The Cross Section of a Tech Ecosystem

I end up talking a lot about our tech community here in Kenya and I’ve had a front seat to what it looks like from the iHub. In my mind, I think about it like the cable conduit below, where you have multiple different parts that seem to look, feel and act independently, but together form a whole.

A cable crosssection

One grouping is starups, another is investors, another is large tech companies, and yet another is researchers. There are bloggers, digital creatives, visiting techies, SME leaders who’ve learned their lessons, and freelancers moonlighting from their day jobs. It’s a big mixed bag and we all together form an ecosystem. A healthy ecosystem is where all of the sub-cable systems are functioning well and there are no cuts.

Moving beyond the cable metaphor, a healthy tech ecosystem is where the different parties are able to and want to work together. Where each is happy to see the other do well and will go out of their way to help make connections and bring others forwards with themselves.

Oxford Jam: Social Impact Investing in Tech in Africa

I’m in Oxford for the Skoll World Forum on social entrepreneurship, and this afternoon I took part in an event called Oxford Jam, where I carried on a discussion with Michael Szymanski (MEST Ghana) and Corina Gardner (GSMA) focused on “investing in tech in Africa”. It was a good session, as it was very much a discussion between the audience and ourselves.

Some takeaways:

Using the What’s There
There are a number of tech hubs and labs coming up across the continent, and each have a different focus as we all try to experiment in our space to see what works. Michael works at MEST in Ghana, which is a very focused 2 year program on training entrepreneurs, where they then invest in some of the ideas that come out. This varies greatly from the iHub model where we’re primarily trying to connect people rather than train them, which is also different from what ActivSpaces in Cameroon or ccHub in Nigeria are doing.

The Funding Gap
We’ve seen that the biggest gap in funding comes at the early, risky stage. How can we get more local angels involved in tech startups in Africa? New seed funds are starting up in some of these spaces, and it’ll be good to see how that continues to grow and if we can create a true base, a true foundation, to the startup ecosystem in the African technology hub cities.

Social Impact Investors
We’ve heard some grumbling about the social impact investment circle, that it takes a lot more effort and has a lot less return going after the money in these circles than it does just going after more traditional VCs or other investment vehicles. At the end of the day, what’s needed is to build a business, something that is sustainable and can generate revenues. That takes time, connections and capital to make happen, and the question is whether the social impact investors can keep up with the normal investors in Africa.

Due Diligence
When an investor comes into a new country it’s difficult for them to get plugged in, and hard for them to know who to trust. They need trusted intermediaries to do the initial introductions, and then a way to figure out if the companies that they’re potentially investing in are legit. This can come at a higher cost than where the investor is coming from, as the legal and business structures can differ quite a bit.

From the outside, it also looks like most people invest in people that look like them, which would explain why more of the social impact investment money being directed at Africa seems to go to people who come from Europe or the US. I’d like to see more of the social entrepreneur programs (schools like MIT and Stanford, as well as the big Fellows programs) doing more work getting out into the Asia and Africa. It seems to me that there are just as many people who come from these countries who know the real problems, and the cultural issues there, that could use some time overseas in the US/Europe, not just the other way around.

The event really starts now, where my colleague Patrick Meier at Ushahidi will be taking the stage for the opening plenary session with Judith Rodin CEO of Rockefeller Foundation, Roger Martin, Dean, Rotman School of Business, University of Toronto and Soraya Salti, Senior Vice President of Middle East/North Africa for Junior Achievement Worldwide, INJAZ Al-Arab.

When do You Need Funding?

I’ve spent the last couple days in scenic Salzburg, Austria with 20 other people from both traditional journalism and new media backgrounds. Our goal: discuss strategies for more effective engagement and investment in “tomorrow’s media“. There are a mixture of organizations in the room, some established and others start-ups, like myself representing Ushahidi.

One of the questions posed, and which I’ve been ruminating on, is “when do you need funding?” (At this particular meeting, we’re talking grants primarily, but this applies to traditional seed and VC funding as well.)

Invest in Doers not Talkers

972816_tape_measureI don’t think it’s as early as most people think. There are a lot of people out there who claim they need funds in order to build a product. I disagree. Your first job is to build it. It might be in your nights and weekends, but that’s to be expected.

Yes, at a certain level you need funding that allows you to live, feed yourself and grow a business, but that’s not until you actually have something to show. Why would you expect someone to pay you money for a good idea? There are good ideas everywhere, but few examples of great execution upon these ideas.

A great presentation, Powerpoint or speech will get you a long way, and the ability to communicate is essential in both getting funding and getting user adoption or partners to work with you. However, nothing sells a good idea like a working product.

Whether it’s building a prototype, like we did with Ushahidi in Kenya, or a couple guys in a garage creating a new search algorithm and having to shop the product of that research around before they find investors, it’s too be expected that the work comes first, the funds second.

Growing

When is funding needed then? It’s needed when you have a product and it shows potential for success. Where you can talk to smaller investors who can support your work a little longer so that it can be refined and grow into something that has a real chance to make a difference, make money or both.

The second level of funding is about scale. It’s when you have a proven product that already has some success and needs more than it’s current cash-flow, or personnel, to take it to make a broader impact.

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]