The global startup ecosystem is always brimming with new ideas given that emerging challenges, whether at global or national level, require solutions. Ideas aside, investment in startups on the African continent have been growing over the past years. The unprecedented growth has been driven by an influx of investors hoping to get in on the ground floor of an ecosystem ripe for innovation.
In its 2015 report, Disrupt Africa found that 125 tech startups had raised funding to a tune of US$185m. In 2020, its report indicated that 397 startups raised US$700m, showing that Africa managed to attract more funding than in any year before. Uganda fell out of the six top markets in Africa with 13 ventures securing US$1.3m.
According to Digest Africa, in the first three quarters of 2021, $2.7bn has been raised making 2021 Africa’s most funded year surpassing the $1.8bn raised in 2019. $906M has been raised by FinTechs in Q3 2021 topping Commercial and Professional Services ($200M), Ecommerce and Retail ($140M) and Transport and Logistics($124M) that managed to raise at least $100M. The $906m raised represents 62 percent of all funding in that quarter and it is more than the amount raised by all sectors combined in the entire first half of 2021. In 2021, Ugandan startups including Ensibuuko, Numida, Tugende and Chipper Cash raised funding rounds of $1,000,000, $2,300,000, $3,600,000 and $250,000,000, respectively.
The Innovation Village through its investment arms; Kampala Angel Investment Network (KAIN) and The 97 Fund, backs the most promising entrepreneurs. What will this year’s investment climate look like and how can startups position themselves to sign deals with potential investors? In an interview, William Nyakatura, a Financial Investment Advisor and Partner at Kinsman Advisory, shares his advice for entrepreneurs.
What are your views on the status of investment in Ugandan startups so far?
Many startups are borne out of the necessity to provide income for the businessman and his family and may miss the need to ask whether the market wants the service or needs it. (That is to be discovered, so we start)
In Kampala, there is access to capital, from private investors, but their interests many times do not align with those on the ground, so there is a big mismatch from time to time.
Private capital in addition to profit seeks to join an entity that has some good standing of corporate governance or a partner that values that aspect down the road. Additionally, many start-ups are weak at record keeping, making it hard to evaluate their capacity in the area they aim to capture.
This is partly why I believe they should join investment hubs that practice and provide such assistance.
What are some of the factors that affect investors’ ability to invest in our local startups?
For sure, not all start-ups are going to be successful at meeting a need, size their opportunity to scale, generate meaningful revenue, and be able to stay ahead of perfect competition (what Peter does, Jane does across the street and so does Michael) killing margin, will determine the take off.
The engagement of start-ups in strategic partnerships is not quite common as many go in it alone and only know so much. So, those who turn out first at attracting skills, organizing those skills under an umbrella including capital and accessing a paying market will survive.
There are challenges of markets. Will people pay when they say they will? If that is hampered, that has cashflow for start-ups that is critical or vital to survive the next day, Month, or quarter.
How can local startups attract investments better this year?
Like I stated, form partnerships with consultants who can provide a service they need but may not be their core. Seek access to hubs that provide clinics so one can get an assessment of where they are and can adjust accordingly in relation to the needs of those that provide the capital.
There are business hubs at Innovation Village and Consultants they can approach for this assessment.
Will startup investments increase after the re-opening of the economy?
The Ugandan culture that was borne out of Idi Amin encouraging Ugandans to run businesses even if they hadn’t a clue how, still lives strong and is encouraged by the current government’s policies to support the youth.
I believe many will try, but the question remains how many with thrive in this new post-COVID-19 age that has people’s aggregate income and demand challenged while 30 per cent of the intended government budget is going to pay loans whilst reducing Ministry of Finance’s allocation to stimulate the economy.