Investing in Startups in Kenya

By Editor
iHub
  Published 13 Feb 2018
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One day, after an inordinate (or reasonable) amount of time has passed dreaming and thinking and drawing out your plans, something just clicks and you have the eureka moment. A great idea in a promising industry. It’s the birth of your business and there hasn’t been a more perfect time to hit the ground running than now. The first step; secure some seed money in order to solidify your business plan and find a good team to work with. The next step; applying for funding, which is done in stages via loans, investors, venture capitalists and so on or join an incubator or accelerator for the capital. After about a year the plans are adjusted after a few trial and errors along the way. In about 18 months, there might be more funding needed to expand or grow the business and this is where profits can start being measured. In the next three years, investors can begin seeing their returns via profits. You made bank and everyone is happy! This model is an example of how the journey of a startup may look like, but in reality the path isn’t that simple for most businesses. With 70% of startups not making bank within those crucial early stages, it is important to look into some of the challenges that may face entrepreneurs when it comes to investing in Kenyan startups.

Kenya is among the top three countries in Africa to receive investments for startup businesses. She has a lot of potential for growth as more of her environs are being exploited in a myriad of industries. Among the main challenges, it is apparent that there are some entrepreneurs who are only keen to make money from their business. This can be dangerous because their plan lacks longevity and the opposite effect is achieved, the business thereby misses the essential criteria for success. The number one reason for the most successful business owners to start their companies was to make an impact or to change the way something is done. Money is important, however it shouldn’t be the number one goal.

Not having a good and flexible business plan is also another challenge for Kenyan startups. Incubators and accelerator hubs receive many applications but not many get through to the final stages due to incoherent plans. Not only do key areas like sales, development, staffing, skills shortage, and funding need to be included but also room for adjustment in case of any unexpected turn. Kenya also faces a lack of proper market research. General web based research can lead to contradicting information and is mostly relevant to the company that provides the report. A more objective method of research should therefore be carried out in the real world because each business has its unique model.

Additionally, Mohammed, the founder of Suave says, ‘ One of the challenges in the industry is access to the international market. Getting information about fairs around the world is quite difficult, getting accepted to them even harder. Another is finance/capital to run the company. More often than not we find ourselves on a bad month where getting to pay suppliers, bills and salaries is a problem.’ These are some of the challenges for startups and their investors in the country. Others are scaling, poor management, not accepting positive criticism and focusing on the competition.

The benefit of investing in startups in Kenya is the strong sense of community. There is a growing space for startups around the major cities as well as universities. “Entrepreneurs are not seeking large investments in hardware or office space. Rather, they look for access to professional networks, mentors, interdisciplinary learning, and diverse talent.” One such space is Pangea’s accelerator programme, which offers these networks and investors that have expertise in the industry in which one is starting their business in. Tech-focused or not, the programme is not specific to any sector. The one-on-one time during the free workshops covers these main challenges that most startups face in their initial stages with added legal and financial support and training on how to approach investments from the available resources. With strong links to Africans in the diaspora and foreign investors, Pangea has established a large network that will enable startups in Kenya to scale and grow and compete globally.

Despite its challenges, the startup ecosystem in Kenya is a promising space. Though nascent, its evolution will impact the lives of many, not just in Kenya but across the world.

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