Kenya: Investor relations tips for local startups

Nairobi is attracting more funding opportunities from within and without. Startups need to know how relate to investors.

Nairobi’s selection into the Smart21 cities by the Intelligent Community Forum for consecutive two years has bolstered confidence that this city is one to watch.

This comes down to its broadband economy, use of mobile money, and mobile phone penetration. However, Nairobi was also highlighted for the innovation ecosystem which includes innovation hubs strewn across the city.

“The sheer fact that Nairobi continues to attract attention among investors, accelerators, international technology corporates, and even non-local startup founders (foreign talent) shows momentum towards creating a thriving startup ecosystem. Watch out for the cumulative effect,” former m:lab East Africa Managing Director John Kieti told IDG Connect.

Last year quite a number of startups raised capital funding, making it one of the best years in the startup ecosystem. Most notable businesses included: MKopa solar, a business trying to light up rural homes with low cost solar lamps, and BRCK, a hardware and cloud service helping users stabilize their internet experience, founded by Erik Hersman.  

Kieti told IDG Connect: “Nairobi offers prospects for high growth startups but [is] high risk nonetheless.”

To help counter this, IDC Research Analyst Leonard Kore has provided IDG Connect with four pointers to improve the relationship between Kenyan startups and investors. None of these may guarantee success for a business, but they could help create the best conditions to drive financial success.

Patience - The startup space in this region has not yet matured to the level deserving of the name Silicon Savannah. However, the growth is tremendous and the ecosystem very vibrant. It takes time to get a startup that is best fit for investors. There are many great ideas and startups spiralling up from hubs, universities and tech meet up spaces. The region needs investors who can grow with it and take time to look out for these startups in their different locations.

Align startup vision with investor vision - Besides funding, investors must be able to see what a great idea [it is] and try to bring additional value to what a startup would need to achieve its objectives. Investors who are only looking at return on investment without considering the vision behind the startup, more often than not, get disappointed. Startups [should be] careful and sceptical in giving equity to venture capitalists whose main attraction is the ability to make it rain, without considering the company’s vision.

Ability to bring in more than cash on the table - The investor must learn what turns on startups. It is just not about the money; finding out what the startup needs is important. Investors should concentrate on this.

Ability to tame investor greed - Most investors are sharks. Investors go for the biggest share in equity even when there's a lot of value being brought on board. This from the onset discourages startups from striking a positive note with investors. Startups want to have a sense of control and will only give up majority stake when it not only makes financial sense but is the best fit for the vision of the company and where the founders want it to go.

Apart from these important factors, Kore told us young businesses have to think of the following strategies, before they go and meet investors:

Have a decent business model - Some businesses have bad business models and lack suitable monetization plans. In the long run, businesses are built on solving problems and generating revenue in the process. This is usually a tricky place for entrepreneurs. But that question has to be answered before pitching to potential investors.

Make sure your product provides a solution - The only way to milk revenue from users is to have a product that is relevant and solves problems for the users. Investors will usually ask, what problem the startup solves in the ecosystem.

Get the right talent - Kore told us, “Not having the right co-founders is a problem. Getting the team right is key to success. They must all understand and believe in the vision. They must play a complementary role.”

The co-founders of the business also need to stay on track regardless of the external factors and pressures. The entrepreneurship culture in Kenya will only grow with the tech scene being able to take in more ideas. Businesses fail and succeed based on various factors.

In the end, investor interests might build or kill any business. But once you sign on the dotted line, the relationship becomes a careful dance that should not affect the future of any startups.