Pivot25 Day 2 Fireside Chat on the State of Venture Capital and the African Startup
Q: Why is it so hard to fund start-ups?
- Paul Kukubo CEO, Kenya ICT Board
- Richard Bell CEO, Mwananchi Group
- Christine Kapkusum-Mbae, Acumen Fund Health and Nutrition Portfolio
- John Waibochi CEO, Virtual City
There are currently huge barriers in Kenya in the investment of business ideas; unless one is able to find the project and know more about it then it’s really hard to get involved in the project as an investor. I would recommend the start-up entrepreneurs to get involved in building their ideas from the incubators and angel investing who are crucial since they focus on start-ups.
In most cases investors are interested in funding projects which have already shown a sign of success in the market and have grown in terms of revenue, thus my recommendation to the start-ups is to focus on first growing their ideas through incubation centers then they can start looking for investors.
Q: What is the social impact in any idea?
There is no such thing as social impact; if you have a project and it makes money, then it has a social impact to the market. Venues like iHub, incubation centers like m:lab play a huge role in training and supporting start-up entrepreneurs about business and help them plan their business better.
Q: Why is it so hard to fund start-ups?
Investors want to put in money in an idea that has already been established in the market. Thus, there is need for start-ups to start working on their ideas and build them before approaching an investor.
Q: What would you look for in a new start-up who wants funding?
The first thing I would look for is the social impact of the investment in the idea—is it providing a solution to the needs of the low-end market? Secondly, I would look for the financial return generated from the idea. Finally, I look at the commitment and passion of the person behind the idea. As an organization, Acumen is not only giving money to start-ups to develop and grow their ideas but also to provide post-financial support, whereby our work starts once we have put in the money to invest in the particular idea.
There is a need to put the venture business in perspective. In the US, more than 3,000 companies receive venture funding every year. In Kenya, a lot of companies are viable but not fundable. What an investor wants to hear is:
- How do you take your business idea?
- The technical aspect of your idea?
- The energy you have dedicated to your idea?
- The savings you have put to grow your idea?
An entrepreneur can have a very great idea that generates revenue, but has very little growth in the near future. This can limit the entrepreneur’s ability to receive funding from a potential investor. Many Kenyans don’t believe that money is given to people who already have money. Therefore, start-ups should focus on saving their own money to develop and grow their ideas rather then welcome venture capitalists in their business.
Q: What are some of the experiences you faced when starting as an entrepreneur seeking money?
There are some questions a start-up should ask themselves before approaching an investor:
- How are you going to make money from your idea?
- Have I done any due diligences to my idea?
- How will you attract your potential customers?
- Do you have the capacity in building your idea, in the near future
Q: Is venture capital the same as vulture capital?
: I think the VC environment in Kenya has not reached such a level that you would call it “vulture capital”…The most important thing is still utilizing venture capital to allow entrepreneurs to position themselves to grow. We are in an environment where there are a lot of social investment funds, which are cheap and one can tap into them without having a huge pool of funds.
Q: Even if the idea is great, how do you get the infrastructure in place?
Richard: The question as a start-up, which you should ask yourself is, where can I put my money? Capital market authority will help to solve the problem of infrastructure.
Q: Is there any vetting process that should be done to choose a VC?
Paul: If you have an engagement with someone who wants to speak to you about your business, there is no particular structure to do this, but the government is available to support identify the right connections.
Christine: In addition, if the VC you have approached is not giving clear processes that you need, you should move on and look for another person.
Waibochi: You need to play your cards well. The government should not have to vet VCs for us, entrepreneurs.
Q: Do you have any plans to attract Silicon Valley capitalist to help build markets in Kenya?
Paul: What we can sell has to be based from East Africa background; every country that wants to be funded must have an East Africa story.
Richard: There are people in East Africa who are already willing to invest and help in building entrepreneurs ideas, then after its grown and stabilized Silicon Valley can come and put a premium value to invest in the idea.