Tanzanian innovators are tirelessly working to develop disruptive and scalable products and services to improve the lives of the country’s growing population, create jobs, and foster local economic development. However, early-stage entrepreneurs often face challenges, such as a lack of business expertise, insufficient training, limited networking opportunities, and scarce capital for growth.

At the Startup Investors Tradeshow held in Dar es Salaam in August 2023, Edgar Chrisostome Masatu, an Innovations Analyst at UNCDF, shared valuable insights. Drawing on his experience of facilitating $4.8 million in investments for Tanzanian innovators, Masatu discussed strategies that Tanzanian startups, especially those in the fintech sector, can employ to enhance their chances of securing institutional funding from venture capital and private equity funds:

• Team Diversity: Many fintechs startups are limited by founding teams that primarily possess similar technical skillsets, which can hinder progress in areas like business development. An ideal founding team would consist of up to three members with a balance of at least two different skillsets, such as technical expertise and business or financial management.
• Problem-Solution Fit: Fintechs often face challenges in clearly articulating both the problems they are targeting and the impact their solutions could have. Utilizing market studies from reliable sources like the Tanzania Bureau of Statistics can provide data to validate the scale of the problem and the potential market. In cases where such data is not readily available, startup subsector associations could undertake industry studies, sharing the cost among members, to benefit the entire value chain.
• Customer Value: Fintechs should continually track and communicate the specific value their customers find in their solutions to remain relevant in the market.
• Product Development and Roadmap: Fintechs often fail to explain the evolution of their solutions, the assumptions behind each iteration, and the future commercialization roadmap. Clear documentation is crucial for understanding scalability.
• Market Segmentation and Financial Models: Many fintechs struggle to define their target markets, understand consumer behavior, and articulate their financial models, as well as their paths to profitability.

We need to address these challenges to support the growth of fintechs and startups in Tanzania. Here are some proposed solutions:

• Angel Investment: Encourage local angel investors to provide patient capital to startups in their early stages. This can be achieved through targeted training and information programs for potential angel investors. UNCDF in Tanzania is in the process of identifying a local hub to implement a Tanzania Angel Investor Academy program. This will equip future angel investors with the necessary knowledge and skills to make informed investment decisions and spur further interest in developing local financing options for Tanzanian startups. Angels are key in driving startup growth and preparing them for institutional investment.
• Stock Markets: While the Dar es Salaam Stock Exchange's Enterprise Growth Market (EGM) offers an option for startups, its complexity and associated listing costs often act as deterrent. Alternative funding methods present a viable solution to this challenge. These include grants, loans, and equity financing from a diverse array of stakeholders such as grant competitions, government agencies, angel investors, business incubators and accelerators, venture capital firms, pension funds, crowdfunding platforms, banks and financial institutions, corporate venture arms, nonprofit impact funds, family foundations, grant making foundations, peer –to- peer lending platforms, online lenders, and industry associations.
• Investment Readiness Support: It is important to establish robust support systems to enhance the appeal of Tanzanian startups to institutional funders. Local Entrepreneur Support Organizations play a crucial role in building capacity. Programs like Smart Lab’s Vodacom Digital Accelerator, Anza’s Investment Readiness Accelerator for Social Entreprises in Tanzania, the Westerwelle Entrepreneurship Programme: East Africa, and the Feminist Entrepreneurs Growing Green Economies (FEGGE) programme by Mennonite Development Agency (MEDA) as well as PesaTech Accelerator, Forward Accelerator and Ennovate, are some of local initiatives championing support for Tanzania startups.
• Digital Economic Zones: Another solution worth exploring is the creation of digital economic zones that feature flexible regulatory frameworks to attract investments, generate employment opportunities, and foster entrepreneurship in the digital economy. Could Silicon Zanzibar and Silicon Dar es Salaam be the first such zones in Africa? In my view, this is quite possible, especially if these zones are designed to be inclusive. Creating a favourable business environment for both local and foreign investors, as well as for local and international technology startups, could be the key to their success
• Policy and Government Initiatives: Tanzanian government agencies are making noteworthy efforts to understand and support the startup ecosystem, a positive trend for the business environment. Specifically, the Commission for Science and Technology (COSTECH) through its MAKISATU program, the Capital Markets and Securities Authority (CMSA) via crowdfunding regulation, the Information and Communications Technology Commission (ICTC), and the Bank of Tanzania with its regulatory sandbox are all contributing to a more conducive business climate.
• Impact Investing: Finally, it is key to encourage impact investing to support innovative ventures that address national development goals, and the Sustainable Development Goals (SDGs) Donor funding can play a pivotal role in laying the foundation for institutional investors. Examples include initiatives such as the Funguo Programme funded by the European Union, the Daraja Impact Fund by the Swiss Agency for Development and Cooperation (SDC), the Develop PPP initiative by Germany, the National Fund for Science and Technology (NAFTA), NORAD, and the Next innovation with Japan (NINJA) program to name a few.

In conclusion, we remain optimistic that through contributions to the Sustainable Development Goals (SDGs), Tanzanians will gain equitable access to life-improving products and services in the future. Startups, particularly those in the fintech sector, are crucial for realizing this vision. With the appropriate support, education, and financial backing, we can pave the way for a brighter, more inclusive digital future for the next generation of Tanzanians, leaving no one behind.