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The Worrying State of Kenya’s Startup Ecosystem

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Flash backwards. The year is 2007. Kenya is the premier country globally to successfully pilot and launch mobile money transfers via (Vodacom) Safaricom’s M-PESA. This could be probably due to the lack or reliable courier services, lack of access to banking services by folks in rural areas or due to the laxity banking institutions or courier service providers to serve rural folks. Nevertheless, M-PESA, build by British engineers from Vodacom PLC has hit international headlines as a Kenyan innovation.

Money transfer & crisis reporting

And then Christmas comes; everyone says it’s time to re-unite with family and friends and it is a different kind of Christmas as it’s an elections year and everyone does their best by turning up to vote in masses hoping to change their lives. Food prices are too high, so are prices for just about everything.

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However, the unexpected happens, the once peaceful nation turns into chaos. Those who were once friends begin to fight, neighbors turn against each other and a full blown calamity ensues across the country. Chaos, violence, fires, gang rape and murder and just about any gloomy evil happens. Neighbors turn against each other and it turns even uglier and cruel as friends hack each other to death with hacksaws, axes and machetes.

Amidst this bloodshed, a group of volunteers unite to start Ushahidi, to help report and map this chaos anonymously via mobile phones. And as voice ensued, so did the tenacity of the free agents reporting crimes in their areas. Ushahidi grew bigger and bigger. These gave birth to a community of ‘techies’.

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Community or marketplace

That community is what grew into iHub, a space for developers/techies, investors and industry stakeholders, who it seems, helped divert international media’s attention from domestic violence to the new crop of youth coding all day on their computers. Ushahidi in the meantime, had grown to become a global tool mapping crises across the world.

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And at iHub a new idea was born. Two young guys saw it better to incubate real businesses and instead of building a networking community of techies, stakeholders and investors launched Nailab, just next door to iHub.  Both are still friends were heavily depended on grants when they began but at the moment have devised various business models.

But as the iHub community grew, a new arm was born out of the need to incubate mobile startups. Mobile was the future of Africa and they were right, M:lab East Africa, the mobile startup incubator has seen a number of startups pass through its doors through its various training programs and help from various foundations and grants from both corporate firms and non-profits.

One of its largest startup conference and competition, Pivot East, has seen over 25 companies raises millions of shillings and expand globally. Such companies include KopoKopo, Eat Out, SleepOut among others.

iHub also instrumental for the birth of startup competitions outside its walls. One reputable and as well controversial was the ICT Board’s Tandaa Grants which saw some entrepreneurs win grants for their business, some of which died at idea stage and some of which never existed apart from the name and PowerPoint pitch decks. Luckily, a few others have gone to be as big as EatOut.

Y-Combinator Style

iHub was behind ipo48, a 48 hour startup pitching event that saw entrepreneurs make teams, conceptualize a business, develop and launch it in 48 hours and raise seed funding.

The ipo48 beneficiaries winners included Sematime (Tusqee Systems) a school SMS service for parents to track their kids performance and schools to communicate with parents; 6Degrees(Binary Science) a cloud phone contact back up service (which could have been acquired by Safaricom which rather launched its own service); PesaTalk, a web financial news startup since shut down; Ghafla, an entertainment site that grew out of a Rap Genius of Kenya and today’s Kenya’s top entertainment and gossip site and a web football news startup.

This lot made 88mph’s first cohort in its accelerator programme and then everyone knew they can raise millions with their web and mobile app. Youths took to Php, Django, Java, Android, HTML5 and others turned up with laughable WordPress and Joomla sites at hackathons expecting to win real cash and change their lives. We don’t blame them, they were all green then and competitions were the in-thing with fast internet in town, free coffee and sandwiches available during the day and pizza at noon and free beer and spirits to unwind in the evening.

No one had told this kids how firms like Cellulant began and grew. They probably had never had of Africa Online nor Wananchi Group. The kids were too blind of Vervaint Consulting, the firm behind PesaPal and TicketSasa. They knew little about Seven Seas Technologies, Craft Silicon, Africa’s Talking and Wananchi Group and others like True African and Mode and Movas Group.

Prize money, not entrepreneurship was the driving force. The washrooms were full with guys and girls practicing their pitches before mirrors and from event to event and campus to campus, you would see the same faces, same ideas, same hoods, with dirty stickers on their laptops smiling, others praying for lady luck.

Then down across the street another hub launched called GrowthHub, with an interest in social entrepreneurs focused on education, women, energy and agriculture. Then Strathmore University opened doors to its iLab Africa and BizLab, and every student knew what building an app meant. Cash in the bank and trips with corporate firms as a testimony or ambassador to preach to others to launch startups. Then Safaricom Academy opened doors at the same university. Jomo Kenyatta University of Science and Technology also entered the bandwagon with its own tech expos and recently C4DLabs at the University of Nairobi.

Quietly, Savannah Fund launched to accelerate African startups with a $25k seed fund for a 15% equity and at first guys in the tech scene thought it was iHub’s counter of 88mph, which had reportedly ‘used’ iHub to launch in Kenya and later ‘ignored’ them. However, Mbwana Alliy strongly declared they were a pan-African fund preaching tough love for African startups and were not just a Kenyan ‘Silicon Savannah’ fund.

Ambitious projects and competitions

Long before them, government technocrats were planning a tech city dubbed Konza Technological City to bring Silicon Valley to Kenya. It was both brilliant and laughable. Brilliant because we had just had fiber cables and the internet seemed underutilized and laughable because they didn’t know how Silicon Valley began.

And there was DEMO Africa and every startup at Pivot East wanted to be at DEMO Africa too.

And so much happened in between, corporate firms didn’t want to be left behind. Phone manufacturers brought in their phones, and so were big launch parties and partnership of things that never happened. Then there was something like Google Fibre in Nairobi, a nearly free-wifi service which needed just one last push to reach everyone in the city and IBM launched its Watson and Panasonic did a similar thing. And everyone took to Twitter and Facebook against Nigeria and South Africa. And even at events hype just build up like shit and snowballed to the mainstream media and the international media caught it too. And Vodacom’s M-Pesa worsened everything.

Tech tourism

With a string of success since the launch of M-PESA, Mzalendo, to Ushahidi, to Ringier’s Rupu, Nasper’s entry with dealfish and Mocality, iHub, m:lab, the climate innovation centre, the chandaria incubation centre, BRCK and ICC and Westgate, Startup Grind and Startup Weekend; all international journalists’ dream was to leave their boring newsdesks in their cold countries for a trip to Nairobi, then Maasai Mara to see the the big five and others went to the infamous Kibera and Mathere Slums.

Tourists who only used to visit Mombasa and Maasai Mara began visiting Nairobi too and the traffic didn’t bother them so much. Some came and left, others stayed to start an app or two then went back home to fundraise from friends, family and fools then send a fraction of these back for freelance developers to build these apps. Meetings were held on Skype for hours.

And as the Pesatalks and other Joomla and WordPress sites came tumbling down, entrepreneurs outside the hubs were silently building entreprise softwares and going international unfazed by the excitement surrounding the Silicon Savannah. Craft Silicon had sold software to almost every bank and retail store in Kenya and had expanded to US and other international markets. Seven Seas Tech was growing too to several countries in Africa and planning an IPO and TechnoBrain and Tezza Business Solutions were expanding too and so was Verviant Group with its PesaPal and TicketSasa among others.

Santa or vultures

And as fights began in the Savannah on who is real, who is Santa Claus and who is a vulture, Rocket Internet crept in silently. Took over e-commerce with Jumia, launched struggling Hellofood. Launched Lamudi which is steadily growing to be the best real estate vertical in Africa and then Jovago and then EasyTaxi and before Nairobi would realize that its hype was not bringing food to the table it was too late.

88mph had burn its fingers and put off investing in any startup in Kenya in 2014. Savannah Fund had thought otherwise and was putting in more energy into its Nigerian and South African markets than Nairobi and even moved to host Afrikoin in South Africa.

According to Nikolai Barnwell, 88mph’s Project Manager,”Nigeria is good for business as entrepreneurs have a no bullshit approach to tech unlike Nairobi though they have had less publicity. It’s a healthy environment for business and has no false promises or fluffy PR or NGO grants.”

Though not investing in Nairobi this year, 88mph has not moved out of the city. The fund has been busy opening in Lagos and has a fundraising fatigue from trying to raise funds from local investors in Nairobi.

Barnwell says he believes there are local quality Kenyan startups but he thinks they are not just big enough in the pipeline and it is not the startups fault. The fund is now changing its tack by looking to universities, banks and corporate firms as fishing grounds and not just hubs as it’s been doing.

He also says there was need to change their timetable. Having a DEMO day in December meant most firms were in holidays and even harder to raise extra money.

“We are also restructuring our internal systems so the next step will be the right one. Just changes from people involved,” he says.

NGOs & media hype

Away from 88mph, the closet accelerator to them in numbers is Savannah Fund, which is Africa-focused and picks startups from across the continent. The fund has also reduced its number from five annually to just 3 in its cohort this year. However, the firm also invested in two more startups recently in South Africa.

According Mbwana Alliy, managing partner at Savannah Fund said,” We have always said we are a pan africa fund a zillion times. Kenya is not the only place we look for startups- We look for the best startups in Africa, outside Africa addressing Africa wherever they are.

That being said we have invested in 4 out of 10 startups to date and we expect to another Kenyan startup in the accelerator we are launching soon (we are still selecting)- which means Kenya still makes up a good 40% of our portfolio.

We will be publishing accelerator stats of our 337 applications we have had across Africa in the past 18 months across the 3 classes and Kenya represents half of it. We do 3-5 startups depending on the capacity of the team- we are not a sausage factory for startups, we would rather have a smaller class and focus on helping them than a bigger class and diluting our teams across too many startups for the sake of “living up the hype”.

Its hard to gauge returns of a fund in the early days- if 88mph is having problems, doesn’t mean we have the same type of problems. Even the best startups can still fail even after series A in Silicon Valley. In other words, looking for success after the first few years of operation is like asking for a marathon runner to win the Olympics before their 10th birthday.”

And though Mbwana and Nikolai say it’s the NGOs and hype.

Some analysts think there is a problem with all of us.

Apart from Cellulant, Wananchi Group, TechnoBrain, Seven Seas Tech, Mode and Tezza Solutions Andrea Bohnstedt thinks startups in Kenya are overhyped.

“We need an assessment of Tandaa Grants, PIVOT EAST, DEMO Africa and several competitions. There are high expectations at competitions but lack of knowledge dealing with VC’s,” she said adding that, “There is need to grow local angel and VC networks and develop products to solve local problems. Lack of links with the local business community means there are no mentors, angel investors, employment and partnerships.”

“Entrepreneurship is not for all,” said Andrea Bohnstedt, a risk analyst and founder of Africa Assets. “Not everyone is an entrepreneur. Some of thse need to do internships to learn business processes and gain skills but they are expensive and leave quickly.”

Skills gap

On skills, most people agree with her.

A skills survey carried out a few years dubebd the Julisha report found that the ICT sector directly employs an estimated 27,000 professionals. Of the total IT employment in Kenya, IT support people represent the largest portion (27%), followed by Applications Systems Analysts and System Engineers (13% each).

Although an estimated 9,600 professionals are added to the ICT market each year, a third of the companies surveyed plan to contract external providers. The Julisha report reveals that software development and project management are the most in-demand skills for the 2011-2013 period and represent the areas with the widest skills gap.

But some firms are doing something about it. iHub has launched UX lab which trains develops on user experience design. iHub also has a research and consulting firm to help entrepreneurs up their products and also meet the needs of corporate firms in the market.

Microsoft4Afrika and Myskills programmes also promise to help improve the skills among entrepreneurs.

But still Andrea that is not enough.

“Not everyone is supposed to start a company, some of these entrepreneurs need to get jobs to learn and get skills for business and no one.

Nikolai seems to agree to her line but the problem seems is not just skills but experience too firms to get entrepreneurs.

After getting the same caliber of entrepreneurs, the fund is looking elsewhere for entrepreneurs to fund. Though it is set to work with universities to help popularize its programs, it has set its eye on entrepreneurs from corporate circles, who are working at firms like Safaricom, orange, banks and NGO’s and not from hubs.

A reputable entrepreneur thinks those are minor problems but sees the country as the most unfavorable to start and run a business.

Unattractive  environment

Late Carey Eaton said the taxes imposed on startups setting up base in the country are so high and unattractive for anyone starting. Erik Hersman with his BRCK team also had similar problems with the tax authorities.

Hersman wrote on White African,

“FedEx called me with the news that a package we were waiting for had arrived. The true value of the components was listed on the package at $230. These were new plastic cases for the BRCK, as well as a couple modem and router components. The Kenya Revenue Authority decided that it actually should be valued at $300, and then charged 100% duty. To clear the package, we have to pay $300 (26,000 Ksh).

And as we speak, SleepOut, a hotel booking startup founded in the country has shifted its headquarter to Mauritius where the founder told TechMoran “on a more serious note Mauritius offers an excellent business environment for tech companies and the government has thus far been very supportive.”

And as the country loses the taxes, jobs for youth are going too.

As things deteriorate, these investors are not just sitting there and whining. Most of them are shifting base. 88mph’s Cape Town base looks to be lucrative. Just one of their last year’s startup has given them a worth exit and they are spreading their risks into many. They were also lucky to have a local fund partner with them in their earlier days of launch but their eye seems to be in Nigeria where they have partnered with a local partner to launch a new fund.

Nigeria’s debasing was another good PR and god forbid. PayPal’s setting up shop might be followed by Facebook setting up an office in Nigeria and business in Africa will change. Someone ought to start building the next Tencent or Alibaba than blogs for fashion football and fashion SMS apps for education and rent.

For nationalists however, not all hope is lost.

Local startups like Ma3Route, Able Wireless, Angani, BuyRentKenya, Chamasoft, eLimu, Soko,, Kopo Kopo, PesaPal, JamboPay, TicketSasa, CladLight are steadily rising. And to even count more blessings the investors themselves are beginning to look away from the hubs.

These however can’t be compared to IrokoTV, Wakanow, Paga, Konga, Takealot, Ubuntu,Healthcart, BidorBuy, Kalahari and a hundred others in Nigeria and South Africa.

Maybe worst is the reducing number of women founders in the country. Not sure if it’s a problem of sexism or just women fearing to venture out.

Sexism killing Kenya’s tech ecosystem

Ochieng Rapuro, the Managing Editor of the Business Daily speaking during the aftermath of the Next Big Thing competition, held at Strathmore University early this year said women never applied to join the competition and added that even during the Top40 under 40 women, few women nominate their friends or themselves unlike the men who come out in great numbers during their Top40 under 40 men.

True to what Rapuro said, most women disqualify themselves from some positions said Rachel Gichinga, a former iHub community manager and now Developer Outreach and Business Development Manager at Intel East Africa.

“I had no barriers, maybe just attitudes but I didn’t take them serious. I had great mentors like Orry Okolly among others and I think women should be trained to be more confident and need to be shown they can do it, though programs like Girl Rising, Girlscode among others. It should be done from high school,” Gichinga told TechMoran.

“There are women in prominent positions, but they are a small subset, say just 16 percent. Women need to be encouraged to take up more prominent positions. Women are traditionally influenced to submit. As founders, some meetings put down women CEO’s but in tech the problem is not as in the public sector. We just need to train women to be less risk averse,” Gichinga said.

Others think its not about encouraging women to stand out but teaching men to behave themselves. A 20 year-old who left Chicago for Nairobi was at first fascinated the hyped tech ecosystem in Kenya.

She bids her friends and family goodbye, leaving them in tears both of fear and of joy to come abd build an SMS education platform focused on non-profits and adult literacy programs.

True to her expectation, Nairobi was the tech powerhouse she had read about in international media. She went around a tour of all the hubs on week one. From iHub, the mother of all hubs, to m:Lab the mobile business incubator, to Nailab, to Startup Garage, to GrowthHub, iLab and iBiz at the Strathmore and everywhere she went, young entrepreneurs, boys and girls sat busy day after day building mobile and web apps to solve this or that problem. And Internet wasn’t so shitty after all and the Pizza was as great.

On week two, she gets herself set to start work on her SMS-based education startup. She meets a former school mate who joins her as a co-founder. A developer is hired, the site goes live and the USSD application, and then pilot begins in the slums. They go around talking to school dropouts in the slums, they sign them up to the platform and see if they can learn stuff they missed out in school. It works in the slums well. They then approach NGO’s, then corporates and  a business model gets on sight.

It strikes her that if they sign up just ten schools, it would be a great turn around. The idea of visiting the ministry of education comes up. A top down approach seems to be the quickest way for them to help impart skills to the youth, help them with homework and as well monetize, fast. They secure a meeting with someone senior at the ministry of education and they go back to their pitch decks practicing most nights, fingers crossed, ready to for a turnaround.

The meeting goes well. The officer looks convinced. He says the service is brilliant and of course, the deal is on but he is also has to talk to his seniors. And surely, he was ready to consult with his seniors; the ogas’s at the top as Nigerians say and everyone was excited. Then suddenly, before they could leave his office, he starts acting weird towards her, tells her how beautiful she is and offers to show her around, asks if they can do a drink sometime, and folks, that’s was the end of that partnership. We are not sure what happened to the business but we know the girl is now based in Jordan.

Stella Njoki of Zegetech told TechMoran, “The closest i have been to such a situation was with a client who threw words at me that were sexist and thought that I would be very desperate for the deal to entertain that kind of talk. He was the owner of the company but that put him into my ”black books as a person without integrity”.

Njoki says some women perceive tech company as a preserve for the male species as they think tech is hard. However, that is changing and an awakening is happening through initiatives such as Akirachix and more young women are becoming aware and are changing their mentality to think that tech is not that hard.

“First of all not so many women study STEM subjects in campus. Therefore you cannot start a tech company if you do not know about tech/have experience or classroom knowledge about tech to be aware of the opportunity to be a techpreneur. In my case, I personally did not study tech but I teamed up with people who were tech experts and I came in to bring in the non-tech aspect of a tech company which is business.

Njoki says she has never been disqualified because she was a woman. But has turned down a deal because the potential client had weird intentions. And though the industry seems more advantageous to men because they are the majority in the industry, women co-founders are advantaged especially with the latest government promise of giving youth and women priority in procurement and government funding.

“As a woman in tech and if you play your cards right you can get lots of advantages. Personally, there are opportunities that have opened up for the company and for myself because I am a woman co-founder. However, Njoki thinks culture and upbringing have a role to play in sexism.

“When men start to look at women as less equals and perceive that women are the weaker sex or that a woman’s place is in the kitchen and the attitude that women are not able to handle the pressure that comes with the tech industry, that’s bad.”

However, Njoki is happy that this is also changing as women become more educated and empowered, more respect is being given to Women in general and also women in the tech scene.

“I see more female founders coming up in the next few years but in order to get a head we have to work twice as hard as men because we have to prove ourselves through our work and to get the acceptance and validation that we are equally good enough,” says Njoki. “It will take renewal of the mind for respect is a choice. Men have to choose to respect women. I think more success stories on women that are doing great should be sought for, and told. As more stories are told to bring down the walls of sexism, the perception of the men will continue to change and they will choose to respect.”

But at times it’s not the bad bro mentality that’s dragging women but a lack of inspiration.

Speaking at iHub during a Startup Grind conference, Ory Okolloh said women needed to learn from other women in business to grow their business. She mentioned women in business Cynthia Nyamai, Ginadin Kariuki, Keroche’s Tabitha Karanja and technologist Njeri Rionge. She also urged women to partner with men and do businesses together and also learn to make decisions from them.

 Too high equity

And yet some entrepreneurs say raising $25,000 for a 10 to 20 equity stake is ridiculous and they would rather go to kickstarter or indiegogo. However, in an ecosystem without any success stories, it might be hard for an investor to pour half a million or more for a minority share. Firms like Kopo Kopo which raised $2.6 million, Soko which raised $700,000 from RIO Partners and others, Sleepout which raised $200,000 from African Media Ventures and recently BuyrentKenya’s recent raise are an exception.

There is hope though.

Savannah Fund has began Waterhole to curate resources for entrepreneurs. It has also partnered with Cape Town’s UCT to train entrepreneurs on VC funding. Savannah Fund will also train PIVOT East finalists on the same. There are several pHDs among the tech community too unlike in the past when IBM couldn’t get any PhD computer science research in the country to run its research lab. Nairobi Dev School and Akirachix have won some substantial grants to train and encourage girls to get into tech. One Africa Media is also set to start investing in local entrepreneurs in memory of the late Carey Eaton, its founder.

Apart from PIVOT East and some other competitions, entrepreneurs are choosing to stay in stealth to build their companies than court media without even figuring out their business model. Startups also know that 88mph, Savannah Fund and others are here for businesses and not into competitions and prize money.Platform’s such VC4Africa are also empowering entrepreneurs on VC funding, business models and fundraising and various other aspects both through the online platform and offline meetups and have helped several firms connect to investors, raise money and scale. Others are learning to bootstrap. For hardware guys, iHub’s GearBox is looking for guys who really want to get dirty and build stuff.

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Sam Wakoba
Sam Wakoba
Taking you on tour through Africa's tech and business ecosystem, one story at a time since 2010! Based out of Nairobi, Kenya, Sam is the founder and managing director of Moran Media, which runs, various other digital platforms and a startup incubation hub for Kenya's youthful entrepreneurs. Drop me a mail at [email protected]

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