The Financial Technology Service Providers Association (FITSPA) held its 6th annual conference earlier this month under the theme “Collaboration for Growth: Leveraging Partnerships and Collaboration to Drive Innovation and Growth in Uganda’s Fintech Sector”. The two-day conference was led by inter-sector dialogue and conversations highlighting the relevance of mutually beneficial engagement and collaboration between sectors and shedding light on proven strategies and models for building the fintech ecosystem.
In one of the panel discussions, an interesting topic, “Pathways to Funding for Fintechs” was discussed. During the session two seasoned founders; William Luyinda; CEO of Ezy Agric and Eng. Chrispius Oyancha; CEO of ClinciPesa, and Brenda Amony; Portfolio Relationship Manager, Deal Flow Facility at FSD Uganda, gave insights on the art of fundraising.
Securing funding for a startup is one of the most critical steps for a startup to succeed. However, raising funding is very challenging.
“Securing financing is a critical step in scaling a startup. However, determining the right type of capital for your startup can be challenging,” says Eng. Chrispius Oyancha; CEO of ClinciPesa.
The key to securing funding is to strategize properly on revenue sources to pursue, understand the unique challenges and risks of the fintech industry, and ensure compliance from the outset. Suppose founders have the right preparation and a solid pitch. In that case, they can attract investors who not only provide capital but also understand the industry and can help to push your startup further forward.
Firstly, it’s better to understand the unique landscape of fintech funding. Unlike other industries, fintech startups are in a highly regulated space. Fintech startups rely on a maze of financial regulations and compliance standards —this will influence how investors regard them.
Luyinda and Oyancha shared insights into the type of capital, understanding the role of fundraising, picking the right investors, persistence & resilience in fundraising, etc., that founders should consider when seeking funding.
Selecting the right capital for your startup
When selecting capital for your startup, it’s important to understand its cost and how it will affect your business in the long run. “All forms of capital have pros and cons so don’t rush. Take time to understand what comes with what and evaluate which one to go with based on your objectives,” said Oyancha. He warned founders to be cautious of the terms set by investors, as desperate founders may find themselves tied down by unfavorable conditions.
Founders can select between equity investment, debt capital, sweat equity, grants, etc., to fund their startups. Oyancha says equity may dilute ownership but can provide the necessary growth capital, whereas debt retains ownership but requires steady cash flows. “Debit is a cheaper and more affordable source of capital for startups in fintech or technology compared to equity,” he said. “In the early stages, grants may be the best option.”
Adding to Oyancha’s remarks, Luyinda said when it comes to raising equity, it is important to think about the long-term effects on ownership. “If a founder raises USD$500,000 (approx. UGX1.8 billion) in exchange for 10% equity, they must consider how this dilution will impact their stake in the company as they grow,” he said.
Luyinda also pointed out that while grants may seem like an easy and “free” form of capital, they come with their challenges. He cautioned that grant funding, while helpful, often requires a long time to mature and may not always align with a company’s focus. Especially in challenging ecosystems like Uganda, where access to capital is limited, founders are often tempted to chase after any available grant, even if it doesn’t fit their core strategy. He said the key is to ensure that the grant aligns with the business’s long-term vision —calling on founders to resist the temptation to pursue every available funding opportunity and instead focus on those that align directly with their goals.
Understanding your role in fundraising
Fundraising is a complex process. “No matter how much support founders receive from transaction advisors or other experts, they must remain at the center of the process,” said Luyinda. He noted that founders must understand how to structure funding and how different funding sources such as debt, equity, grants, etc., impact the business. For instance, understanding cash flow and how debt in different currencies will affect the bottom line is essential for making informed financial decisions.
Picking the right investor
A common mistake many founders make is partnering with investors who do not align with their business model or industry. “It is crucial to seek investors who have experience in your sector,” says Luyinda. An investor unfamiliar with e-commerce will likely fail to grasp important metrics such as customer acquisition cost, retention rates, or lifetime value (LTV). These metrics are essential in evaluating the potential of an e-commerce business. Without this understanding, the investor may undervalue the startup or make unreasonable demands that do not reflect the business’s true worth.
“Choosing the wrong investor can lead to misaligned expectations. A founder must strive to find someone who can recognize the value in their business and negotiate a fair middle ground,” says William Luyinda; CEO of Ezy Agric.
One powerful takeaway from the conversation was the importance of persistence in fundraising. In most cases, the majority of investors founders pitch to will say no, however, Luyinda and Oyancha noted that eventually —they will find an investor who shares the founder’s vision. “From the majority, founders only need one “yes” to move forward,” said Luyinda. “Once that connection is established, the rest of the process becomes much smoother.”
Oyancha also noted that persistence is key —as the process of closing the deal is usually lengthy and can span years. “You need patience, as closing a deal can take years —over three plus years,” Oyancha noted.
Board structure
Another key discussion revolved around the composition of the board. Equity investors often demand to be on the company’s board. Luyinda and Oyancha share a hard-earned lesson: “Not every investor is equipped to serve on a board.” They said many investors may have advanced degrees or business credentials, but they might lack the practical experience to build the startup from the ground up. This lack of understanding can create friction.
To avoid these challenges, they said it is vital to ensure that at least one member of the board has real entrepreneurial experience. “Having a former founder or experienced business leader on the board can help bridge the gap between the entrepreneur’s vision and the investor’s expectations,” Luyinda explained. “This individual can empathize with the challenges of scaling a business, hiring a team, and implementing complex processes, all while providing valuable insights that align with the founder and investor perspectives.”
Fundraising is an art that requires strategy, patience, and an intimate understanding of both the business and the investor landscape. Founders must take the time to ensure they are speaking to the right investors, structuring deals that make sense for their long-term vision, and building a board that can provide both guidance and empathy. By focusing on these key areas, they can navigate the fundraising journey more effectively and position their businesses for long-term success.
