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A substantial amount of money has over the years been coming to Africa to fund tech innovations and start-ups. However, Uganda receives just a small portion of this, which cannot be enough for the increasing needs. Photo / File 

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What explains the cash crunch among Uganda’s tech start-ups?

What you need to know:

  • In 2020, African start-ups raked in a record $1.43b in funding in 359 equity rounds, but Uganda got a modest $11.3m, which was far lower than what Nigeria, Kenya, Egypt, and South Africa, received

Here is the real deal: you have got a game-changing start-up idea - Artificial Intelligence (AI) - driven cancer detection or internet of things-powered farming - but there is one tiny hiccup; cash.

It is like you have a lovely new car but can't find the keys to start it.

That is Uganda’s current tech scene in a nutshell - brilliant ideas - but with the funding still stuck in “maybe later” mode.

Lets rewind to 2020, when African start-ups raked in a record $1.43b in funding in 359 equity rounds, as tracked by Partech Africa, a global tech investment firm.

Guess who got the lion's share? Nigeria, Kenya, Egypt, and South Africa - while Uganda got a modest $11.3m when compared to, for instance, Kenya’s $305m.

To understand the cash crunch, it is important to examine details from the start-ups themselves.

Take Yo-Waste, for example, a start-up seeking to tackle Kampala’s garbage problem by linking clients with waste to collectors.

Sounds like something investors would jump at, right? Not quite.

Founder Martin Tumusiime learned that unless your financials make investors salivate, they will just see you as a risky bet.

It’s the classic chicken-and-egg; no funding, no growth, no growth, no funding.

And that is why now many start-ups do investor pitching to survive but not to scale, many team leads from multiple local innovation hubs, say.

Robert Acidri, the founder of Attravibe, a start-up that makes educational literature reasonably accessible, found this out the hard way, when he launched his platform in 2016, expecting investors to line up - they didn’t.

Instead, he is funding it himself and realised - deep pockets and a strong network matter more than ground-breaking ideas.

“There are too many start-ups and too few investors,” he says. So, instead of chasing money, he is focused on making his business solid.

So, why is Uganda left out of the funding frenzy?

A complete answer is hard but we can try to break it down.

Kenneth Legesi, the chief executive officer of Ortus Africa Capital, a privately held investment and advisory firm, points to size, explaining that – during the Innovation Village incubation for start-ups - Kenya, Nigeria, Egypt, and South Africa dominate half of Africa’s gross domestic product, making them irresistible to investors.

These economies have better infrastructure, stronger ecosystems and better funding access.

Uganda has got some perks, sure, but red tape is strangling growth.

That is why even the World Bank ranks it lowly in ease of doing business.

John Ndabarasa from the International Trade Center says Uganda’s funding problem goes deeper than cash flow.

The real issue? A disconnect between start-up ideas and investor expectations.

Start-ups at the ideation stage struggle to secure funding because they are not making money yet but Ndabarasa argues that “if you have got a solid business model and the right market, you won’t need to chase investors.”

Without that, he says, you risk becoming a “grant-preneur,” who burns through one grant after another without ever building something sustainable.

However, early-stage funding is possible - if your problem is big enough to catch investors’ eyes.

Case in point; M-Scan Uganda, which tackles maternal health with affordable ultrasound tech.

Still in the concept phase, M-Scan bagged $30,000 (Shs110.5m) as Africa’s top innovation in the Jica Ninja Covid-19 Challenge. Why? Because the problem is massive and the solution has scalability. That is what investors want; a problem worth solving and a clear path to growth.

As for traditional banks, many Ugandan start-ups face a hard no.

“It’s not that banks are unwilling; it’s that debt may not be the right tool for start-ups. Debt works best for expansion, where models are proven, and revenues are predictable based on at least six months of historical performance,” says Mathias Katamba, former dfcu managing director.

This sets up the age-old dilemma; prove your potential before you even get the chance to prove your potential.

On the upside, local angel investors are a game-changer, offering both cash and expertise.

Programmes such as Pitch Thursdays, hosted by the Kampala Angel Investment Network, connect start-ups with potential backers.

Plus, there is The-97Fund, a capital fund that tailors financing to the specific needs of start-ups, offering everything from equity-free grants to revenue-based financing.

Legesi says, “The goal is to provide the most appropriate funding for Ugandan start-ups.”

Youth continue to innovate in the tech space, even as they  struggle to secure resources for their innovations. Photo / File 

So, where is the money? It’s out there, waiting to be unlocked.

Investability

In the past seven-eight years, Uganda's tech sector has gone from struggling to explain a product to customers in 2016 to suddenly being the hot topic by 2018.

Then, just when we thought it couldn’t get crazier, Covid-19 arrived, giving us both a punch in the face and an unexpected boost. One thing Covid-19 made crystal clear; the tech revolution had arrived, with customers warming up to digital solutions and building a momentum that has stayed alive to date.

And when investors see that kind of shift - whether in demand or user adoption - they start reaching for their wallets.

“Sure, you can talk about other challenges - political instability, market turbulence, and all that stuff,” says Robert Okiror, the Makerere Innovation & Incubation Centre investment and portfolio management officer: “But what really drives investors is measurable impact and scalability, it is not just about being innovative; it’s about showing that you can grow. The more you prove your idea has potential, the more funding you will reel in.”

The shift is obvious today - customers are tech-savvier - and investors are watching local innovators closely.

The real challenge now, however, is making sure these ventures don’t just look good on paper but actually have legs to run.

Look at Africa’s top start-up hubs - Kenya, Nigeria, Egypt, South Africa - and you will spot a key difference in the entrepreneurs; resilience.

“A brilliant idea doesn’t cut it alone; execution is everything. Even an average idea can thrive if the team understands the innovation game and isn’t afraid to tweak the plan,” Okiror says, pointing out that education and exposure play a pivotal role.

Historically, many successful African founders had international stints, picking up not only skills but networks and credibility.

Now, though, the tables are turning. More home-grown entrepreneurs are starting to build and scale their ventures.

Chipper Cash, for instance, is a Ugandan-born company that has attracted serious investment. Rocket Health and Safe Boda have cut it into some of the most visible start-up brands across Africa.

And when it comes to well-funded start-ups in Uganda, Numida is flexing as one of the biggest players in the game.

Funding solutions

What do these start-ups have in common? Sure, their business models and sectors matter, but let’s face it - the real MVP is resilience.

An entrepreneur who has got grit don’t just sit on a great idea; they refine, pivot, and adapt until their business model can actually scale.

After all, even the best ideas can flop without the right mindset and team.

But with resilience in spades, founders can keep experimenting, tweaking, and improving until they hit the sweet spot.

Okiror is all in on this point but notes government has a role too - by strengthening the education system so universities don’t just produce job seekers but also job creators.

"When that happens, the start-up ecosystem flourishes," he says.

Take, for instance, South Korea, which has turned innovation into an art form by pooling resources across ministries to directly support its start-ups.

Morocco and Rwanda are also on the same wavelength here in Africa.

“If Uganda follows suit - consolidating funding, creating a start-up-friendly policy environment, and investing in innovation - watch this ecosystem scale,” Okiror says.

One thing investors do love is commitment, and once they see government getting behind local start-ups, they will feel more confident about diving in.

But here is the catch; for government’s support to really take off, there has to be clear proof that investments in innovation lead to real or actual economic benefits.

Right now, most funding in Uganda’s start-up scene comes from grants, team leads from multiple local innovation hubs, say. 

And while grants can give a much-needed leg up, they come with their own set of headaches, because they are usually short-term, vanish once the objectives are met, and often align more with donor interests than market demands. This means that without a clear revenue model, many grant-funded start-ups are left scrambling for survival.

Many investors want to be convinced about the viability of an innovation before they invest their money. Photo / File 

What is the solution?

Time to roll out the red carpet for venture capital, angel investments, and private equity, says Okiror.

The trouble, however, is private equity loves later-stage start-ups, while venture capitalists are after scalable, high-growth ventures.

Venture capitalists also don’t bet on ideas, they bet on expansion and want to see start-ups grow rapidly, which forms the basis for plotting a clear exit strategy – through, perhaps an initial public offering, acquisition, or unicorn. 

This now means that Uganda needs more of these high-quality, scalable start-ups to grab serious venture capital interest.

To do this, there is need to dive in much more and create an environment that allows it all.

For instance, says Okiror, innovation hubs in Uganda must take lessons from the likes of Silicon Valley, which has connected research to commercialisation, offered mentorship, funded, and created a culture of risk-taking.

This, he says, can be done through pouring resources into innovation labs, structuring funding models, and research-turning fledgling start-ups into sustainable, investment-ready powerhouses.

But there is a thorn in the side; prototyping materials. Ugandan start-ups, especially in robotics and engineering, often face a major roadblock.

They have to import key components - mostly from China - because there is little local manufacturing infrastructure.

However, this is not unique, but even other innovation-driven countries, such as Kenya are facing it - sourcing inpts -  which has made China a leader in AI and robotics due to its solid infrastructure and talented workforce that has made it able to churn out essential components such as chips and printed circuit boards. 

But this has in a way disadvantaged countries like Uganda, creating gaps in research and development.

“To get ahead, Uganda needs to double down on STEM talent capable of working in chip manufacturing and electronics. Without local expertise, even with the capital, Uganda will struggle to build a semiconductor industry,” Okiror says.

Policy shift

Many companies that have been built from scratch, have one manifestation - resilience and innovation.

These provide the magic for success, and even it gets better if the state decides to plug some gaps. 

The private sector may have a wish list longer than a holiday shopping catalog, but what can the government deliberately do to make things happen?

Well, policy is the name of the game. Government must work on a start-up policy. 

In Uganda, government has picked the baton and is working on a start-up policy to define what a start-up is. 

The current regulations treat start-ups as small, medium, or large enterprises - talk about a one-size-fits-all approach.  

This outdated classification can impose constraints, from taxation headaches to regulatory hoops that were designed for traditional businesses, not agile start-ups.

The new start-up policy seeks to create a framework that understands the unique needs of start-ups, thus leading to better tax incentives, more tailored investment policies, and - fingers crossed - improved access to funding. 

“Investors pay attention to these policies when deciding where to put their money, so this could be a game-changer. The draft has been in the works for years, but word on the street is that it’s now in its final review stages. If it gets the green light, it will be a major win for Uganda’s start-up ecosystem,” Okiror says.

Sometimes, he adds, even small regulatory changes can shift the entire landscape, creating a more favourable environment for innovation and attracting the much-needed investments.