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

[ICT Researcher]

Some discussions provoke one to call for a New Resolution!  "Let us all slap ourselves in the face twice as hard this year as we did last year. We all compete at beinng the first at pointing out our negativities. Let nobody should dare highlight any good thing achieved -- especially by government (or anyone even remotely associated with it). And we shall sadly live happy ever after in 2015" :-)  



     On Tuesday, January 6, 2015 12:46 PM, Josiah Mugambi via kictanet <kictanet at lists.kictanet.or.ke> wrote:
   

 (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 useful in thinking through our startup ecosystem. It cites 5 crucial elements. If you review the GSMA research referenced 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. A ‘wait and see’ policy has allowed mpesa to flourish, and this also seems to be the approach taken with thin sim tech. Additionally, the Cabinet Secretary for ICT published regulations requiring foreign contractors requiring 30% of government tech tenders 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 talking 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. 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



   
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