[kictanet] Kenya's Tech Startup scene leaves investors underwhelmed

Josiah Mugambi josiah.mugambi at gmail.com
Tue Jan 6 12:38:26 EAT 2015


(long post alert)

My 2 cents:

Sounds like a dichotomous discussion in a sense? - do we have hype or no
hype? Enterprise vs Mobile? I don't think it's necessarily black and white.
I think we all want a thriving technology ecosystem in this part of the
world and we are all pushing in that direction.  One that contributes
greatly to the GDP of the country, employs lots of people and changes
lives.

I still believe that our technology startup ecosystem is still young when
compared to Silicon Valley (60+) etc. Yes, the industry has multiple 10-15+
year old companies here but we cannot quite compare ourselves to Silicon
Valley, Berlin, Tel Aviv yet who've have had a multiple generations head
start.

I found this white paper
<http://blog.up.co/2014/09/08/white-paper-announcing-5-ingredients-fostering-thriving-startup-ecosystem/>
useful
in thinking through our startup ecosystem. It cites 5 crucial elements. If
you review the GSMA research referenced
<http://www.gsmaentrepreneurshipkenya.com/> earlier, there's overlaps with
these 5 elements:

*Talent*

People and their talents are absolutely crucial in any economy and tech is
no exception. It is not by accident that many multinational firms have set
up Africa or Regional offices in Nairobi. The people and the talent here
has played a major role in that. That said, there’s obviously gaps, with
firms sometimes needing to fill gaps at the top end of the market, and in
some specialised areas.

The article pretty much surmised that there's a 'lack of talent' here,
without getting into details of what exactly was lacking.

Top talent will always be in demand and short supply across the world.

I do think though that we need to invest heavily in growing the quality AND
quantity with the aim of growing best in the world talent here. Lots to be
learned from the IITs of India.

*Density*

There's a cluster effect around Nairobi in general, through lists like this
and skunkworks, through the various hubs and labs, through universities.
Mentor networks, linkages between academia and industry contribute to
this.

A denser concentration of brilliant and capable minds can only be a good
industry and the country.

Diversity is useful as well - as at 2012 in the US, founders of 8% of all
tech and engineering startups were of Indian Origin yet comprised less than
1% of
the population.

I think this might be the thinking behind Konza City? (Sidebar: I think
that the University (or Universities?) on the site should be priority (vs a
phase 2 initiative): a world class R&D technology university there may
organically attract/grow a community around it).

*Culture*

I think its important for young people interesting in tech entrepreneurship
to gain inspiration from the stories (both success and failure) of those
that have gone before them, and learn from them. Mobile app development
provides a low point of entry for most - couple this with the 'mobile
revolution' of the last decade and we have 'm-vitu's'. Instead of seemingly
putting down these young would be innovators, more mentorship,
opportunities to learn and grow. And they do learn and grow.

I believe that the champions/leaders of a successful startup ecosystem
should primarily be seasoned entrepreneurs willing to spend a period of
many years - 10 or 20 years cultivating it: not government, or investors,
or academia or any other of the 'supporting cast'.

*Capital*

Safaricom's Spark Fund I think is a great initiative.
More early stage seed capital is needed and especially angel funding.

*Regulatory Environment *

The government has a critical role to play in fostering a thriving
innovation and entrepreneurship ecosystem, specifically ininfrastructure
and policy. Over the last ten years, the cost of internet bandwidth has
dropped significantly, with Kenya now having the cheapest internet
bandwidth on the continent
<http://www.itnewsafrica.com/2014/09/east-africa-tops-africa-for-internet-access-connectivity/>.
A ‘wait and see’ policy has allowed mpesa to flourish, and this also seems
to be the approach taken with thin sim tech
<http://ca.go.ke/index.php/what-we-do/94-news/269-ca-cbk-approves-use-of-thin-sim-technology-in-kenya>.
Additionally, the Cabinet Secretary for ICT published regulations requiring
foreign contractors requiring 30% of government tech tenders
<http://www.cio.co.ke/news/top-stories/foreign-contractors-to-reserve-30-of-government-technology-tenders-to-local-firms>
to
be reserved for local firms or purchase a third of Kenyan made raw
materials, which should be interesting for local firms (not sure if these
regulations are effected yet) - this would be huge as indicated by Ngigi.

Much more needs to be invested in R&D though at various Universities.
Government Policy also ties in directly to the other four elements (e.g.
Govt Policy that allows the smartest in the world to create companies here
with KE partners - lessons from Singapore).

-

On hype - I remember a conversation with an foreign investors/entrepreneur
last year who indicated that we actually not hyped. (think dot com bubble)
 :/.
There's some cultural context to hype I believe though that is rarely
considered. Many entrepreneurs I know prefer to operate 'chini ya maji'
until they have a big story to share - whereas in say the US, the culture
of sharing your entrepreneurial journey publicly is pretty much the norm.
True?


On Tue, Jan 6, 2015 at 11:39 AM, John Kieti via kictanet <
kictanet at lists.kictanet.or.ke> wrote:

> Dear Listers,
>
> The discussion in this list is always good. However there's times when
> we're caught t*alking at cross purposes*, especially when the discussion
> issue is multifaceted. My earlier observations addressed the context of the
> startup scene and the emerging ecosystem around it - which is what the
> offending article attempted to describe. It was not quite about the bigger
> Tech-entrepreneurship scene as described very well by Ngigi. Also, the
> offending article is the one *by* *Reuters,* cross-posted on business
> daily.
>
> To clarify my observations for a better discussion, allow me to be just a
> bit more academic. There's at least three types of enterprises in our tech
> scene :-.
>
> (a) *Contractors, consultants and freelancers*. The likes of AT, Seven
> Seas, 3Mice, Verviant, Symbiotic, and individual experts seeking gigs would
> be in this basket. This is for as long as their business model is that of
> seeking tenders and gigs to deliver a fit for specified requirements,
> profitably. Most of the hypotheses in this business model about revenues,
> costs structures, customer segments, path to customers etc, are proven
> and known. Success here is about optimizing execution. It is a very old and
> obvious business model. We need *thousands  (if not millions) of such* entreprises
> to amplify national GDP by say 10% 10 years from now.  If we can build
> entreprises similar to Accenture around this, then we would need *hundreds
> of such* to raise national GDP by say 10% 10 years from now. This model
> has its own policy issues that the government authorities can streamline
> such as human resource capacity development.
>
> (b) *Traders* - Typically in the middle of the value chain merchandizing
> new or old IT products on an almost off the shelf basis. Ebrahims
> electronics and other vendors of IT equipment and software are clearly
> here. Growth of these promote *consumerism* which is also good.
>
> (c) *Startups* -  A startup is "*a temporary organization formed to
> search for a repeatable and scalable business model*". In this basket I
> would have the likes of PesaPal, Kopokopo, Card Planet, Mfarm, Sokotext,
> Totohealth, Eneza Education, KejaHunt, Ma3Route, OkHi, BRCK, SleepOut and
> many others - most of which will not live to a third year of existence.
> Arguably, M-Pesa was a startup within Safaricom 7-8 years ago. And yes,
> they will very rightly initially appear to be mere functions of our
> typically comprehensive information systems. For a startup, the priority is
> to build a product that elegantly or otherwise solves a particular problem, not
> to accumulate features
> <https://blog.kissmetrics.com/features-doesnt-mean-success/>. These are
> the kind of companies that could grow into something like Google, Uber, or
> Facebook. Kenya needs just *one or two of these *from to amplify national
> GDP by say 20% 10 years from now. The policy issues here are many and
> complex, ranging from fostering innovation, access to financial capital, to
> building linkages and social capital. The human capital issues here include
> but go beyond honing ICT skills.
>
> It is also common in our space to see contractor type of entreprises
> spinning off or supporting startups eg. Verviant supporting Pesapal and
> Shimba Technologies spinning off MedAfrica. In my view we need an enabling
> environment for ALL these types of entreprises for ICT to directly
> contribute to ICT significantly. The planning horizon should also be a
> decade or two and not a few years.
>
> The verbosity in my opinion might make it hard for many to follow, so for
> those keen on startups, consider taking some six minutes off to watch this
> clip sponsored by the Kauffman Foundation with Steve Blank explaining some
> long confused issues about startups
> https://www.youtube.com/watch?v=FCiHWQlrlvY
>
> Happy 2015! and Best Regards
>
> On Tue, Jan 6, 2015 at 10:22 AM, Ahmed Mohamed Maawy via kictanet <
> kictanet at lists.kictanet.or.ke> wrote:
>
>> The statements Ngigi makes tend to ryme a lot with our situation. How
>> many a times do we see an innovation featured on TV and there is totally no
>> follow up on the innovator. And its totally true. Ask the Software Gurus in
>> Kenya since when did we develop software systems? We have firms in Mombasa
>> that started this since 1995.
>>
>> For instance, how useful would a mobile charger be if it was being hooked
>> to the tyres of a bicycle. Better still, how much energy issues would we
>> have solved if we just took that innovation and blew it into cars,
>> motorcyles, semi-trailers. Just think about the potential. But just the
>> fact that the innovator comes from Rural Kenya makes him a failure. Years
>> back we had a maker fair in Nairobi. The potential people had, and the
>> potential those technologies had to solve large scale local problems. I bet
>> you, we do not even have a database of that at this moment in time. And
>> most of those who came out with brilliant ideas are either office
>> messengers tarmacking for an office job, or, looking for chances to get an
>> opportunity abroad. And some may have been successful. Do not be surprised
>> to find them in Silicon Valley.
>>
>> Then the question becomes. Where are our priorities therefore?
>>
>> On Tue, Jan 6, 2015 at 10:01 AM, Ali Hussein via kictanet <
>> kictanet at lists.kictanet.or.ke> wrote:
>>
>>> Ngigi
>>>
>>> Umesema kama Watu kumi (You have spoken like 10 people) :)
>>>
>>> One thing that struck me was the use of the word 'fluff' by one of the
>>> investors. We must strive to kill that.
>>>
>>> This building of the ecosystem is crucial and will take the concerted
>>> efforts of the public, private and govt sector. In my humble opinion it's a
>>> three pronged approach.
>>>
>>> 1. Policy - Govt needs to specifically embed policy cast in iron that no
>>> foreign ICT Company will win a tender (or even participate in it) if they
>>> don't show by both intent and action that local capacity building is
>>> inbuilt into their project planning and that preference will be given to
>>> 'Local Content' above all else.
>>>
>>> 2. Private and Public companies undertake to support local ICT
>>> entrepreneurs and companies. This has to be a deliberate agenda by the
>>> likes of KAM and KEPSA.
>>>
>>> 3. Local ICT Companies MUST become world class in delivery. We all have
>>> issues and we must undertake to strive for excellence. This is the only way
>>> we can debunk the myth that the only good systems are foreign ones.
>>>
>>> If you doubt this approach you only need to look at Asian success
>>> stories - Japan, Singapore, Indonesia, Malaysia and now China.
>>>
>>> *Ali Hussein*
>>>
>>> +254 770 906375 / 0713 601113
>>>
>>> Twitter: @AliHKassim
>>>
>>> Skype: abu-jomo
>>>
>>> LinkedIn: http://ke.linkedin.com/in/alihkassim
>>> <http://ke.linkedin.com/in/alihkassim>
>>>
>>> Blog: www.alyhussein.com
>>>
>>> "I fear the day technology will surpass human interaction. The world
>>> will have a generation of idiots".  ~ Albert Einstein
>>>
>>> Sent from my iPad
>>>
>>> On Jan 6, 2015, at 9:38 AM, Ngigi Waithaka via kictanet <
>>> kictanet at lists.kictanet.or.ke> wrote:
>>>
>>> Listers,
>>>
>>> My 2 cents on this issue.
>>>
>>> Kenya Technology scene, is actually quite old; I know a few firms that
>>> were founded in the 90s, some even earlier, and that are still going
>>> strong. If anything, firms founded around the late 90s and early 200s have
>>> had a lot more success than in later years, IMO. If you doubt me, check
>>> firms like Virtual City, Craft Silicon, AT, SevenSeas, 3Mice, Cellulant,
>>> Verve, ReelForge, Turnkey Africa, Lantech, AfricaOnline, Wananchi etc
>>>
>>> Having being involved in this sector over the last 20 years, I think
>>> that the article is quite fair in that in recent times, there has been a
>>> lot of hulabaloo of a new IT Startup which in no time bites the dust,
>>> leaving investors obviously, licking their wounds.
>>>
>>> But this didn't just happen overnight.
>>>
>>> Sometime around 2007, there was a general drift towards mobile
>>> technology. There were very nice sound bites, that, if you built a mobile
>>> application, and got 1% of the world to buy it, you would be best pals with
>>> the likes of Facebook, Twitter, Google Founders who would probably be
>>> calling you up to borrow your yacht.
>>>
>>> This excitement was quickly followed by the "...build it they will come
>>> mantra...", and besides, a new city technology city, Konza!
>>>
>>> This had the quick effect of churning a lot of money into these startups
>>> to the point where what traditionally we would call "functions" in an
>>> application, was being touted as a full application. These were quickly
>>> showcased in the next mobile competition, and the winners of these parlayed
>>> across the media as the true technology champions of Kenya.
>>>
>>> And with the success of Mpesa (that Kenyan application that is not built
>>> in Kenya), Kenya had arrived in the technology scene. But this could not
>>> have been further from the truth!
>>>
>>> I have argued before, that if we are to build a local technology scene,
>>> it has to first cater for the current needs in the market. The Kenyan
>>> Technology scene is heavily dominated by procurement of enterprise
>>> applications & technologies. Put together, GoK, Safaricom, Airtel
>>> , KPLC, KenGen, KRA, KCB, Equity etc spend not less than Ksh 200B every
>>> year in IT purchases.
>>>
>>> If we ought to make a serious push for technology, then we need to first
>>> address the market where local firms are already buying into, instead of
>>> concentrating on developing functions wrapped as mobile applications for a
>>> market that at most cannot even hit Ksh 100M.
>>>
>>> This is what every one of those firms that I have listed before did and
>>> its no wonder 20 years later, they are still here.
>>>
>>> And this is the fundamental difference between the Kenya & Nigerian
>>> startup scene. There are countless Nigerian firms that are already in Kenya
>>> pushing their Nigerian built core Banking, Insurance, Manufacturing and
>>> Public Sector solutions. Solid firms that are making applications that the
>>> market is already paying for.
>>>
>>> So, lets not shoot the messenger. Lets reserve our vitriol and energy
>>> for the ICT policy makers and ask them to build a policy that leads to
>>> self-sustaining ICT growth.
>>>
>>> Regards
>>> Ngigi Waithaka
>>> A1.iO
>>>
>>> On Tue, Jan 6, 2015 at 2:46 AM, Eric Osiakwan via kictanet <
>>> kictanet at lists.kictanet.or.ke> wrote:
>>>
>>>> .....you are very far from wrong, actually too close to right.
>>>>
>>>> HNY.
>>>>
>>>> Eric here
>>>>
>>>> Sent from my iPhone
>>>>
>>>> On Jan 5, 2015, at 17:40, John Kieti via kictanet <
>>>> kictanet at lists.kictanet.or.ke> wrote:
>>>>
>>>> Dear Ali, and other listers,
>>>>
>>>> Once in a while, we read articles in media, especially international
>>>> media carrying very misleading headings on the Kenyan startup scene. The
>>>> piece you share Ali is one such misleading story
>>>>
>>>> I would easily dismiss such an article, not only for it simply
>>>> "re-tweeting" old unfounded stereotypes but for two other reasons as
>>>> follows :-
>>>>
>>>> 1. The story is built solely on the investment philosophy of one
>>>> investor - not that its a wrong investment philosophy but that its not the
>>>> only investment philosophy relevant for a young ecosystem like ours. Even
>>>> in other advanced ecosystems there's many competing investors with diverse
>>>> investment strategies.
>>>>
>>>> 2. The story fails to capture sentiments of local founders seeking
>>>> capital and the challenges they face - from a startups perspective.
>>>> Considering that local startups have perceptions such as existence of
>>>> "vulture capital" and  "racial capital preferences", it is fair to expect
>>>> that closing even the simplest of deals, or even attracting the requisite
>>>> pipeline is not for faint hearted or non-committed investors. The writer
>>>> could have gone under the hood to explore these at the very least.
>>>>
>>>> At the very least I would ask myself this when faced with such an
>>>> article; Can anyone really fairly compare our five year old ecosystem with
>>>> mature (decades old) ecosystems such as Silicon Valley or Tel Aviv? What
>>>> yardsticks would be fair across the board?
>>>>
>>>> That said, our startup ecosystem still experiences the usual challenges
>>>> expected at these formative stages. For instance (a) There's still too many
>>>> parallel entrepreneurs (for justified reasons) running startups
>>>> sub-optimally (b) we continue to experience a gap in local angel funding
>>>> (or traction proof funding) which cannot be replaced by foreign capital.
>>>> (c) Players and commentators in the ecosystem continue to assess startup
>>>> growth and performance with the same yardsticks applied to consultancies
>>>> and lifestyle businesses (d) The local market has sustained this uncanny
>>>> tendency to favor the presence of a non-local when a sales pitch party is
>>>> granted - if at all such is granted to a startup. (e) In the legal,
>>>> PR/marketing, accounting and other supporting professions, available skills
>>>> sets and professional approach are for the most part inflexibly corporate
>>>> minded  - neither customized nor conducive for working with startups. These
>>>> to me are new issues below the surface that a writer should be exploring
>>>> rather than repeating the usual rhetoric damning the fledgling ecosystem -
>>>> which I find unfounded.
>>>>
>>>> I may be entirely wrong, but I could be right in my observations.
>>>>
>>>> Best regards
>>>>
>>>> On Sun, Jan 4, 2015 at 9:44 PM, Sean Moro
>>>>
>>>> On Sun, Jan 4, 2015 at 10:52 AM, Ali Hussein via kictanet <
>>>> kictanet at lists.kictanet.or.ke> wrote:
>>>>
>>>>> Listers
>>>>>
>>>>> A lot of discussions in this area over the last few years. Are the
>>>>> chickens coming home to roost?
>>>>>
>>>>> Have we focused too much on competitions, donor funded money and
>>>>> shared spaces and a lot less on commercially viable ideas/nurturing what is
>>>>> there towards commercial exploitation?
>>>>>
>>>>> My sense is that we now need to move to 3.0 to enable realize the
>>>>> potential of our startups.
>>>>>
>>>>> Read on:-
>>>>>
>>>>>
>>>>> http://www.businessdailyafrica.com/Corporate-News/Kenya-s-technology-push-leaves-investors-cold/-/539550/2574220/-/13qkohy/-/index.html
>>>>>
>>>>>
>>>>> http://www.gsmaentrepreneurshipkenya.com/GSMA_KENYA-AR2014-060214-WEB-SINGLE-PGS.pdf
>>>>>
>>>>>
>>>>> *Ali Hussein*
>>>>>
>>>>> +254 770 906375 / 0713 601113
>>>>>
>>>>> Twitter: @AliHKassim
>>>>>
>>>>> Skype: abu-jomo
>>>>>
>>>>> LinkedIn: http://ke.linkedin.com/in/alihkassim
>>>>> <http://ke.linkedin.com/in/alihkassim>
>>>>>
>>>>> Blog: www.alyhussein.com
>>>>>
>>>>> "I fear the day technology will surpass human interaction. The world
>>>>> will have a generation of idiots".  ~ Albert Einstein
>>>>>
>>>>> Sent from my iPad
>>>>>
>>>>> _______________________________________________
>>>>> kictanet mailing list
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>>>>>
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>>>>>
>>>>> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder
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>>>>
>>>>
>>>>
>>>> --
>>>> My Blog - www.gmeltdown.com
>>>> '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
>>>> The ordinary just won't do
>>>>
>>>> _______________________________________________
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>>>> _______________________________________________
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>>>> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder platform
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>>>> regulation. The network aims to act as a catalyst for reform in the ICT
>>>> sector in support of the national aim of ICT enabled growth and development.
>>>>
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>>>>
>>>
>>>
>>>
>>> --
>>> *Regards,*
>>>
>>> *Wait**haka Ngigi*
>>> Chief Executive Officer | Alliance Technologies | MCK Nairobi Synod
>>> Building
>>> T + 254 (0) 20 2333 471 |Office Mobile: +254 786 28 28 28 | M + 254 737
>>> 811 000
>>> www.at.co.ke
>>>
>>>
>>>  _______________________________________________
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>>
>>
>>
>> --
>> *Ahmed Maawy*
>> Executive Director - M-Power (CBO)
>> Shaper - Global Shapers
>> Ambassador - Open Knowledge
>> Director - Startup Grind Mombasa
>> Software Developer - Volo Broadband
>> (KE) +254 714 960 627
>> Skype: ultimateprogramer
>>
>> m-power.or.ke
>> www.globalshapers.org <http://globalshapers.org/>
>> www.okfn.org <http://okfn.org/>
>> startupgrind.com
>> www.volobroadband.com
>>
>> _______________________________________________
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>>
>> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder platform
>> for people and institutions interested and involved in ICT policy and
>> regulation. The network aims to act as a catalyst for reform in the ICT
>> sector in support of the national aim of ICT enabled growth and development.
>>
>> KICTANetiquette : Adhere to the same standards of acceptable behaviors
>> online that you follow in real life: respect people's times and bandwidth,
>> share knowledge, don't flame or abuse or personalize, respect privacy, do
>> not spam, do not market your wares or qualifications.
>>
>
>
>
> --
> My Blog - www.gmeltdown.com
> '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
> The ordinary just won't do
>
> _______________________________________________
> kictanet mailing list
> kictanet at lists.kictanet.or.ke
> https://lists.kictanet.or.ke/mailman/listinfo/kictanet
>
> Unsubscribe or change your options at
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>
> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder platform
> for people and institutions interested and involved in ICT policy and
> regulation. The network aims to act as a catalyst for reform in the ICT
> sector in support of the national aim of ICT enabled growth and development.
>
> KICTANetiquette : Adhere to the same standards of acceptable behaviors
> online that you follow in real life: respect people's times and bandwidth,
> share knowledge, don't flame or abuse or personalize, respect privacy, do
> not spam, do not market your wares or qualifications.
>



-- 
Josiah Mugambi
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