Interview With Jonathan Ntege Lubwama of Benue Capital

This interview was conducted and contributed to TechCabal by Luke Sheehan, chief editor and copywriter at CrossFund, an investor collective focused on emerging markets.

Jonathan Ntege Lubwama is a young Ugandan with a challenging mission to build Ugandan startups to maturity. During a nine-month gap before starting university, and just a few years before the COVID crisis, he started reading about tech startups. Around the time he commenced his own studies, he founded a food delivery company for students. As with many first tries, it crashed after initial success, but he was not deterred. He moved on to his next idea: online real estate. That play received a grant but was impacted by the COVID lockdowns. He moved on from that, too, joining Kampala’s Digest Africa as a writer and editor. The journalism skills he developed in media would teach him how to carry out due diligence with founding teams. Lubwama’s focus now is building Benue Capital, which launched on March 31 this year. Benue is the first native venture capital (VC) firm in Uganda.

What’s exciting in Uganda as you launch Benue Capital?

Everyone understands tech in Africa as Kenya, Nigeria, South Africa, Egypt, with a second tier perhaps containing Ghana, Tunisia, and Senegal—Uganda might be in the third tier. Many people are building, and that is what is exciting here. The difficulty is that the quality of what they are building may not always be the best. That keeps the typical VC money out.

What do you do at Benue that’s different?

With Benue, we are not building like a typical VC. We invest like a venture studio; we do venture building with startups, and that’s a process that can take two to three years. We write smaller cheques to the companies, some of them pre-revenue, streamlining and helping them along the way, checking the metrics as we go, and checking the market. We help them make key hires, help with the legal side and the finances. We operate almost like a co-founder. After this process, the founders are in a better condition to go in front of the bigger VCs operating in the region to receive follow-on funding.

What do startups most need mentorship with? Marketing, financing, coding?

Am I allowed to say, “everything”? Some companies have great ideas but need help with everything. Others have a great product but can’t find users. Some have become well-known in the market but their product could be better.

It sounds like, in some cases, you are truly going on the full journey with them.

There have been some startups where the idea was there, but once we realised how big the problem set they were solving was, it was like starting from scratch. In those cases, we do take quite a lot of equity. Some of them are further along the journey already.

Ugandan companies like Tugende and Asaak seem to focus on building financial opportunities and connectivity for entrepreneurs and have had success in fundraising in recent years. We already hear a great deal about the untapped potential of African SMEs.

Food delivery is a trend that you yourself have tried. Can you highlight another trend?

Solving the problem of credit is certainly a big one. A related one I would mention is the motorcycle taxi industry, the boda-boda taxis. I heard that, before, it makes up maybe 3–6% of Kampala’s GDP, which is a huge amount. A lot of people cannot afford to set up a company on their own in this area, but Tugende and Asaak help with that. Another name of significance is YC-backed fintech Numida (YC W22), which raised $12.3 million last year and perhaps $15 million in its lifetime. It offers loans to SMEs—obviously these companies are growing because credit is a problem. Solar energy is also receiving VC backing.

Something to note is that a lot of companies receiving backing are led by expatriates, a situation one also sees even in Kenya; this highlights to me how absent local capital is.

One sees companies raising tens of millions of dollars. They are not getting it from Uganda.

They fly to New York, to Europe to raise it, even Japan. Those with the social capital or network to make it work are the ones getting ahead.

Is there a specific problem you’d like to see solved?

Proptech is interesting and underfunded. In the background, Uganda has a very big housing deficit. People often are forced to remain living with their parents [for longer than desirable]. If proptech can help move this along, then it’s a huge opportunity. I started one before (Twekobe) which linked property seekers to developers/agents/brokers. With no official qualification for real estate agents in Uganda, we built one internally, and a system to speed up house-hunting with an app.

Since after we tried to solve these problems, we have not seen people take them on; people are building fintech and e-commerce companies, not proptech.

It seems to be a problem in many parts of Africa, this difficulty in finding a home?

It is the same in Nigeria, in Kenya. It’s everywhere. I’m surprised more people aren’t giving it attention.

What will be the biggest challenge as you move forward with Benue Capital?

I think simply showing people what venture capital is. Most people have a “grant-funding mentality” that comes from our existing system. The “tough love” mentality from the VC side, the “move fast” mentality is a new one for them. For some founders, I get this across by saying, “When you raise with us, you are competing with Kenyan startups, Nigerian startups.” As the investor I need to make the best returns, and this is not a grant. As we face an economic downturn, it’s even more important. Some founders have never mastered a term sheet, have barely a revenue of $2K but want to raise $500K.

As you look around East Africa, what qualities are you looking for in founders?

We want to know if they understand the problem they want to solve. We can always work with that. Next, if the solution can be scaled, can it work in Rwanda, Tanzania?

We’ve heard before that finding the right product-market fit can be tricky in Africa. Do you see that changing in the future?

It’s a very, very big problem in Africa. So, you can provide a product in the market and maybe you reach 1,000 users. But now comes scaling it: how can you get to 5,000 or 10,000? I can say that it takes a founder actually building to find that fit. Once you make the first 1,000, where is the 5,000, the 10,000-user mark? And if you can’t find it, can you pivot? Can you try to use the data you’ve collected? You don’t have to have everything working perfectly from the get-go. Look at Jumia Group which gathered enormous capital and expanded—after ten years it still faced struggles.

In Africa it is very tough to get a product from the early adopters to regular people.

You simply have to keep building.

An experienced founder named Nadayar Enegesi, whose Eden Life Inc is raising with CrossFund, has a plan to create a whole lifestyle app for Nigerians. But the plan started out with a simpler route to customers: creating custom, high-quality meals.

I think that is one of the best ways, finding a small market fit, and then a bigger market after that.

Can you tell a story about one of these teams building something unique?

In Uganda, you cannot use a mobile phone at all while in school, that is primary and high school. This is because most schools forbid their use, and a fair number of students here attend boarding school. All the financial inclusion shifts have been in favour of adults and a section of the population is left out. One day, I walked into a pitch for a company called Kawu and I realised that they are proposing something simple: mobile money for kids using an NFC card. Your parent can send you money through an app and you can pay with that—and limit and monitor spending. I met them a year later and they had reached 10,000 users. We talked to them again last week. It would be curious to see what happens when their loyal users graduate from high school—how they can keep engaging them.

How long will it take Uganda to catch up with Kenya, Nigeria and Rwanda?

It would take a highly optimistic person to think we could catch up with them. In the case of Rwanda, the government is really trying to get behind the ecosystem. In Uganda, it is a bunch of young people building things, and that is where the energy is coming from. Consider also that founders who operate their whole business here still have to register abroad in Delaware, Ireland, Mauritius, wherever, as the laws [in Uganda] don’t support VC funding. I really want to stay and contribute, despite the challenges.

Is there something that people get wrong about Africa?

One thing that people, especially investors, don’t get is the African context. At one stage, VCs were investing in companies that seemed to be carbon copies of big companies elsewhere—an “African eBay”, an “African Uber”. Then later they realised you can’t always transplant these concepts. How do you have an African Amazon—or even Amazon itself localised here—when you lack the payment and logistics? In Uganda, we don’t have a standard address system. You more or less describe where you are. Imagine trying to explain that to anyone trying to dispatch something from New York to you.

That’s the African context, asking who needs what and what you can genuinely get to them. I sometimes recommend to people, “Build a USSD code, not an app.” I also remember talking with Maxime Dieudonné, the founder of SafeBoda, and he told me how you can’t innovate so much in Africa, but rather you should focus on mirroring the offline process with your online solution. It helps with adoption. The market is not advanced enough to adopt complex solutions that bring a whole new experience [to customers].

How do we make sure we are funding actual solutions to actual problems? That’s the key.