Understanding Investors and the Investment Landscape

A blogpost of Cynthia Kyofuna , Outbox from Outbox Uganda Hybrid Workshop, on the 24th of January, titled "Preparing projects for investment and investor relationships."

All Digital Innovation Hubs have supported a business to raise financing or invested in a business they have tried to run.?

Digital Innovation Hubs (DIHs) support organizations that aim to make businesses more competitive by speeding up the development and uptake of digital innovations and access to financing and investment. Digital Innovation Hubs are a support network for businesses, especially smaller ones like SMEs, startups, and mid-caps. They work with different organizations to provide services, including technology testing, financial advice, market insights, and networking opportunities, all in one place.

In a recently concluded session on “Preparing projects for Investment and Investor Relationships” with Digital Innovation Hubs, Ivan Mandela, the Director of Investment at Shona Group, encouraged participants to collaborate and share their experiences. The goal was to gain a better understanding of what factors influence investors when they're deciding where to invest their money. He further went on to say that while it seems that their choices are affected by different metrics, on the contrary, they are not. This session was highly conversational, engaging, and interactive that sought to strengthen financing efforts and an overview of the terms, interests, and needs of investors.

The Investment landscape in East Africa

In terms of investment, a lot of money flows into the East African region, and we see several businesses raise millions. Because of this, we are starting to see a lot of entrepreneurial activity because people now think it is easier to raise investment. If people are raising money, it should be felt within an economy. However, in Uganda, we are yet to feel the impact of the raises as most of the businesses receiving investment are expatriate-led. It is easy to think that it is a color issue; however, something must be driving investors towards investing in foreign businesses.?

What kind of money should one look for at a particular stage?

In Uganda's entrepreneurial community, most businesses are in the idea stage. It is pertinent to have this in mind as you prepare businesses to receive investment. It is equally essential that entrepreneurs' needs are validated depending on their stage. One common misconception is that entrepreneurs don't need money. Still, the reality is that they require funding right from the beginning. This is because they need financial resources to conduct market research, travel to meet with potential supporters, and develop models and prototypes of their ideas.

The person that invests in an entrepreneur at an idea or prototype stage should be able to trust you. In fact, entrepreneurs must speak about themselves at this stage because their business needs to be more believable.?

If a hub is working with entrepreneurs at this stage and needs money to give them, they need to know that their idea will die the day they leave your incubation program. In today's market, it's only worth accepting programs that don't fund entrepreneurs at this stage if they offer a way to gain knowledge that could be useful for building a successful business, even if they don't provide direct financial support.

If you are designing a hub, you'd rather cut your expenditure and save some money for seed-stage entrepreneurs. This is important because Innovation hubs must be open to the reality of businesses in the Ugandan market.?

Beyond the seed stage, you start to attract certain investors. They could be individual investors or venture capitalists. External investors are usually individuals whom we call angel investors. These ones typically need systems and processes. They decide to whom they give their money. Accelerators are those that have funds they are running. Because DIHs have worked with certain entrepreneurs, they can trust them with funding. For example, Venture capitalists, Private equity funds, Banks, and Profit.

Different forms of capital include; traditional and dilutive types of money. For example, Equity reduces business ownership, while debt increases business ownership. Entrepreneurs stay away from Equity because it means they have to know the value of their business. This is usually a task that entrepreneurs want to avoid because it might cost them. While doing investment readiness, you must prepare a business for due diligence. This is where someone comes to verify what the entrepreneur said while pitching. Do intros and sit back and coach the entrepreneur.?

Entrepreneurs are always the experts in their business. Do not pitch for an entrepreneur. They need to learn how to pitch through to the end before investors. Digital Innovation Hubs should not do it for them because it denies them the necessary growth. Instead, DIHs must always do high-level introductions.?

Investors need to understand the local dialect or jargon. That is why media like pictures and videos are compelling in creating a context for investors to understand the context in which an entrepreneur is trying to elaborate.?

Legal: DIHs should not reject businesses because they don't have lawful things. In Uganda, legal systems are a process. They take time and money. We can help the business get these things progressively as they work towards investment. The model is supposed to translate the strategy and business plan into numbers. Fundraising is about relationship building. While supporting businesses, you must encourage them to build relationships because they make it easier to talk to and convince an investor.?

DIHs equally have to play a more significant role in building their networks because, sometimes, investors trust hubs more than they trust businesses. By coming to the different hubs, they get to meet and interact with businesses based on the trust they have in their experience in supporting businesses.?

Testimonials?

?"This session was very informative. Investors can be a hard nut to crack, even for our hubs. I am happy that AfriConEU organizes such capacity building", Cynthia Esther Atuhairwe, Mkazipreneur .

"As a person that works at a hub, I never got oriented about my scope of work. I learned along the way. Such training teaches us how to do our job better." Joan Nasasira, Impact Hub Network

About the Partners

AfriConEU supports the strengthening of existing DIHs (Digital Innovation Hubs) in Africa and facilitates the collaboration between EU and African DIHs to strengthen a joint EU- Africa innovation and Startup ecosystem.?

The NSSF Hi Innovator is aimed at helping small, and growing businesses thrive. It does this by providing seed funding, strengthening the ability of entrepreneurship support organizations to offer high-quality technical support, and collaborating with financial institutions to make patient capital more accessible and affordable. The goal is to help these businesses become more competitive in the marketplace.

Startup Uganda (SU) is an association of innovation and entrepreneurship support organizations (IESO) working towards strengthening the startup support ecosystem and sector.?