They say experience is the best teacher and, in this case, the best advice for startups always comes from those who have walked miles in the entrepreneurship journey.
That is why when Eric Osiakwan came to The Innovation Village to interact with startup founders, we could not think of a better person to answer the most pressing question on their minds, “How can startups raise capital?”
Osiakwan, a Ghanaian entrepreneur and investor has over 15 years of experience working in the Information and Communication Technology (ICT) sector.
A globetrotter, he has worked on projects and initiatives in the United States of America, Europe and Africa for a number of governments, companies, non-governmental organisations and international agencies.
He was part of the team that built the first submarine cable to connect East Africa to the rest of the world. He has built and invested in a number of successful ventures such as Chanzo Capital, Angel Africa List, Angel Fair Africa, and KINGS of Africa’s digital economy.
He currently serves on the boards of African startups, some of which he has invested in including Farmerline, Hubtel, Forhey, Teranga Solutions, Hotel Online, Wala, Amp.it, SameLogic, Wanjo Foods, Airshop, Rapid Expense, NestSquare, Data Integrated, Ghana Cyber City, WABco
With his arm in both investment and entrepreneurship, Osiakwan provided insights to an audience of startup founders on how to raise capital from both an entrepreneurial and investment perspective.
He appreciates the difficult position of Ugandan startup founders as players in an ecosystem that doesn’t receive as many investors as their counterparts in Nigeria, South Africa and Kenya.
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.
Osiakwan says while he is a successful entrepreneur, he is still learning the art of investing but is mostly committed to learning why there are more entrepreneurs looking for funding than investing.
“The ecosystem needs to generate entrepreneurs who are successful and in return will invest,” he says. This is partly the reason as to why he is building an investor pool through Angel Africa List and Angel Fair Africa.
In order to secure funding, entrepreneurs need to understand how funding works and the processes therein. Osiakwan shares some tips.
Raising capital emanates from building good relationships. He describes this as an art that is necessary to receive funding, especially at an early stage.
Startups ought to focus on coming up with a bankable idea that can gain the trust of its earliest stage funders.
Different Kinds of Capital for Different Stages
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.
After the growth stage of the company, an entrepreneur can seek private equity capital which offers investors a stake in the company. It is after that stage that a company can enter the stock market.
Osiakwan says understanding these stages of growth and the kind of capital needed also helps an entrepreneur to understand the kind of company they want to build.
With growth capital, startups must know that eventually ownership of the company reduces with more investment. Building a sustainable company requires patience with a focus on profitability and unity economics where one’s customers pay for the growth of the company.
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. Instead, they should give their businesses the 10-year business growth cycle.
“If you do not have the patience to go through ten years of building a business, then you should find a job,” he says.
With patience and a good product, the wave of opportunity eventually arrives for every business. The most important thing is for it to find the entrepreneur ready. An entrepreneur will know when the timing is right depending on what he or she has been doing in the market.
Alignment with Investors
To avoid clashing along the way and losing a grasp of one’s dream, Osiakwan advises entrepreneurs to do some research about investors.
Talk to the entrepreneurs that they have invested in. It’s important for entrepreneurs to find out if their goals align with the investors’ and so necessary research is imperative.
Listening to the Market
In Osiakwan’s experience, the market is the determinant of success and thus it’s 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.
Osiakwan’s conversation with startups is timely as Uganda remains among the developing countries struggling to attract large investments in the ecosystem.
This is due to a myriad of reasons with the foremost being partly because of the general mismatch between startup ideas and expectations of potential funders according to John Ndabarasa, whose role is to provide linkages between startups and investors at the International Trade Center project.
In addition to this challenge are issues like limited Information about investment opportunities, a lack of necessary sufficient records that investors can refer to and make investment decisions.
Right now, Uganda has the second largest deal flow behind Kenya in the East African Region. Of over 20% 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 is a less favourable business environment.
The interactive session that was virtual and physical gave startups a chance to ask Osiakwan questions regarding funding, ultimately providing a stepping stone for startups towards investor readiness.
With conversations demystifying the world of funding for young entrepreneurs, there is hope that they will build ventures with clarity and precision that makes it easy to attain capital for their startups.