Many start-ups fail to grow due to limited capital. And many that seek to expand using bank loans don’t qualify because they lack security.
However, in developed countries, small private businesses have expanded using equity funding and venture capital.
Equity financing is the process of raising capital through the sale of shares in an enterprise. Equity financing essentially refers to the sale of an ownership interest to raise funds for business purposes. This largely takes place through the stock exchange.
On the other hand, Venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. For start-ups without access to capital markets, venture capital is an essential source of money.
This means that one doesn’t need to look up to bank loans only for business growth because there are many investors willing to invest in a business that has potential for growth.
To try make Ugandans understand the above concepts, on June 20, 2017, Uganda Investment Authority (UIA) in partnership with other private sector players organised the 3rd Private Equity and Venture Capital (PEVC) Conference with the theme, converting private investors into private equity. The event took place at the Kampala Serena Hotel.
Uganda like many developing countries has less developed stock markets, private equity and venture capital.
According to Garvin Onaba, an Enterprise Business Analyst at Bank of Uganda (BoU), for one to attract private equity and venture capital, they must have unique business ideas.
“People should avoid copy cat concepts; many Ugandan businesses are merely duplication of ideas,” Onaba said, adding that ideas copied elsewhere and implemented locally can’t attract funders.
Dr. Edward Isingoma, the Managing Partner at Pearl Capital Markets revealed that investment interests must be aligned well in a logical flow.
“Misalignment of investment objectives has led many companies to lose out on capital,” he said, adding that competing interests usually develop after the entity has received the requested capital.
He urged business seeking for venture capital to thoroughly carryout pre-investment work.
“The foundation for the business is right at the birth of the idea; make your research with due diligence and fine-tune your idea including testing your business model, proposals, investment plans e.tc. All investors need return on capital, this is sometimes exhibited in the amount of effort you invest in terms of time and resources to showcase your entity,” he said.
Charles Ocici, the Executive Director at Enterprise Uganda while delivering a keynote speech argued the entrepreneurial society to start businesses and expand them by utilizing the available resources effectively and efficiently.
He noted that to attract private equity and venture capital, one must be already in business.
He noted that the belief that many of Ugandan enterprises don’t see their 5th birthday is a discouragement to private equity funders.
“Developing a savings and investment culture is important; don’t spend more than you earn. Whether at individual or organizational level, this is the principle to growth,” he said, adding:
“In a country where private equity is at 5% and banking at 95% with high interest rates, savings and re-investment can elevate the business to a level attractive for private equity.”
He added that whether it is individual money or finances from family and friends, a high level of integrity is key to attract capital into one’s business.
“Private funders will track and know how you have interacted with the previous funds at your disposal, this not withstanding your relations with banks and other business partners,” he said.
Ocici urged start-ups to set up a clear and good governance system in their operations.
“The vision, style of management, systems and strategy must be spot on to the main objective of the funder; which is making profits, or benefiting the intended beneficiaries in case of impact investors,” he told Business Focus at the sidelines of the event.
The 3rd Private Equity and Venture Capital Conference is part of the activities of The Annual Uganda Investment Week 2017, climaxing with The Investor of the Year Gala, with the theme; “Local Content: A drive to sustainable growth.” This is scheduled to take place tomorrow (Friday).
The Annual Uganda Investment Week 2017 was opened by the State Minister for Investment, Evelyn Anite at Serena Hotel.
She emphasized government commitment to attract investors, specifically PEVC from Qatar, noting that Islamic Banking legislation will soon become effective.
She added that government is determined to fight corruption by wiping out middlemen who dupe investors.
