Leapfrog Ventures invests trust – and capital – in two NTF IV Uganda start-ups
One of the biggest obstacles that African enterprises face is accessing finance; banks typically demand such high collateral and steep interest rates that most small enterprises simply cannot afford to borrow. Many turn to loans from friends and family, others simply watch their companies stagnate – or worse – go bust.
Leapfrog Ventures has enabled two Ugandan startups to sidestep that problem. The Tokyo-based venture capital firm has injected $100,000 into Xente and $40,000 in Swipe2pay – investments the two fintech companies plan to use to improve their products and enter new African markets.
Xente and Swipe2pay are both beneficiaries of the Netherlands Trust Fund IV (NTF IV) project, a partnership between the International Trade Centre (ITC) and the Dutch Centre for the Promotion of Imports from developing countries (CBI). Their involvement with the project was one reason Leapfrog Venture decided to invest in the two companies, says Swipe2pay chief executive and founder Solomon Kitumba.
‘Being part of NTF IV built more confidence for the investor – that we were associated with a trusted organization and not going it alone,’ he explained. ‘This helped build trust and confidence for him, so NTF IV then arranged for us to meet him formally. This is where we were meant to do our magic and yes, he was hooked.’
Xente also learned about an opportunity to pitch to Leapfrog Ventures founder Takuma Terakobu through NTF IV, which then facilitated the meeting, says Allan Rwakatunga, the Ugandan company’s CEO. Over two days, he and his cofounders met with Terakobu, who ‘said he liked the business and the team and he wanted to invest’, Rwakatunga recalls, adding: ‘We do have a well-balanced and diverse team.’
Connecting with Xente and Swipe2pay enabled Leapfrog Ventures to make its first investments in Uganda, Terakobu says. ‘If NTF IV had not invited me to Kampala, I couldn't have met them and wouldn’t have found an opportunity to invest in Uganda yet,’ he said. Leapfrog Ventures, whose African activities are based in Kigali, Rwanda, has invested in nine seed-stage start-ups in Eastern Africa since launching its $4.5 million venture capital fund in July. ‘My plan is to invest in 200 start-ups in three years in the whole of Africa,’ Terakobu said.
Targeting Africa-specific challenges
Why, in particular, did he decide to invest in Xente and Swipe2pay? ‘Their business is providing high-quality solutions to the challenges facing growth industries in Africa,’ Terakobu explained. ‘I feel that special business is born in Africa. There are social problems in advanced countries like Japan due to too much economic growth, and in Africa, I expect to see another world we could not realize.’
Indeed, Swipe2pay’s Kitumba says Leapfrog Ventures especially liked the fact that ‘we make it easy for small businesses to get access to microloans using their business performance data, and not going through the conventional way of giving up a lot in collateral. It’s a problem that is so close to us that we believe should be solved; many small businesses across the continent are still operating below their full potential because of limited access to meaningful finance. They do not fit into the business models of the incumbents (banks and microfinance institutions), because of their informal way of operation.’
The investment in Swipe2pay – the first it has obtained – will underpin the company’s expansion plans, Kitumba says. ‘With this amount of investment, we will be able push the product from the few hundreds of SMEs using it right now to the next thousands,’ he explained. ‘We will be using most of the investment on technology in form of computing and cloud services to make sure we can scale into new markets.’
Swipe2pay plans to launch into Rwanda and Kenya by mid-2019, according to Kitumba. ‘We are also already growing the team, to help speed up the development and management process,’ he added.
Xente, which raised money from an angel investor earlier this year, also has ambitious plans to boost customer numbers both in Uganda and in four other African markets, says Rwakatunga. ‘We will put the investment towards improving the product to meet those ambitions as well as customer acquisition,’ he said. ‘Our vision is to bring Africa and African customers into the new digital and cashless economy.’
NTF IV, which runs to June 2021, works at different levels of engagement with more than 100 micro, small and medium-sized enterprises in Uganda – more than half of which are start-up. Through the project, ITC seeks to address wider challenges facing the country’s nascent tech industry, including scaling up its competitiveness.