Where is the money for Uganda’s tech startups?

Ham Serunjogi, and his co-founder of Chipper Cash had no networks. They relentlessly sent emails to investors but just a few were willing to give them an audience. Serunjogi shares his experience on what it takes raise venture capital for a startup.

“It was by far the most difficult thing I have ever done. I did over a hundred pitches,” Serunjogi narrates.
Venture capital, according to the Harvard Business Review, is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.

This kind of capital can be from pension funds, financial firms, insurance companies, and university endowments.
 From Serunjogi’s experience, raising venture capital is no mean feat in a foreign land.

“We were trying to solve a problem that most people didn’t see. You tell someone that you want to solve cross border payments in Africa and they ask what is that? What about this thing called Mpesa? ”

Serunjogi and his co- founder Majid Moujaled, a Ghanaian technologist, had high hopes in African investors but getting their buy-in was hard. 

“They were the worst. Every African investor I spoke to was either very rude or dismissed me. From their perspective, they were the experts, I was the young kid who came in with this idea but clearly knew nothing. There was no convincing them,” he recalls.

Eventually, their idea got traction with US investors because they were coming in without knowing anything. 
Luck eventually struck, and they were able to get their first investor who invested $150,000. That was a turnaround.

“That money was a lifeline,” he says, “When it came in, we were able to accelerate our growth, bring in a small team and pay them and things went to another level all together. We went from strength to strength. More people came to us wanting to invest.”

At last, their dream had crystallised into Chipper Cash - a lifestyle payment platform that started as a cross border product and has grown to allow people to invest. Recently, it secured a US licence to offer people the ability to buy fractional shares on the US stock exchange.

In less than four years, Chipper Cash is now valued between $1 billion and $2 billion - a unicorn. 

Dwindling venture capital  
From Serunjogi’s experience, raising venture capital is no easy ride in Africa, Uganda inclusive.
Recently, Davis Musinguzi, the founder Rocket Health expressed his frustrations over a low performing venture capital ecosystem in Uganda.

He wrote: “If our startup that is post revenue, post traction, post product-market fit, was in a different, more attractive country or market, raising venture capital to scale would be a different story.”
African startups’ venture capital ecosystem has continued to show a dim light. In 2020, startups failed to hit a billion dollar mark in disclosed funding as Covid-19 took centre stage on the African continent.

This was detailed in a 2020 Index report authored by Digest Africa and Crunch Base, two research firms that track performance of venture capital funding across Africa.

The report highlights 2020 venture funding trends showing that what started off as a promising year of startup investment growth in 2020 took an irresolute turn that the continent is still trying to recover from.

Whereas there was a total of 481 funding rounds, of which 361 representing 74 per cent were disclosed raising $854.6 million in total disclosed funding, excluding exits. Uganda still performs on the low-end, only raising total funding of $9.6 million, 94 per cent of which was venture capital at $9 million across 35 rounds.

The Financial Technology Services sector attracted the most funding valued at $8.6 million across 12 rounds with Tugende in the lead, accounting for $6.3 million of this total.

Based on Crunchbase data, the venture funding raised by African startups still represents less than 1 per cent of global venture funding.

Gloria Amayo, the head of content, research and partnerships at Digest Africa, says 2021 has already registered a significant funding increase with the first half of 2021 registering a total of $107.2m raised from Ugandan startups.
 $100 million of this total is attributed to popular financial services platform Chipper Cash. This is more than 1000 per cent more funding raised by Ugandan startups compared to 2020.

Raising venture capital  
Uganda tech startups recently picked some lessons from Mr Eric Osiakwan on raising capital.
 Mr Osiakwan, a Ghanaian entrepreneur and investor, appreciates the difficult position of Ugandan startup founders as players in an ecosystem that does not receive as many investors as their counterparts in Nigeria, South Africa and Kenya.

Osaikwan believes raising capital emanates from building good relationships. He describes this as an art that is necessary to receive funding, especially at an early stage.

“A startup ought to focus on coming up with a bankable idea that can gain the trust of its earliest stage funders,” he says.

Osiakwan says it is important to understand the stage at which different investors can offer funding for a startup.
This guides a startup on when and who to seek out for capital. True to their name; venture capitalists want to “capitalise” on an already existing venture.  Therefore, one must have a venture that is selling products and services successfully on the local market.

If one seeks to go beyond the local market, they ought to search for growth capital to facilitate the startup’s expansion plans.

There is also the need for timing and patience. Osiakwan says that an entrepreneur needs a minimum of 10 years for their growth cycle to come around. The overnight success story is a gimmick that startups should not buy into.

“If you do not have the patience to go through ten years of building a business, then you should find a job,” he says.
In Osiakwan’s experience, the market is the determinant of success and thus it is important for entrepreneurs to be attuned to it. “Successful companies are those that have listened to the market. If you don’t listen to the market, it will punish you,” he cautions.

Google’s plans
Ugandan tech startups have to position themselves for new opportunities after Google announced its plans to invest up to $50 million in African early- and growth-stage startups via its Africa Investment Fund, ramping up efforts to support more businesses on the continent.

This reveals tech giant’s intentions to commit over $1 billion over the next five years in tech-led initiatives in Africa, according to TechCrunch, an American online newspaper focusing on high tech and startup companies.

So far, 50 startups have been selected to participate in the Africa program starting on October 13. Each will receive up to $100,000 in equity-free capital along with credits from Google Cloud, Google.org ads grants and additional support.

Google’s accelerator programme has made sure to accept applications from startups in less-funded and overlooked regions. 

These countries include Algeria, Botswana, Cameroon, Ivory Coast, Ethiopia, Ghana, Morocco, Rwanda, Senegal, Tanzania, Tunisia, Uganda and Zimbabwe.

Venture capital...Struggling to raise capital
 Uganda still performs on the low end, only raising total funding of $9.6 million, 94 per cent of which was venture capital at $9 million across 35 rounds.

The Financial Technology Services sector attracted the most funding valued at $8.6 million across 12 rounds with Tugende in the lead, accounting for $6.3 million of this total.