Uganda in need of venture capitalists

Barclays Bank’s aggressive loan recovery has once again swallowed one of the country’s most promising start-ups –Bee Natural Products. The company considered the most promising in amateurish honey-processing industry, is under receivership for failure to re-pay loan of about Shs4 billion.

Its imminent demise completes a life-cycle characteristic of Uganda Small and Medium scale enterprises (SMEs). Ms Maria Odido, the managing of Bee Natural Products was last year voted the most promising woman entrepreneur by the Uganda Investment Authority.

And the company has featured on new agencies as Uganda’s success story in the burgeoning honey industry. Such was the company’s promise that news that it had been placed under receivership surprised most in the b usiness circles. But it should not surprise someone who has closely followed Uganda’s SMEs.

The lifecycle for most SMEs takes a characteristic shape of a great business idea, then a bank loan followed by a period of much promise winning awards and sumptuous supply contracts, then the much-dreaded receivership when the financers of the great idea come knocking. So what happens? SME experts will often place blame on business owners for wrong business ethic. But, I believe, the present credit environment has done little to support growth of the private sector.

Honey Bee Products is the fifth company under receivership for failure to pay noticeably Barclays Bank loans in a space of six months. This not to say other financial institutions have not been involved in other receiverships but it serves show how businesses are struggling to service loans from financial institutions.

The annual interest rates of between 18 and 25 per cent, lend little credence to promoting growth of many start-ups already struggling with high operational cots. That is why Uganda desperately needs venture capitalists, investors who buy equity (shares) into start-ups as means of financing with an eye on long term prospects of the company.

East African Development Bank Director General Godffrey Tumusiime, in an effort to diversify the bank’s product portfolio at the same time performing the noble duty of developing enterprises in the region, touted to his board the idea of setting up a venture capital fund to finance start-ups.

Although the idea received little support from the bank’s board of directors, it is no doubt that the region and Uganda in particular is in dire need of venture capitalists.

In countries such as the United States, venture capitalists are often on the look out for great business ideas that need funding. Entrepreneurs pitch their business ideas to a team of financiers who later on buy equity into such businesses placing the knowledge- entrepreneurs at the helm of the new company’s operations.
By so doing, they give start-ups the much needed boost lessening the burden of borrowing from financial institutions. Because of this, multi-national corporations such as google, facebook, myspace have sprung from university dormitories to become mutlti-national corporations. That is why venture capital in necessary for Uganda’s ailing SME sector.