Wanted: a local partner

In short, my mission is to create an infrastructure that makes social investments (with financial returns) in small and medium enterprises in low-income countries possible. In this concept local presence (starting with Uganda) is essential. I need a local partner (could be an organization or person) that can provide this infrastructure. Finding this partner is my first priority in Uganda and in this blog I will tell about my quest for the best partner …

What to look for in the local partner? Investing is not simple. It is a complicated discipline and the investment process followed by most professional investors contains technical steps. Generally, the investment process is directed to increasing return for the investor and declining risks associated with an investment. Assuring the right investment decision is made. And assuring the investments are managed over their lifetime. In most cases, the next process steps are followed to do and manage an investment:
- Sourcing of investment opportunities and effective first screening and selection. There are many companies and entrepreneurs that look for an investor. Only a few percent can be considered. Effective sourcing and efficient selection is needed to save a lot of time.
- Due diligence: a very thorough investigation into the background of the entrepreneur and all aspects of the business and business plan. This should provide the information for a solid investment decision;
- Valuation: what is the enterprise worth before and after investment. Valuation of the business is especially needed in the case of finance (the investor is becoming a shareholder) to value the input of the investor;
- Deal structuring and deal closing: there are many ways to structure the deal: equity, dept, mezzanine, or combinations and many aspects to take in consideration like ensuring commitment of the entrepreneur, staging of the financial investments, appropriately assuring the interests of the investor, taxes and investment incentives. This all should be legally closed;
- Control of appropriate financial administration and accounting procedures: Accurate financial information is the primary concern of every investor to understand the performance of his investment. Especially in Africa, where weak financial management of small and medium enterprises is often an important cause for bankruptcy and the risk of fraud and theft are significant;
- Management of the investment: One of the success factors of an investment is the short lines and appropriate involvement of the investor and his investment. Because the majority of our investors do not live in Uganda (physical distance) and do not have the time to travel and visit their investments very regular the service should be provided to govern and monitor the investment on behalf of the investor.

It will be clear that knowledge and experience with the investment process is required. Besides, there are also some important personal characteristics for the partner. Personal integrity is the most important. But to ensure the scalability of the concept also management capabilities, networking capabilities, strong work ethics, responsibility, determination, drive and energy and commitment to this project are important. Based on this a created a profile. The search can start…

How to search for a partner? Somewhat naïf I started with a search on the internet. Googling words like “equity investment”, “investment services” and Kampala. Internet is not a very effective search mechanism. Partly because the performance of the local Internet providers are not impressive. Loading pages takes a lot of time. But more importantly: most business do not have a website.

It required a change of strategy: networking. This indirect search by telling everybody interested about my ambition and benaderen local parties that can advise on organization and persons that could be partners is much more rewarding. I talked with business associations (association for management consultants and the association of accountants and auditors), the Uganda Investment Authority, Directors of banks and providers of services to entrepreneurs. Another option, using the search services of a headhunter, I did reject because this is expensive.

The results… So far I talked with around 20 potential partners. Both organizations and individuals. I think my search is very thoroughly, because some recommended organizations or persons that I already talked to, indicating the circle of potential partners is small. The knowledge on equity investments is not widespread. Although there are some strong potential counterparts, nobody fulfills the requirements in my profile. I am positively sure that there is no organization in Uganda with the skills to assist an investor in making investments in small and medium sized enterprises. Maybe when I look harder, I can find persons more qualified. But I have decided to go for a partnership with one of the persons I did find (Keith) and build the infrastructure I need with him.

Keith is a high-flyer. He worked for Shell and did an MBA in South Africa. After that he was responsible for parastetals (governmental enterprises not yet privatized) and did have several board functions. After that he joined the Ugandan pension fund as chief investment manager where he was responsible for investing millions in US dollars.

We are going to establish the first private equity management firm in Uganda. This is a gap in the market. The interest of investing in small and medium enterprises in low-income countries is on the rise. For Google.org (the philanthropic venture of Google) stimulating the investments in small and medium enterprises is one of the five pillars of their policy. East Africa is one of their target areas. In many African countries with somewhat more developed financial markets there are several organizations providing (equity) investment services. Not having one in Uganda is a threshold for foreign (but also resident) investors to invest in small and medium enterprises. It will be an Ugandan based company. Keith will be responsible for the delivery of the services. I will be responsible for searching foreign (social) investors. And the company will be the vehicle of my mission: to provide a reliable infrastructure that give investors the confidence that is needed for investments oversea.

Presently we are aligning our vision for the future of this company, jointly developing a business plan and negotiating the terms of the partnership. I am also going to do a thorough reference research on Keith. I think he is a highly integer person, but it will help me to sell him if I do a detailed background check. After all, this is one of the services we are going to provide to the investors…