Startup Country Report: KENYA
This is a first in a Series of posts I am doing in the next 3 months where I report from the trips I am making to 7–8 African countries as part of looking at new deals and assisting our portfolio. First in the series we examine Kenya.
Savannah Fund started off in Nairobi, forming a partnership with Erik Hersman and the ihub/mlab in 2012. We have since invested in 8 startups in Kenya and the our accelerator out of the mlab with 14 companies to date.
Kenya is most famous for the pioneering mobile money innovation with M pesa as well as being a “hotbed” of Social Enterprise movement. It was recently named a hub for impact investing. Trends set continue especially if security situation can be kept in check.
Nairobi has also been a traditional business regional hub for East Africa and continues to act as an important talent magnet for startups. There has been a steady rise of hubs, workspaces and accelerators — from Nailab, 88mph Startup Garage, Growth hub and of course, the iHub with over 10,000 members setting the bar and inspiration for many other hubs across the continent. The government’s planned Konza Tech city is an ambitious effort to lay down infrastructure to support the next stages of development of the tech industry to support its vision 2030 to become a competitive middle income country diversified beyond traditional tourism and agriculture.
Nairobi definitely feels like you are at the center of a Africa’s innovation with a number of high profile startups/social enterprise from Ushahidi, BRCK, Kopokopo, M-KOPA to Bridge International Academies. Our portfolio company Eneza Education was ranked by Fast Company as a top innovative African startup.
Areas to watch around innovation are Financial Services / “fintech” around the unbanked or rising middle class, Internet of things/ machine payments tied to mobile money, solar, education and Internet access.
The recent Global Entrepreneurship Summit held in Nairobi in July 2015 with Obama visit definitely put a renewed focus and global attention to a growing tech hub.
Startups in Kenya often find it difficult to scale beyond their own borders even within East Africa and this hinders ability to raise follow on funding beyond Seed or Series A. Notable exceptions include Cellulant and One Africa Media- so it is possible but not automatic as many business plans point to.
Those that don’t scale beyond Kenya find themselves competing for a relatively small market often in the same space as big incumbents- especially when you consider that global startups targeting Africa often chose Kenya as their first market- so competition is stiff especially in the financial services market. For example, in addition to mobile money- Visa, Mastercard, Paypal and even Bitcoin players are competing for customers who are probably seeing all of these products and services for the first time.
Safaricom has a reputation of entering many startup turfs and sectors. Their new VC , Spark Fund and opening up of M-PESA API, may be the beginning of a perception change especially as they continue to feel the heat from rival Equity Bank on mobile money service and regulators to play fair.
Startups that use Nairobi well as a hub for Subsaharan Africa are well positioned to grow into true Subsaharan “Zebracorns”. Especially if they can find enough local talent and maintain work permits for global talent that continues to flow to Nairobi.
