Though the last 5 years have seen hubs and labs set up shop to support early-stage startups especially those bootstrapping with infrastructure such as Internet, web hosting, space, mentorship among others, Kenya’s startup ecosystem still needs more to be a success story or a real ‘Silicon Savannah’ as many call it.
Sam Gichuru, CEO and co-founder at Nailab and an early stage investor, says Nairobi needs more early-stage investors than it currently has.
“Three years ago saw some early seed fund rush into the market, a bit too early and we saw them run out as fast. Now they are coming back, more prepared but want to invest tickets of 250K and above, which is awesome,” says Gichuru.
According to Gichuru in a Facebook update, not many investors want to play the role of $25,000 deals to $75,000 deals as the risk are so high, they have no time to do all the due diligence and some else to do the dirty leg work for them. However, because everyone wants to play the big money ticket, very few are left to do the road work hence few successful early stage ventures for growth stage-low risk VCs to invest in.
“This also means the big tickets have almost an empty pipeline, they wait until one deal shows up and they kill each other for it,” Gichuru says adding that, “If Local investors were to play within this space 25-75, then larger VC’s would have a better pipeline, (making) everyone happy.”
Because of fear of risk, Gichuru says local investors invest in competing interest like real estate where there is tangible and proven market with Nairobi’s population more than doubling each year and demand for housing going up the roof.
The Kenya tech ecosystem is stuck because of the missing middle, says Gichuru, “someone to literally finance or play money that is higher than $25,000 but below $75,000. According to him the missing link will help drive investments to growth/late stage startups and pull the big money that is being diverted into renewable energy, food security and water.
Just yesterday, M-KOPA Solar closed its fourth round of investment through a $12.45 million equity and debt deal, led by LGT Venture Philanthropy to expand its operating base in East Africa and license its technology to other markets. Uganda’s Tugende announced a $780,000 in equity and debt from the Segal Family Foundation and Echoing Green and a number of private angel investors to expand its operations in the country. This two are examples of ventures in the impact-for-profit class majorly raising funds from foundations and philanthropies and as the cycle continues, they will raise all the money they need on every stage while mobile and web startups and majorly for profit struggle to raise anything beyond $25,000.
88mph, a Pan-African seed fund is one of the funds that began the $25,000 trend in Kenya and then later Savannah Fund in the $25,000 to $200,000 bracket, but due to earlier experiences, 88mph began venturing into mature and growth stage ventures such as Movas Group among others in need of big money. Then expanded to Cape Town and has now set up 440.NG in Nigeria with experienced L5 Lab.
As Gichuru says, big money is really good for Kenya but there’s need for more $25,000 to $70,000 investments too.
To show how wider the gap is growing, Safaricom recently launched the Safaricom Spark Venture Fund, a $75,000 and $250,000 fund to be adminstered with international tech fund TBL Invest for mobile ICT based start-ups based in Kenya.