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

Tue Jan 6 13:19:43 EAT 2015

Long Post Alert:

My opinion from abit of experience

In a way I agree with the article – and we should take criticism positively.

Just one question – I have seen many startups and read about a lot of innovative products being developed in Kenya. Which ones ACTUALLY make money. After the hype – who are making money? The ones making money, are they looking for investors? Investors are looking at this bottom line before they put their money anywhere.

First, Our copyright and patent laws or implementation systems (not sure which) are weak to guarantee much investor confidence.

Secondly, We need to balance the “investor” understanding of this market with the reality that we experience. Kenya is a very unique market – for some weird/crazy reason. This can be traced back to Michael Joseph’s comment – we are peculiar. I imagine Michael had worked in other mobile networks and for him to make that statement he had good reasons to conclude so. You know the rest of that.  If you want to understand how unique we are  - consider the profits/loses airtel group makes in all other markets vs what they make in kenya then with same mind consider the profits / loses that Vodafone (safaricom UK part owner) makes in all other markets vs what they make in Kenya. 

Go further and consider that mpesa hasn’t been overwhelmingly successful in other market even though it has been in Kenya. Consider the separate discussion about digital migration – all other countries are migrating albeit challenges but in Kenya we are grappling with selfish interests by certain individuals / corporates (that’s my personal view)

Another consideration, In the US mobile devices are acquired mainly via network plans. Spot the major difference between that and Kenya. You walk into a shop and buy a phone…buy sim card at the next shop…and u can call!

My point being, while we are in the same technology space with Silicon Valley, we cannot just compare without looking at the other factors surrounding us. Here is a bet - fund 2 companies in the same exact way one in Kenya and the other Silicon Valley and give them same product and parameters to develop. The Kenyan company will deliver the product in a much cheaper way but the Silicon Valley company will have the product go more successful.

To effectively commercialize a good idea, you need users/consumers that not only need the product but can also afford it – although marketers will say something different to this. Poverty heavily stands in our way. Will a parent in rural Kenya use her 10bob to check her childs exam results (hence use the innovative sms exam system developed by a startup) or will she use it for the meal that day.

If Twitter/Facebook were born in Kenya, would they be so successful? 

Many of the worldwide technology leaders today were campus drop outs. Attempt that in Kenya and you see what happens to you.

Finally I know of a very smart programmer back in the 90s who hacked into some systems. He got arrested in kenya, was deported to a foreign country and jailed for a while. When he returned, he languished in poverty until he went to the US where a Security company offered him a job. Today, he lives well! I don’t advocate for hacking of systems but maybe we need to change our mindset and empower our talent with opportunities.

Of course there is always a different view on every  matter so I am sure someone sees this different.

From: kictanet [mailto:kictanet-bounces+bkioko=bernsoft.com at lists.kictanet.or.ke] On Behalf Of Josiah Mugambi via kictanet
Sent: Tuesday, January 06, 2015 12:38 PM
To: bkioko at bernsoft.com
Subject: Re: [kictanet] Kenya's Tech Startup scene leaves investors underwhelmed

(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  <http://www.itnewsafrica.com/2014/09/east-africa-tops-africa-for-internet-access-connectivity/> cheapest internet bandwidth on the continent. A ‘wait and see’ policy has allowed mpesa to flourish, and this also seems to be the  <http://ca.go.ke/index.php/what-we-do/94-news/269-ca-cbk-approves-use-of-thin-sim-technology-in-kenya> approach taken with thin sim tech. Additionally, the Cabinet Secretary for ICT published  <http://www.cio.co.ke/news/top-stories/foreign-contractors-to-reserve-30-of-government-technology-tenders-to-local-firms> 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 <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

Blog: www.alyhussein.com <http://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

Blog: www.alyhussein.com <http://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

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