Hurdles of High-Tech Entrepreneurs in Africa

Morris Mbetsa is a 19 year old Kenyan with a lot of good ideas. If that was all, he wouldn’t be that special, however, he actually builds prototypes of his ideas and they end up being quite extraordinary. The first time we covered his “Block and Track” SMS-based vehicle security system on AfriGadget. This time he’s come up with a web application – the “Wakenya” system for tracking Kenyan citizens virtually via mobile and web.

The frustrations of tech entrepreneurship in Africa

Morris and I got together shortly after his first system was created. He shared a couple other ideas beyond that first invention with me.

He had received a lot of attention due to the Kenyan TV coverage, but it hadn’t turned into any real money for him. No one within Kenya was interested, either as a business partner or funder. There were a couple international groups that were trying to angle in on him, but when I spoke to him he didn’t know or trust them. What he had was all the makings of a sad story of inventiveness leading to… nothing.

This is our story in Africa isn’t it? How so?

  • We’re continually fighting to get our own money people interested in what we’re doing. We lack seed capital and no one locally cares.
  • We need business mentors that we can trust, ones that we’re not always worried about being fleeced by overnight. Ones that aren’t just looking out for how they can either steal the idea, the IP or the equity.
  • Lacking any local funding or business partners, we hope that an international funder will notice us.
  • If we’re able to get international attention, the next trick is trying to figure out if any of these people are real, honest or legitimate.

It’s frustrating. Why won’t anyone locally come in and fund an idea? Not just an idea, as in the case of Morris Mbetsa and others like Steve Mutinda, but real prototypes. These are working models. (I could go off on a tangent talking about all of the great software developers in Africa who talk a lot about good ideas but never build them – but that’s another post). No, these kinds of guys actually build the prototype first, then try to find someone to fund it. Basically, they’re doing it the right way.

Does the government have a role?

It should, but only in so much as they create a system which limits the hurdles that entrepreneurs need to overcome to create a business, get funding and bring their ideas to market (not just for tech, but for everything). Private investment should be the lion’s share of this type of growth for the country, but in Morris’ case, he’s created a system for Government, so there should be some government funding for just this type of activity.

In fact, Kenya went so far as to create the ICT Board a couple years ago for this express reason:

“To rapidly and innovatively transform Kenya through promotion of ICT for socio-economic enrichment of our society.”

Here we have a young Kenyan with (many) good ideas and prototypes. He needs some structural support though, and we hope he gets it before the vultures descend. I know Paul Kukubo, Al Kags and a couple others within this group – they’re good people and have big ideas themselves. I know that they’re trying to come up with big structural ways for Kenyans to access ICT services and for Kenya to become an global ICT hub.

My question is this: How will that ever be the case if guys like Morris Mbetsa don’t have the requisite government structures in place to allow them to succeed?

3 groups and food for thought

We have a foundational investment-in-innovation problem in many parts of sub-Saharan Africa. If Kenya is one of the top 5 African hubs for technology, then we know that the rest of the countries are in similar or worse conditions than this. What is it going to take for us to truly setup an ecosystem of entrepreneurship and the structures that support innovation, especially in the tech sphere?

1. Outside investment as catalyst
I’m starting to wonder if it will take a concerted effort by investors in the international space who can inject large amounts of capital into business ideas that have potential. Why international, isn’t local good enough? Normally it would be, but international investment comes with some benefits that local investment doesn’t. As anyone who lives in places like Nairobi knows, almost any money you take locally comes with two problems. First, it’s usually a small amount given for an excessive demand on equity. Second, it comes with political ramifications that tend to compromise the receiver of the funds.

Is what we really need a shakeup? A wake-up call for the local investor to realize that they will miss out on the big ideas and products if they don’t create a local system that allows real innovation to flourish, grow and enrich the inventors.

2. Government mechanisms for entrepreneurs
Outside investment as a catalyst for change in this space is one possible idea, but it’s not enough. As mentioned earlier we also need someone within our highly-bureaucratic government system to create a channel for entrepreneurs and investors to act. This could be accelerated business entity creation, and it would likely include lowering certain licensing terms and restrictions. My guess is it would also mean a structure for low-interest business loans as well.

3. A united technology community
Lastly, we need the technology community itself to band together. This is coming into being in a few countries, places where we have techies networking and creating relationships with business people and government. We’re starting to see when an investor comes into town, people okay with sharing the names of other entrepreneurs that have good ideas, and not trying to just tie that investor down with their own stuff.

While there will always be competition, lets put aside the tendency to pull someone else down when they’ve achieved some modicum of success. Instead, trumpet the small wins and help each other get ahead. Goodwill pays off so much better in the long run.

Finally

You can see this is something that I’ve been thinking about a great deal, and it bothers me to no end. For, if we don’t fix this we’ll continue to have the best and brightest head to other parts of the world – there is no industry where this is easier to do than the digital one. With them goes all the intellectual capital, inspiration and revenue that would further enrich our own continent.

I’m determined to play my part in seeing change happen. I want to see real technology powerhouses grow within Africa – ultimately with African investors and with solutions that will take the world by storm.

[Interesting update on Morris]

28 thoughts on “Hurdles of High-Tech Entrepreneurs in Africa

  1. I doubt if we would ever have governments in Africa who understand innovation.

    My thoughts:
    Create an african type of seed investor (willing to make my domain http://www.diasporainvestment.com available for this)
    Raise seed money from interested people (how much would be enough)
    Focus on the top three most promising countries

  2. Boosting local african potential entrepreneurs is the way to Do it!

    I simply love this article !

    Send me an email, so that can perhaps join forces or learn from eachothers ideas .

    Emre
    Africa’s Potential.

  3. Two thoughts:

    Get the gov’t out of the way completely, zero involvement and barriers, then free market thought and money will flow.

    My other thought is on your ‘pluses’ for international funding vs internal. The average int’l financier is looking at Africa, as a whole, as a high risk investment. It’s true they will likely be willing to put a higher quantity of investment in, but I’m sure they are expecting the high return the local investor would expect because of the perceived high risk that Africa is today, as a whole. As Africa, your country and your company shows maturity (and safety in that maturity), it’s very possible the int’l donors will not expect such a large return for their investment, but something more inline with their other ‘safe’ investments.

    I know Erik has some tricks up his sleeve. Perhaps we will see an entity come together in Africa (Nairobi & JoBurg?) with int’l support from donors who trust and respect the decisions of the entity to act on their behalf and inject capital into the projects the managers of the entity see fit for investment. This kind of structure already exists in the US and I could see it working well in Africa with a trusted middle man structure.

  4. After reading the last part of my comment it sounds like I’m describing a VC. But I’m really picturing an organization who is much more hands on with all kinds of developers and innovators. Pushing them on to the next big step, sometimes with capital. But it’s more of a mentoring organization that has the financial resources to inject the capital into an idea when it’s appropriate.

  5. Kiva, the person-to-person micro-lending website, already provide loans to entrepreneurs in Africa and elsewhere. Could a similar crowdsourced investement system help for this kind of projects or is it irrealistic ?

  6. I’ll allude to Wilfred Mworia’s article ‘The Making of a Revolution’ and specifically to a point he made about the lack of a ‘Startup Culture’, which makes investing in African tech a seemingly ginormous risk.

    “…if say, only 1 out of 10 product inventions (of a particular kind, in this case technological) really make it to market as ‘killer products’, then it may be close to impossible to create an economically sustainable market system for that kind of product with only 20 attempts at invention in that product area exist, because you would be looking at only 2 success stories. But suppose you had 10,000 such attempts. Using the ratio of 1 success to 10 tries; it means you would have 1000 success stories! And that is not just an economically sustainable market system, but a very vibrant one.”

    It is absolutely essential to network all these pioneering techies – and bring them out of those remote outposts they’ve been working out of. An inventor hailing from a community of inventors is far more appealing to an investor than a single guy who comes out of nowhere.

  7. The solution really has to bridge the $10,000 to $1,000,000 link. That is the greatest piece missing in Africa. Most tech ideas need anywhere from $50,000 to $1 m to reach fruition and establish a working market. That would be what angel financing is in the West. We need such structures in Africa.

  8. AL says:

    How much funding does Morris Mbetsa need to get his project running? We should make that happen first – if that young man gives up because of no funding as others [may] have done, we could end up with no inventors coming forward in our dark continent.

  9. @Joshua

    I agree, the $ we’re talking about is not $500-1000, but big numbers. I’m guessing the sweet spot is $25,000 to $300,000. There is a middle man VC I was a part of that never really got off the ground in the states that had innovators pitch ideas every Friday. They were given free office space and a limited time to develop there idea(s) until they culminated in a Friday pitch. If they won that group of pitches that day, they got $50k and continued to receive free office space. The others who didn’t get it could potentially be mentored further in their idea or go with a new one or move on (out). Other than getting cash, it was a neat idea that brought them all together into one space, sharing ideas and strategy, feeding off each other. There is of course the idea that people want to hold onto their ideas and not share their proprietary ideas, but hopefully the mentoring organization could break through that barrier to teach how openness leads to better innovation for everyone.

  10. 1. You can create a wonderful idea but it won’t get funded; and for a product invented, is there viable demand for it – from customers, existing companies? can it sell, can id be delivered rwpiadly, is it licensed and bankable?
    2 You can’t (and should not get a bank loan) based on an idea – this is a whole other headache a young entrepreneur should avoid
    3. Government of Kenya would probably refer the entrepreneur to a youth fund for a loan ($625 max).
    – There are probably groups of funders out there (I can’t think of a local angel investors) who the Kenya investment authority should vet for angel funding in Kenya. Meanwhile Kenya’s capital markets authority has been working on some rules for venture capital forever (http://www.cma.or.ke/index.php?option=com_content&task=view&id=32&Itemid=78)

  11. I should have made more of a distinction in my blog post about the types and sizes of funding I was talking about. Larger investment rounds are not what I was addressing (B, C, or D rounds of investing – being large numbers, entrepreneurs having less equity, having an established scaling and revenue plan, etc) what I’m talking about here is getting people to that level first.

    This means they need smaller levels of capital, something to take them from their working prototype to the “I’m making some type of revenue” stage. It likely means getting this technologist some mentoring or partnered up with someone that has some level of business acumen, because as we know, a lot of techies (be they in the US, Kenya or anywhere else) have strengths that are better spent on the tech side, and aren’t that adept at starting or running a business. What I’m really talking about here is that seed-level capital that doesn’t come with too many strings attached that you can only really find in established innovation/entrepreneurship hubs.

    I had an email from someone who was not happy with the way outside investors are attaching “causes” to the way they invest in Africa – different from how they invest in the rest of the world. He compares it to the aid-based approach to development, but applied to the investment space.

    “people are not funding solid businesses, they are funding “causes”… that means, I may have a GOOD business idea… but since it does not meet the mantra of the day (Bottom of the Pyramid, Unbanked, Microfinance etc etc … and they change often based on the latest research) I will not get money”

    On the very basic level, I absolutely agree. After all, why can’t someone with a good idea just sell that and get funding for it, if everyone has the chance of making money, then what’s the big deal? It rubs me the wrong way. My guess is this however, I think the outside investors look at the risks associated with investment in Africa and certain types of investors decide that they’ll do it anyway as long as it promotes some greater ideal (for them). [that last line is not supporting it, it’s just what I think is happening.]

    In the end though, I don’t think that outside investment in Africa is the long-term answer, but I do see it as a short-term catalyst for change. My hope is that more of it will take away some of the leverage and myopic foresight that is messing up our local investment space right now.

  12. As a young kenyan entreprenuer and investor, i know for a fact that it will be hard to get funding from local investors unless you can convince them of the cash flow they will obtain from the money put into the project. There is no way i can invest in something that i don’t understand or cannot see how i will make money from it. Convince people of that and you will have more venture capital than you can handle. I know it is sad but it’s all true.
    http://kenyantykoon.wordpress.com/

  13. @bankelele good points. I don’t recommend going into the debt financing side with banks early on either. Not that many banks in Kenya would play ball anyway… :)

    @lilious – interesting, and it might be possible. It gets points for creativity, and I wonder if anyone can tell us if there is something like that in the works. If so, I haven’t heard of it.

    @zulusafari – Agreed overall. The gov’t should really be creating ways to make it easier for investment and entrepreneurship to happen. What we don’t need is more restrictions and stifling in this space. Also, in the areas that are directly related to gov’t (like Morris’ recent app), the Kenyan gov’t should be looking at it as an investor.

  14. People including yourself have said it time and again. The government needs to make it easy to register a business and acquire legal services. This can be distributed through universities as it is done in the west, as most of the entreprenuers think up there ideas while on campus.

    Secondly we need our owns secluded business park in athi river with uniterrupted supply of power and broadband. We can always look for VC’s or money after that.

    In the mean time anyone needing early growth support can buzz me at JohnKaranja.com

  15. It is a paradigm shift that is needed in the Kenyan investment circle.

    When most people hear about investing in an idea, they skip all the stages of a venture’s growth and look at the IPO/sale of the business. Morris for example, might need to employ an intern to help, office space, and more equipment to take his prototype to a scale that is more attractive. This is an easy buy-in for a person who can tap into his vision and see how this can be applied in many areas of both business and society. [He could use more examples other than the Kenya Police]

    There is a niche area that small VCs/individuals can obtain by backing ideas that are viable and scalable from the get go. If you look at it down the line, you will realize that in the end, bigger investors will back an idea in latter stages because it is coming from “so and so”. You build a brand (fostered by trust) that ideas backed by you/VC/fund has a high chance of making it ‘big’.

    The danger of waiting for the idea to look viable so as to invest your tens or hundreds of thousand of shillings is that by the time Morris (& others like him) make the idea attractive to you, the amount of funding they are looking for is beyond your reach – the tables turn against you.

    I am with ‘lilious’ on crowdsourcing but not the Kiva way. Check out Kluster (http://www.kluster.com/) – this would be one way of doing it, especially with Kenya’s lackluster CMA guidelines (sometimes you have to take advantage of the loophole, apologize later and then help in shaping that policy after seeing how it works).

    It is clearly the way to go to obtain the small amounts of seed money that Morris needs to make his prototype go to the next level and attract an even bigger purse.

  16. Here’s an interesting update on the original story. Alex Gakuru, who is a well-known connector between the tech community and government, managed to get Morris Mbetsa a sit down session with Kenya’s Permanent Secretary for Communications Ndemo. Here’s his report:

    “This morning Morris Mbetsa met to PS Ndemo from 7:30 am to about 9:00am and demonstrated his softwares. And we never managed to go through all the applications!

    The PS shared endless opportunities he foresees for this locally developed software. Offered his personal support towards making it a reality, fast!! Watch this space…

    It struck how we have bubbling innovation from the ground up and it’s about time it was set free, nurtured to flourish and really changed this country.”

  17. The hurdles in other African countries can be worse. Governments go out of their way, by maintaining monopolies on telecoms (services & infrastructure) and other controlling policies, to actively stifle entrepreneurs & technology development. Yet they still claim to want to encourage foreign & diaspora investment.

  18. hi erik,

    great post. i think we need some success stories. we need to show people its possible. that a little support actually can make a difference and allows an entrepreneur to move from idea stage to market. once we have these stories we can really get the ball rolling……seeing is believing!

    would be great to start working towards solutions. vc4africa is a small attempt to bring people together around these issues. we are growing a community of investors and entrepreneurs dedicated to getting projects off the ground. if anyone here is interested in such a task, come check it out and drop a line! i am sure that just the group of people who have responded to this post can make the difference.

    ben

  19. moclutch says:

    Great posts. Typically, Angel investors and VC’s only invest in area’s in which they either have a good understanding off. Its uncommon to find anyone investing in an area they know nothing about. See the post above by moses for a first hand example. This is a chicken and egg problem.

    I think encouraging foreign investement is an excellent idea. Their success would encourage a broader audience of local investors to pay closer attention towards tech. Competition (and success) would have the ability to generate a huge interest in this area.

    Creation of a boards of regional tech experts that could help vet the ideas coming out of their region and then present those they deem most feasible to foreign tech Angel firms would be one way great way to accelerate foriegn Angel investement.

    Angel investment much more than VC investment is what we are missing. Only 1 out of 1000 startups from Angels will have a great exit, and only 1 out of 1000 startups from VC’s will go public. So what we need to focus on is to get a thriving Angel investement community going and the VC’s will follow.

  20. am a Kenyan tech-entrepreneur based in Nairobi with a product [GSM Home Security System] and proposal ready looking for an angel invesstor. Anybody with Alex Gakuru’s contacts or any other VC?

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