - here.

Need help finding the right equity funders? 👇

But why spend your time looking through and analyzing? Let us get you on the phone with investors. $1,000 a month in exchange for 4 or more relevant introductions and opportunities to pitch. Email daniel@thegrant.co.

And remember… even with all the different types of funding out there. Your customers and your good old fashioned sales will always be the best type.

Why your best funder isn't a funder at all

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Some of our favorite equity providers (by stage) and who’s got money "now

Angels

*Most of these all collective groups of member investors. Email us if you’d like more information on getting in touch with select individual angel (here and outside of this list).