In this interview, Salum Awadh, Founder of the Tanzania Venture Capital Network, explains the reasons for the creation of the network, its scope of work and activities as well as the challenges and opportunities met by Venture Capital industry in Tanzania.
Q1. What is the Tanzania Venture Capital Network and what prompted you to set it up?
Salum Awadh (SA): Tanzania Venture Capital Network is a not-for-profit initiative established to promote the growth and development of private equity and venture capital as alternative sources of capital for businesses in Tanzania. Despite having more than 50 banks, Small and Medium-sized enterprises have continued to struggle access funding from banks, and when that happens, finance is expensive and selective, leaving out the so-called risky projects but highly potential, that Private Equity / Venture Capital (PE/VC) firms might be attracted.
Q2. Who are the current members, founders?
SA: The network is currently not members-based, it was founded by SSC Consulting, a an advisory firm in Tanzania which works with different VC firms globally as local intermediary in Tanzania and in the region. But the network works closely with business associations, financial services providers, development partners, and interested individuals.
Q3. What does the network do? The latest activity?
SA: The network focuses on five (5) main areas of operation namely Training, Raising awareness, Organizing industry events, Networking, Publishing/Disseminating industry publications, and Advocacy. Our most recent activity was to launch a guide for raising capital from PE/VC, to help SMEs understand the processes and implications of using VC money.
Q4. What does the network try to achieve? Which problem are you solving?
SA: The network seeks to bridge the access to finance gap for SMEs in Tanzania by creating an enabling environment for VCs to direct their capital here, and to build their capacity to ensure that our local SMEs are VC-compliant.
Q5. What is the overall environment of access to finance in Tanzania and how can venture capital serve as an alternative?
SA: The latest global competitiveness report ranks access to finance as the most problematic area to do business in Tanzania. This is coupled with high interest rates charged by both banks and microfinance institutions, leaving many SMEs’ growth stunted. We believe venture capital, as patient and risky capital, can unlock the potential of SMEs.
Q6. Where is there low uptake of venture capital financing in Tanzania?
SA: From our perspective, it is more on the demand side. I do not see as many issues on the supply side because there is about USD 1.4bn-worth of dry powder ‘marketable securities’ from VC sitting in the region waiting for potential projects. Most local companies are family-owned and others are not ready for VC dilution, while others do not understand how VC works in the first place.
Q7. What are legal and regulatory issues that need to be addressed to unlock the VC potential in Tanzania?
SA: Our main focus on the legal and regulatory framework is twofold, firstly it is to advocate for changes in the company registration law to allow for limited partnership structure, necessary for setting up a VC fund locally, as all VC/PE firms except for those operating in Tanzania are off-domiciled. Secondly, we also want pension funds be allowed to invest in venture capital as asset class.
Q8. How do you work with local pension funds, and what are the barriers to mobilizing local savings/resources for venture capital projects in Tanzania?
SA: Currently the investment regulations allow pension funds to invest in unlisted equity through ordinary and preference shares, this would allow for pension funds to invest in PE asset class, but the same regulations in section 18 categorically prohibit investment in venture capital as asset class. This is an area, once resolved, we can work closely with pension funds as potential institutional investors in supporting local VC funds.
Q9. How has the VC regulation evolved over time in Tanzania?
SA: There has not been any systematic or rather; documented efforts in advocating for the introduction of regulations for VC, which currently do not exist.
Q10. What is your experience in financing and venture capital in the east African region?
SA: The venture capital network is an initiative of SSC Consulting, a consulting firm that has been operating for 7 years now, having raised more than USD 400m capital across different sectors.
Salum Awadh is is a strategy and financial consultant based in Tanzania, covering the East African region, with about seven (7) years of experience in providing advisory services in the areas of business development, management, finance, investment, transaction advises, private equity and venture capital, deal structuring, project management, risk management, socio-economic development, research and training. He has served a diverse of clients from the government institutions, corporate, international investors, SMEs and not-for-profit institutions in a variety of sectors in Tanzania. Salum also works as a transaction advisor helping Tanzanian companies to raise both equity and debt from regional and global private equity and venture capital firms, advises on divestments, deal structuring, and M&A. He holds an MBA from the University of Dar es Salaam, certification in Chartered International Investment Analyst, and he is also UNCTAD-certified as a trainer in entrepreneurship.