Tugende, an asset-financing company in Uganda, is betting on a target group that many would dare not - Boda Boda drivers. Majority of them are the so-called bottom of the pyramid, informal and have no credit history.
Yet, somehow, Michael Wilkerson and his team have managed to prove everyone wrong. In fact, after doing that, they are now considering diversifying into leasing cabs.
Tugende started as a side hustle for Michael and his housemate Matt Brown. But now, it is one of the few companies to point at in Uganda’s still nascent fintech scene.
In an interview, Michael delved into their history, what they are optimizing for, and future plans.
The beginning
Surprisingly, given Tugende is a finance company, Michael began as a journalist. He did an internship at the Daily Monitor newspaper in 2006, when he was 19. It was there that he ended up meeting Andrew Mwenda who later became their first angel investor.
“At the time [i was at Daily Monitor], Andrew Mwenda was the political editor of the Monitor and the host of KFM’s Hot Seat,” Michael said. The two instantly became friends as Michael was looking for journalists to learn from.
But, the relationship was two way. “I was also studying at Stanford University and Andrew was coming for a fellowship the following year,” Michael says. So, in turn, he also helped Mwenda to make preparations for his stay at Stanford.
Michael left Uganda after his internship ended but soon returned. “I fell in love with Uganda and kept coming back,” he says. This time around, Mwenda had left the Daily Monitor and started his own publication, The Independent Magazine. In 2008, Michael did an internship at the Independent Magazine.
After finishing his undergraduate degree, Michael returned for a year on a Fulbright research scholarship in 2009. That is when they started experimenting with the leasing of boda-bodas. “We started by just investing in some of our favorite drivers,” Michael says.
Turning a side hustle into a business
Initially, the whole thing started as a side project. Michael and his housemate, Matt Brown, who now sits on Tugende’s board, were only funding a few boda-boda drivers that they knew. “I bought 3 motorcycles in November 2009, and helped some of our favorite drivers.”.
He says that the interest stemmed from the fact that the drivers they knew who owned the boda-bodas were able to make big gains. “One of them had been able to own a motorcycle instead of renting,” he said, “which really changed his life.”
With no business plan or model, Michael and Matt decided to bet on people that they did not know beyond being their day to day get-around-town drivers. “[We] just knew that these guys were taking all the risk, therefore should be able to be their own boss,” Michael talks of how they arrived at the decision.
Andrew Mwenda: first angel investor
In June 2010, close to a year since they started, Michael caught up with Andrew Mwenda again. “I told him how well it was working,” he says. Adding that Mwenda “was really excited and told us to scale it up.”
However, the duo - Matt and Michael - had no more capital available as they had used their savings to start. Even more, they were reinvesting any income they were generated.
Luckily enough, they managed to convince Mwenda to chip in, though on a condition. “He agreed to invest but after registering the company properly,” says Michael. “That's when we incorporated and the first incorporation certificate is dated October 2010 as ‘Own your own Boda Limited’.”
That name has to go!
In 2012, which was three years into running the company and two years after incorporating, the business was growing, very fast. Michael, therefore, decided to make it a full time growing business. Andrew also influenced the decision on focusing on the business.
“He was the person who said that ‘you must not treat this just as a side project, you should figure out how to scale this up,” Michael said.
In addition to that, they also started looking for money to grow.
However, Michael says that one insignificant thing ---the original name, Own Your Own Boda--- seemed to be a deterring factor in raising funds. “It just confused people,” he said. They thus decided to change it to something easily understandable. Tugende Limited. “It became Tugende at the end of 2012,” Michael says.
“That's why today we say we are 6 years old. Because even though it started at the end of 2009, we were not really treating it as a full-time startup until mid-2012. And again, Tugende went into full effect in late 2012.”
We just need the money
Tugende has raised money at different stages. While many are obsessed about which round they are raising, Michael’s focus is survival. “I am not really good with these sort of categories of rounds,” he says. Adding that they “just did whatever we could to survive and to grow.”
The first round - that many would refer to as the Series Seed - which they started in 2012 closed in 2013. They ended up raising a total of $300,000 in total funding.
Like anyone fundraising, Tugende also had a “really hard time raising” according to Michael. “But we were able to cobble together a lot of small angel investors together and raise the money as soon as we could.”
The seed round included quite a lot of angel investors and Michael says that it was harder to attract attention from larger investors because Tugende were so small. He also adds that “in 2012 in particular, people were not so excited about financial inclusion as they are now or asset finances.”
Convertible Debt
“There were two things that were different for us than for a lot of early-stage companies,” Michael pointed out. First, Tugende was raising both straight debt (loans), and convertible debt which could turn into equity at a later stage.
Secondly, they were also getting investors to commit incrementally. “We did not have to wait until the round was full to receive the cash,” Michael said. They were transparent on terms with everyone who was getting into the round.
“[We told everyone], ‘look we are all going to give you the same terms, so you don't have to worry about people getting a better or worse deal if you don't all sign and send the money on the same day’”, Michael said.
Michael thinks this high-trust approach was complemented by the nature of the business as a social enterprise. “I think it is because we were always impact-focused,” he says. “We were not necessarily raising money from the people who would invest in an early stage tech startup that sells movie tickets, or some other thing where they are hoping to get 100 times their money back.”
“Most of our people knew that there are these guys [Tugende customers] who can own their own business in 19 months and Tugende just needs capital to finance them and it will change their lives. So our investor base is obviously people who cared about the impact. “
In 2014 and 2015, Tugende also raised another $780,000 in funding. “The majority of our fundraising in that round was debt,” Michael notes.
According to him, they primarily need debt to finance their growth. Though at the same time, they are also “very cautious about keeping control of our direction, he says.” “We want to make sure that we control the strategic direction so that we don’t get pushed into something that is profit maximizing at the expense of our customers.”
To show how much they are committed to debt, even the recently concluded $5 million from OPIC was a debt investment.
That said, Michael explains that Tugende will look to raise equity from aligned investors at some point. “I think we will be raising equity in the near future,” he says, “but largely to anchor further debt.” This is because “you reach a certain point where lenders want you to have enough equity in the business to give them a cushion if you run into problems.”
“So we need to raise more equity soon to allow us to go out and ask for bigger ones. So if we continue on the path we are on, we may not need a lot more equity, but we will always need tons of debt.”
Growth and Expansion
Currently, the Tugende team sits at just over 180, but, it is a moving target and the movement is only upwards, averaging close to 100% year on year growth. “I think we closed [last] year with about 120 and I think we closed 2016 with around 60, and 2015 with around 25 or 30,” Michael says.
Whether that trend continues, he says, “will depend on how many branches we add versus how much growth in existing branches,”
To date, Tugende has served over 14,000 clients. That is both active and the alumni who have already taken ownership. However, this number is rapidly going up. “We are getting 100-200 new applications a week,” Michael says.
This demand is coming from all the corners of Uganda which have prompted them to open up offices in different parts of Uganda. Yet, this doesn’t seem to be enough. “We have 9 branches [but] we are looking to speed up that process,” Michael said.
In addition to the Mbuya based headquarters, Tugende has branches in Bukoto (Kampala), Rubaga (Kampala), Mbarara, Lyantonde, Wobulenzi, Mbale, Masaka, Mukono, Igana and, Jinja.
Although there’s growing demand from other East African countries, Michael says that he has his eyes fixated on Uganda. Though, he doesn’t rule out the possibility of expanding to countries like Kenya, Tanzania, Rwanda, and South Sudan.