Not all investments are created equal. The reason for starting with leather bags is that Uganda has distinct advantages in manufacturing the product that can be replicated beyond our factory walls. It is not just about Venture being successful but that other entrepreneurs in Uganda can be inspired to follow our blueprint. For example, as we invest in our tannery we can sell higher quality and less expensive finished leather into the local market. This gives the ability of small manufactures in Uganda to better compete against cheap imports from Asia.
When it comes to our investments the finances are important but our goal is to maximize the benefit to Uganda because that is what our customers want. Currently, US investors in Africa require a 30% return which means the investments need to be large ones. If Venture was to invest in these same investments we would only be replacing other investors money rather than expanding the total investment into Africa. Furthermore, these investments are focused on large businesses which are very difficult for the average Ugandan or African to replicate.
We want to focus on figuring out how to invest in the "Missing Middle". Small and Medium sized Enterprises. (SMEs)
A World Bank report estimates that SMEs account for 50% of GDP and over 60% of employment in developed economies, but in low-income countries they are less than half of that: 30% of employment and 17% of GDP. Very few options exist to SMEs in Africa. Microfinance and other offerings by charities exist for micro entrepreneurs and formal financing exists for large companies but no one is serving SMEs. Historically, SMEs are the focal point of innovation, job creation, and wealth creation but they are being overlooked.
At Venture, we have seen time and time again how the rules are set up to favor large and established firms. We want to focus on investing in small businesses because Uganda's potential will never be fully realized until they grow. The challenge is that we will likely lose money with these investments. It isn't that these businesses aren't profitable but that the cost to find these businesses is high. This is the balance we have to strike. Benefit for Uganda versus any added cost our customers have to help us pay to reach them.
As we grow and scale we want to figure out how to scale what is currently unscalable. How do we efficiently get capital to SMEs? We intend to work the few actors on the ground who are already in this space but we will be in the trenches on the ground trying to figure this out ourselves. And risking our profit in the process.
Your purchases allow us to take risks that others aren't willing to. In our model we have already covered our costs with the leather bags and therefore can devote the rest of our resources to figuring out this problem. It is entirely conceivable that we would be more than happy with a break even or negative return on our portfolio because again we already have our costs covered through the leather bags we sell to you.
Venture exists to tap into our collective desire to make the world a better place. If being willing to lose money on our investments in Uganda and Africa will create in return greater brand equity and trust from our customers then that is a deal that makes sense for us. The faster our customers will allow us to fail and learn the better off small businesses in Uganda will be.