Capital is one of the challenges that many tech start-ups face in Tanzania. The lack of capital makes founders spend a considerable amount of time trying to survive which in turn means passing the opportunity and most of the businesses choked in a few months if not weeks after launching.
While many founders have resorted to bootstrapping and few have managed to attract funding from outside Tanzania, there has been very little appetite from local investors.
“There is really no interest from local investors in investing in tech start-ups,” Japhet John, founder of Nilipe App told The Chanzo recently. “It’s like they really don’t understand its potential.” Nilipe App bridges the gap between services and customers by transforming the payment experience.
By lacking support from local investors, most companies end up not being capable of building enough financial muscles to the extent of attracting even more significant funding outside.
Ng’winula Kingamkono is the founder and CEO of Tunzaa, a fintech startup that uses technology to transform the financial habits of consumers and connects businesses to buyers.
He says that there are many brilliant innovators in Tanzania, but very few local investors. He adds: “We need local investors who can also support this local business”, emphasized Kingamkono.”
But the big question is why local investors are not ready to take up tech start-ups. Nilipe’s John thinks the failure to understand the sector well and the opportunities it offers can be part of the explanation.
“Sometimes it needs, like, a third eye to actually see opportunities in emerging sectors like this one,” he points out.
But that’s not all. Lack of trust on the part of local investors is also mentioned as a reason.
Mansura Mtibora is co-founded Niinsima eDispensary who says: “Investors [in Tanzania] do not trust local start-ups. And this comes from the lack of reasonable support structure to the start-ups.”
Another issue that is being pointed out is that the complete picture of the tech start-up has not been fully revealead, as Adam Duma the co-founder of Smart class explains,
“A lot of start-ups that have become successful in raising funds, or win deals, tend to hide this information,”
“By hiding this information,” Duma clarified, “[start-ups] are hiding the good picture of Tanzania start-up ecosystem, hence minimizing chances of more investment.”
Many founders have taken it upon themselves to bootstrap their start-ups. Nilipe App is one of them. The start-up has been successfully operating and growing from the founders’ pockets.
Some founders had to get more creative in raising funds from clients. Tunzaa, for example, was funded by its founder through money raised from his software development company Ellipsis.
This is also the same case with Worknasi, a platform for listing, renting, booking, and managing co-working spaces, where the founder is raising funds through its software development company Hepha.
In our #YoungBold&Digital series, founders have explained that the first way to try to resolve this challenge is to continue to engage local investors by sharing development in the industry.
Also important is to build the momentum shown by some corporate who have started to show interest in investing in this start-up.
There is also an emerging appetite from banks that have started to look at this sector. The NMB Bank Sandbox initiative, for example, is a good example.
“Three banks have engaged us,” revealed Tunzaa’s Kingamkono. “They just want to explore how we operate and see if there can be opportunities in the future.” Getting more of these institutions to trust start-ups can help in building trust in the country, founders believe.
The government can also play a decisive role in this trend, according to some founders we talked to.
Noting the potential of tech start-ups in kick-starting economies, the government can set a special vehicle of capital for start-ups using the 10 percent of loans provided by local government authorities.