Startup/SME Finance in Uganda: Where & How to Get the Money, Where & How to Invest It, Part 3


30th September, 2019

By Julius Masaba

This is the last of three (3) parts. In part 1, we concluded knowing what sources of finance we can take advantage of, highlighted in detail about the places where to find them. In part 2, we looked at additional sources of startup/SME finance, some examples and a few case studies.

In this last part, we shall look at investment avenues for a startup/SME to ensure regular cash inflow and other things related to corporate governance for any business with NSSF as a case study. This could also help you as an individual, as you will learn about risk and investments.

We left after telling you how it’s not advisable to have or hold all our investments in real estate form only.

In such cases, an asset that you bought cheaply five (5) years ago at USD100,000 and hope to sell highly may end up fetching a very low value (factor in depreciation). The end result is either selling it off at a market value, which is a fair sale value; or at a price you didn’t want or were not expected to sell at – the forced value.

Mortgages are better because mortgages appreciate in value. Investing 100% in assets is bad for business and for you! Distribute your portfolio while diversifying your investment risk. I would advise you to use a matrix, like one below.


Let’s look at the matrix above.

A typical investment plan puts into consideration two (2) things;

  • Risk
  • Return

The higher the risk, the higher the expected return and vice versa. Ideally, investments should be distributed among Real Estate, Fixed Incomes and Equities plus others (of your preference) depending on the risk exposure and return expected.

In Quadrant A, 7% should be investment in real estate because risk is too high yet the return is usually low. 75% should be investment in fixed income sources (because income is constant for a given period of time); and both risk and return are very low.

Most ordinary people fall in Quadrant B. Quadrant D is the most desirable. Reason being, risk and return are both high; and for a longer term/future.

You risk by buying shares for a long-term reward that will most likely appreciate or increase in value since there is at least a time when the price or value of a share will be raised due to good performance as time goes on. Investing in shares will also benefit your children, grandchildren and great grandchildren.

Be a Rockefeller of some sort.

Basing on the same matrix, it’s also applicable to NSSF. The social security fund diversifies its investment as 5% in real estate talk of Workers House ….., 70% in fixed income e.g. in fixed bank deposits; and 25% in equities (mostly USE listed companies). You should be aware that NSSF has huge shares in UMEME – a power distribution company and others. In real estate, yes but few. These are just properties it bought and those it owns. It’s also constructing one opposite French Embassy.

Properties are so erratic.

Cryptocurrencies (Bitcoins, etc.) are another emerging investment avenue. However, I don’t recommended them since they’re not regulated. They fall under real estate e.g. Bitcoins. They’re basically Alternative Assets. What I know and what you should also know is that such assets have a latent rising price or value but are highly volatile. Be cautious!

So aside from what we have seen above, entrepreneurs and startup/young business owners need to know the process or cycle of business finance. I call this ‘the flow of startup financing’. It’s like this below;

Inner circle/3Fs > Boot strapping > Grants/Competitions > VCs > P.E > CMA (USE)/Insurance Policies

Simply explained, bootstrapping means living/running on a shoestring budget, meagre resources – sometimes using your own funds on a daily basis to run business activities. Inner circle/3Fs are friends, family and fools, people from whom you borrow to support your startup.

Usually some people in the inner circle are promised a stake in the business – with no basis, though it’s risky. If you’re thinking of that, first go and read the book ‘Slicing Pie’ by Moyer. Grants are free money given by NGOs and other entities to startups in certain sectors. Competitions offer cash rewards best on best pitched ideas.

VCs are individuals formed into a firm that gives finance to startups and businesses. They can be impact investors too, usually giving amounts from USD10,000,000 and above. They’re different from angel investors since these usually give amounts less than USD10,000,000 – can be from USD10,000 above.  They can also be informal investments.

Capital markets are for listing companies by having IPOs, getting insurance policies where financing and investment portfolios can be diversified. To list on the capital markets, you need to fulfill key stringent requirements such as corporate governance – how strong is it?

NSSF, being a social security body has such a strong corporate governance structure and has built its efficiency over the years, rebranded and made other few changes along the way. Most times government/state parastatals operate with a very bad image because they lack a business approach to managing affairs and resources for profitability.

When new management too over NSSF, first thing to be done was changing the logo and then other internal systems plus the human resource. Currently, NSSF has about 2.2 million members as of 2018 up from about 1.0 million, has about 16 or 17 branches down from 25 previously.

It’s also in possession of about 30 vehicles down from 100 previously and boosts of about 450 staff members now down from about 800 – a reduction of about a half. It currently has its transactions done electronically (about 60% e-Transactions) and 40% cash-based. Now that’s what efficiency is all about.

Now back to part 1 of this article (those of you who have been following), we mentioned something like ‘Purpose of a Business’ and these being;

  • A solution for the customer
  • What are you giving back to the customer
  • What are you giving back to society

Last year around mid-November, NSSF decided to give back to society by launching a fund worth USD20,000 available for any promising startup, entrepreneur or young business with an extra-ordinary idea or solution for their customers or society.

The investment should be challenging, and you are required to make a reasonable turnover by the end of year one.

I told you, money follows ideas. So, go get that money; and like Nike says, just do it!

NB: This article has some excerpts from a lecture to entrepreneurs by NSSF MD, Richard Byarugaba at the Innovation Village, 2018.

NB: This article first appeared on Medium, by the same author. Click here

About the Writer

Julius Masaba is a private investment researcher and business consultant. He also works with Ablestate, https://www.theablestate.com/ and a WordPress writer/blogger on startups, entrepreneurship, business and finance. He loves tech. Visit https://consultmasaba.com/.