Congratulations to Tugende, securing US$300,000 from investors! After this milestone they’re moving on to raise their next fundraising round. Tugende is a for-profit social enterprise based in Uganda that invests in responsible motorcycle taxi ‘boda boda’ drivers. Tugende helps them own, rather than rent, the key tool with which they make money: their bike. We had a chance to catch up with Tugende’s co-founder and CEO Michael Wilkerson. Also see some comments from one of their investors, Aaron Pattillo, below. Accredited investors should register on VC4Africa to get access to private documents and full details at Tugende’s venture profile.
What’s the essence of your business plan?
Michael Wilkerson, Tugende: “We discovered that in Kampala’s motorcycle taxi industry, most “boda boda” drivers were renting their motorcycles from landlords, with fixed weekly payments, but no contract and no way to move forward. It’s common to hear stories of drivers losing access to their most important earning tool because the actual owner had to sell it to deal with his or her own problems.
Motorcycle taxis, or boda bodas, are a huge industry in Kampala and many other cities and also rural areas in the developing world. Tugende offers an affordable lease-to-own model where drivers pay 15% more per week than they would if renting, but gain full ownership in 18 months or less. We identify responsible drivers, screen carefully, and add training for safety and customer service.”
What are some of the milestones you have reached to date?
“First let me say that Tugende currently has about 240 active paying customers, and another 55 who have already fully completed their lease and gained ownership. This is a massive surge for us. Because Tugende began with a small group of friends investing personal money, we only bought about 15 motorcycles total in upfront cash, ending in mid 2010. From then until October 2012, we took no outside money, but rather grew by reinvesting our profits. We had very low overhead and very high demand.
When I finished my master’s degree in politics at Oxford, I was somewhat weary of academia and decided that the motorcycle business was far too exciting to get a “real” job. My decision to turn full time to Tugende, along with attending the Unreasonable Institute incubator (a VC4Africa partner) for for-profit social entrepreneurs were the turning points that allowed us to think more seriously about the market for growth and about raising outside funding.
All of Tugende’s founders shared a few passions: not wasting time, individual opportunity and daring to take risks. We founded Tugende not out of an amazing epiphany or confidence this was a massively scalable business – which we now believe it is. We founded it out of a basic belief that everyone deserves a shot to take control of their own future. And we started by investing in a few favorite motorcycle taxi drivers on a purely personal basis.
The need to pay me enough to survive knocked us out of profitability for the first part of 2013, but we became cash flow positive and then profitable in July/August as we put our seed investments into growing our portfolio.”
How did you attract investors?
“Actually the original money from my end came from a lucky investment when I was 13 years old in Marvel Entertainment, the comic book company! I’d just learned about stock markets, bought a small amount, and 10 years later it was worth a fair sum when it was sold to Disney, thanks to the success of all the superhero movies. Naturally I thought investing what felt like a windfall into motorcycles made sense. Our other startup funding came from the savings of my housemate/co-founder Matt Brown, and later our Ugandan mentor Andrew Mwenda, a journalist and entrepreneur. We later experimented with a small line of credit at our local bank but found interest rates were frustratingly high, and went back to slow but steady growth.
In October 2012, after the Unreasonable Institute, we opened a seed round of funding, mainly convertible debt, which we have just completed, at slightly more than $300,000. Because our social impact is so massive – ownership doubles take home income for our customers – we have been able to get a small amount of grant funding as well. We are open to more grants but determined to be financially self-sustainable, and as anyone who has worked with grants can tell you, the paperwork load can be a tough trade-off.”
What kind of investments are you looking for now? And which milestones do you want to reach?
“We’re closing the seed round in December, so we are already very focused on the next round of growth funding. We are on track to hit our target of 10x growth in slightly over a year – from 25 to 250+ active motorcycles – and hope to get from 250 to at least 1000 in 2014.
To do this we’re looking at a larger debt/convertible debt round, hopefully with some flexibility so we can invest further in management and systems. We’ve improved both those areas substantially in 2013, including getting to entirely cashless payment, but at the same time the bulk of our seed money went directly into new motorcycles.
We see incredible potential for growth, in motorcycles alone and in more general asset finance. In a recent registration exercise, the city of Kampala registered 54,000 boda boda riders in the city limits in only 3 weeks. This strongly supports our estimate that there are around 100,000 drivers in metro Kampala, and that’s only those using motorcycles for passengers.
As we include non-taxi drivers who use motorcycles to make money, and look at expanding outside of Kampala, we think that we can easily reach 10,000 or more customers without compromising our quality standards and repayment rates. Neighboring countries like Kenya, especially the city of Kisumu, also show great potential. Last we look forward to looking at other assets self-employed individuals use to make money and might need affordable finance.”
What would be your recommendations to others who are wondering what VC4Africa can do for them?
“Never stop building connections. VC4Africa is a great platform to keep tabs on emerging companies with great products and ideas. But most of all, VC4Africa has helped us gain visibility in a way we expect to help us stay on the radar of investors and believers in African development through business.”
Aaron Pattillo is an angel investor focused on investment opportunities with early-stage and rapidly growing companies. When he learned about Tugende he decided to invest, and now also serves as one of the company’s advisors and board members.
How did you meet Tugende, and why did you decide to invest and join their board?
Aaron Pattillo (angel investor): “I first met Michael when he was a fellow at the Unreasonable Institute in Boulder, Colorado in the summer of 2012. Having spent a bit of time in Kampala myself I was immediately drawn to the opportunity he uncovered amongst the boda drivers in Kampala.
I liked that it was a straightforward rent-to-own business model that proved to be working, albeit on a small scale. It addressed a real problem in a focused market, providing opportunity for asset ownership for boda drivers.
I decided to invest because I saw the potential for the company to scale, the positive impact side of the business for the boda drivers was clear and real, and – perhaps most importantly – I was impressed with the commitment and clear-headed capabilities of Michael, the co-founder and CEO.
In short, I believe Tugende has high potential for impact, profit and scale ability together with a very capable and, importantly, based in-country founder.”
How does Tugende fit in your investment portfolio?
“I’m primarily interested in companies that are already generating revenue from a commercial product or service but have yet to expand and address a larger market. Growth potential, market focus, positive social impact and a leader who thinks big and can focus on details are what’s most important in my investment decisions. Tugende meets these criteria and stands far above many other impact investment opportunities I’ve reviewed.”
For more information on Tugende, see their venture profile on VC4Africa. Only investors with a VC4Africa Pro Account can get access to private documents and other details, and express their interest to invest.