Today, the entrepreneurial ecosystem is very competitive and startups need funds to meet the ever-rising business standards. However, funding a startup is not easy. In fact, one of the major reasons Ugandan startups fail within the first three to five years of their existence is limited financial resources.
Recently, at The Innovation Village, two experts fueling the growth of the startup ecosystem across Africa came together to advise local entrepreneurs on how they can raise capital for their budding businesses.
Eric Osiakwan, Co-Founder of Angel Fair Africa and Managing Partner at Chanzo Capital has been investing in startups for the last nine years. The Ghanaian entrepreneur and investor said an enabling environment is very crucial in creating an impetus for startups to grow.
“In South Africa, the government created an incentive where investors are able to invest in early stage startups because they get 50 percent off in tax write offs. In Israel, the government put in place a fund. When an investor injects $10,000 dollars into an early stage company, the government injects the same amount of capital. Governments can set up these kinds of incentive schemes to enable entrepreneurs to create businesses that eventually create jobs,” Osiakwan said.
Describing raising capital as an art built on relationships, he said entrepreneurs need to build networks and establish relationships with potential investors when starting their businesses so that when they need growth capital, they already have a pool of investors to refer to.
He added, “The most important capital that entrepreneurs need is from their customers. About 80 percent of your business model needs to focus on developing a product or service that solves the urgent need of the customer so that you can get paid for it. In return, you are able to create a sustainable business that is profitable.”
Speaking at the event The Innovation Village Team Lead, Japheth
Kawanguzi noted with concern the inability of local entrepreneurs to raise the right type of capital as well as the failure to attract potential investors.
“Entrepreneurs need the kind of capital that allows them to continue building their business ventures even where there is a risk of losing money. Unfortunately, because we do not have that risk capital at an early stage, an entrepreneur is not able to build their company,” he said.
Venture capitalism depends on the market that entrepreneurs operate in. For ecosystem builders like Kawanguzi, an enabling policy environment, investment ready startups and growing the size of the market entrepreneurs target will be critical to attracting Uganda’s startup ecosystem.
“Entrepreneurs need to focus on building a business that is worthy of investment rather than chasing after funds. When you get your business ready for investment then investors will show-up. Get the customers and market to endorse your product or services because when that is done then everyone will want to invest their money into that business,” Kawanguzi said.
The Innovation Village is now active in central, western, eastern and northern Uganda. Kawanguzi pointed out that what is useful in ensuring startups thrive, is not only providing entrepreneurs with the knowledge to run their businesses, but backing the most promising game changers as well.
“As an ecosystem builder, The Innovation Village has provided avenues such as the startup-corporate collaboration which is a partnership between entrepreneurs and multinational corporations to fund these startups that solve key organizational challenges. Through the 97-Fund, we have invested in many high growth startups in the sectors of Health, Education, Energy, Tourism, Media and Creative arts to get ready for investment and create jobs especially among the women and youth to scale,” Kawanguzi explained.
Funding has been on the rise on the African continent with countries like Kenya, Nigeria, South Africa and Egypt receiving the biggest share. According to the Partech Annual Africa 2020 report, 347 African tech startups raised a total of $1.43 billion in 359 equity rounds. With the acceleration of digitalization in many tech markets, the ecosystem is expected to remain strong and attract more investors.
Right now, Uganda has the second largest deal flow behind Kenya in the East African Region. Of over 20 per cent of the investment capital disbursed in the region, Uganda receives a small portion of about 11%. (Source, The Landscape of Impact Investment in East Africa.) While there are no country specific impediments to investment, the primary challenge remains a less favorable business environment.