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m:lab By John Kieti / April 7, 2013

Startup Capital: Can Local Angels Play?

3 Comments

Figures from Kenya’s Joint Admission Board for public universities indicate that in 2013 Twenty (20) public universities and colleges are teaching Computer Science and ICT related bachelors degrees. Universities such as Kenyatta university have an annual intake of about 67 students under the government sponsored program in their computer science and Telecommunication classes (self sponsored students not included).

Plenty of Human Capital

That public universities are churning out over 1,000 such graduates every year appears to be a safe guesstimate. Similar figures are plausible for privately sponsored students in both private and public universities. From these numbers I beg to query the theory often thrown around that long term projects such as Konza City will fail as the real priority is human capacity building. Apparently the government is doing much about human capacity development for ICT – at the university level.

With relatively high numbers of university level Tech graduates, one wonders then whether the economy is expanding fast enough to absorb such skilled resources into formal employment. I think not, and that is not bad in itself.  From the increasing number of unemployed ICT graduates I meet on a daily basis, it appears that Kenya risks wasting such valuable human capital if the graduates wait further for formal jobs. I dare say that what these graduates need is not formal jobs. What they need is hope and a soft nudge into Tech entrepreneurship with a supportive ecosystem that provides accessible financial and social capital.

Need for angel investors in Tech

Although various sources of financial capital exist for tech entrepreneurs. They are not diverse enough to effectively address challenges of fledgling early stage startups. Venture capitalists are often too rigid to touch the very early stage, unproven businesses. Grants and competition prizes can be misused and often do not support the right entrepreneurship culture.

While local tech entrepreneurs forming startups struggle to access social and financial capital, theres a growing population of well connected upper middle class in Kenya. These financially endowed people in the society must be increasingly bored by traditional investment avenues such as real estate, long term debt instruments and the stock market. Besides, these increasingly high net worth individuals are actively on the lookout to diversify their investment portfolios. More high risk, high return asset classes such as early stage Tech startups are seemingly not fully exploited by the locals.

It is worth speculating that more local angel investors becoming active in the local tech scene can bring a holistic package to grow startups into sustainable job creating enterprises. The angels will not only be rainmakers bringing financial resources, social connections and valuable business advice to accelerate achievement of business goals for startups. They will also bring to startups an increased level of accountability towards business progress by virtue of vesting economic interests. The angels’ experience and understanding of the local business environment will also be very valuable to Tech startups in a marketplace that has been described by foreign business executives as “peculiar”.

Barriers to having more local angel investors being involved in the local tech scene appear to revolve around tech startups not being in the investors’ radar. Relative inexperience among the investors in evaluating Tech business opportunities also appears as a barrier. Investors otherwise experienced with traditional investment vehicles may not necessarily have a good grasp of risk mitigation mechanisms for Tech investments. Such investors when presented with Tech startups may compensate for their vulnerability by taking negotiating positions that appear ridiculous to Tech entrepreneurs regarding control of the startup – resulting in deadlock, no-deal scenarios.

Initiative to empower local angels

From its two years experience in Kenya and organizing Pivot East – East Africa premier mobile startups pitching conference, m:lab East Africa has identified lack of participation in the tech ecosystem by local angels as a growth barrier. m:lab therefore has a new initiative attempting to bridge the knowledge and cultural gaps between early stage tech entrepreneurs and local angel investors. 

Through practical investor workshops on Saturdays staggered conveniently over several weeks, m:lab aims to empower  more angels to actively engage in the thriving tech scene. Besides handling industry specific investment considerations, the workshops will offer participant interactive learning sessions with experienced Tech investors reviewing case studies of Tech startups.

Individuals keen on taking part in the workshop may sign up on this page which also has more information about the workshop’s target audience, specific objectives and delivery format. Experienced investors may also opt to take part in this year’s Pivot East competition for an enhanced deal pipeline.

Author : John Kieti

John Kieti is the Lead at m:lab East Africa. He is an exponent for mobile entrepreneurship and an experienced m4d professional. John is passionate about the growth of East Africa's knowledge economy. He holds an MBA and BSc in Computer Science. He also occasionally shares his thoughts about East Africa's knowledge economy on his blog - gmeltdown.com


3 Comments
  • Michael Pedersen at 10:50:16AM Monday, April 8, 2013

    There certainly is a large number of people graduating with an ict-background, but as clearly shown on a recent skunkworks discussion titled “Coding best practices” there is a huge (perceived) gab between the skillset required and the skillsets provided by the universities.
    So when there is an outcry for improving the human capital then the focus is more on quality than quantity.

    I think it is incorrect to believe that people are bored with investing in real-estate and similar classic investment opportunities – it is the rare few that what anything other than solid returns for a minimum effort. Becoming an angel instead of a purely return-focused investor requires a significant skillset – especially when you are talking about the ICT sector. Most people will just continue to opt for the non-complicated opportunity with solid returns.

    Reply
  • Moses at 11:30:05AM Monday, April 8, 2013

    A real picture of the situation Kenya is in. So many IT qualified personnel without a definite way on where to take their skills.. something needs to be done.

    Reply
  • Amen K. Rahh at 12:51:09PM Wednesday, April 10, 2013

    I think what is needed is a better connection between serious investors and serious startup owners. I think the ihub is a great meeting place for this and should continue to bring the two together with the goal of meaningful business cooperation. We at cc-gate.com have been looking for a serious investor and advertising for one for over a year now. You are right, we may not know exactly where to point our radar. But we are sure turning it in every direction we can think of.

    Reply

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