Kenyan tech funding gaps: Time to wrap up the lip service

Kenya has not been too kind in funding its startups. What can be done to grow local funding?

A story on the state of the startup scene in Kenya has got many riled up on the seemingly uneven playing ground, stacked against local founders and companies. The story "Silicon Valley has deep pockets for African startups - if you're not African" appearing in The Guardian, detailed how many African owned startups are starved of funding and only white backed startups attract meaningful funds.

The article quoted the Venture Capital in Africa by African Private Equity and Venture Capital Association which painted the paltry investments made by local investors.

"Foreign investors have been attracted by new opportunities and new markets in Africa. North American investors represented 42% of the total number of investors that participated in VC investments on the continent between 2014 and 2019, followed by European based investors at 23%. African based investors accounted for 20%, followed by Asia-Pacific (8%) and investors based in the Middle East (6%)," the report stated.

A 2019 report by Timon Capital and Briter Bridges also showed that there were more expat founders in Kenya than locals cementing the foreign founder trend in the country. "In Kenya, 37% of the co-founders surveyed were expats compared to 10% in Ghana and 5% in Nigeria," the report said.

Kenya has set its name as the hub of innovation right after the success of mobile money in the country. It has become the petri dish for new models of transaction, fintech and mobile technology in Africa. Kenya's high mobile (SIM) penetration of 116.1 per cent and internet penetration currently over 80 per cent have made it a conducive country for tech innovation.

This reputation has attracted entrepreneurs from established markets such as Silicon Valley. In return, the most funded companies in Kenya are generally white-owned companies, resulting in the term "white capital".

Even though this has given a chance for foreign dollar inflows and creating jobs, the Kenyan startup scene seems to have been owned by foreigners, while local innovators scramble for the little they can to keep their business afloat.

According to Partech funding report for 2019, Kenya ranked second after Nigeria in Africa after attracting investments of US$ 554 million. Nigeria ranked first with over US$ 700 million in investments.

Whichever side you are on in the argument on the tilted startup space in Kenya, one thing that Kenya cannot run away from is the internal funding gaps that have never been addressed not only in the tech space but in most sectors.


Government lip service to innovators

It is no secret that the government has perfected the art of lip service when it comes to supporting young innovators in Kenya. Various government initiatives have died natural deaths, discouraging even the private sectors from investing in the tech space in Kenya.

In 2015 the Kenyan government launched the Enterprise Kenya fund, that was aimed to fund local innovations in the tech space. It was a great 15 minutes for the Silicon Savannah.

But its pomp colour and celebration was the only thing Enterprise Kenya would achieve after it died right after its launch.

In 2018, the government was at it again with another "brilliant" idea of supporting the now struggling innovation space with the launch of WhiteBox, a platform where innovators could submit their ideas and get funding.

According to the minister of ICT then Joe Mucheru, WhiteBox aimed to embed innovative technologies into government processes. He also announced a Kshs 1bn (US$ 10 million) fund to support these ideas. And as you can guess, the idea frizzled into thin air with not much mention of the progress of the fund or the platform.

Back in 2015, Safaricom, the leading telecom company in Kenya, opted to launch a Spark Venture Fund. This was a much more fruitful endeavour in supporting local companies and it invested in FarmDrive, Sendy and iProcure.

But even this has been silent for a while. There has been little chatter on if the fund could be renewed and a list of startups it could support.

Another candidate quickly heading to the same graveyard is the Blockchain and AI taskforce report put together by the government. The much-awaited report that could have seen a growth in new technology within Africa has since fallen silent since its release in July 2019 after more than a year of compilation.

The technocrats who compiled the report did a commendable job in recommending how blockchain and artificial intelligence could be used within the country. Young innovators who are well informed could benefit from these implementations.


The way forward: Cut the lip service

Funding is always the number one problem for an entrepreneur, even after the market validation has come back positive. The imbalance in the Kenyan startup scene is not a problem for foreign inflows, it's an internal system.

Most investments in Kenya favour infrastructure, telecoms and real estate. Startup investments to the tune of US$ 1 million and above are not considered an option for local investors and this needs to change. There are brilliant ideas that only needed a deep pocket to scale quickly and create the enterprises of the future.

Iyinoluwa Aboyeji, Co-Founder, Flutterwave Africa and Andela blamed Africa's structure of "capital" as one of the biggest pitfalls of not having African owned funds in the continent.

"The challenge of founders not being able to raise capital, even though there is racial bias in allocation, we need to stop thinking that the only available capital in white capital and the question has to be, we have capital too what are we doing with our capital? We have capital sitting in pension funds being devalued every year, we have capital sitting in our governments being looted, we have capital sitting on land that is useless across Africa," Aboyeji said during the Black Founders, White Capital webinar.

He also said that for him, "white capital" was the only capital that listened to his ideas and funded them. "White capital saved me, that's just the reality," he quipped.

For Rebecca Enonchong, the founder and CEO of AppsTech, there is a lot of learning to be done in the area of funding startups in Africa for local investors.

"We need to have success stories. In angel investments, it takes a long time to make money. We often accuse high net individuals of not investing in startups, but it's because they have not seen successes," she said. Since late 2014, she has been working with new investors through the African Business Angel Network.

Africa, the ball is in your court. The continuous complaints on "white-capital" will not solve the funding gaps we see in the tech systems in most African countries. The solution to low funding for African innovators can be placed on the fact that we do not have homegrown solutions to push investments to the next level. Until the continent works its way to come up with other funding mechanisms, this problem will persist.