14 February 2012

Kenya: Why APP Start-Ups Fall Short of Global Partners' Funding

Kenyan application developers seeking funding to roll out their business by partnering with international financiers are missing out for failing to meet the minimum financial threshold.

While global financiers are said to be ready and willing to put their money in Kenya's growing application and software development business, the small-scale nature of most investors makes it uneconomical for global funds to stream in.

"There is a mismatch in that our entrepreneurs ask for too little, in comparison with what potential venture capitalists and angel investors are willing to put in. We are talking about groups that are ready to invest a minimum of $500,000 (Sh42.5 million)," says Mr John Kieti, m:Lab manager.

Potential projects

The funding needs of an average local start-up are put at between Sh1 million and Sh2 million. This amount, says Mr Kieti, would make a high-threshold investor turn away from investing as it does not make financial sense.

m:Lab is one of the over five hubs in the city that offers incubation, training and mentorship to start-up technology firms in the country. It also organises the PivotEast mobile competition and conference that seeks to promote mobile technology innovation in East Africa.

The annual event attracts visitors from around the world who are interested in sampling what the East African technology industry has to offer. They also come to fish for investment opportunities.

"It is at such events that investors scout for potential projects that they would like to invest in," says Mr Kieti.

Tragically, local investors are not willing to put their money on technology, but rather in brick and mortar, which they say is more "real" and the returns are "tangible."

Banks are also not willing to finance such ventures, given that they mainly fund businesses that are already in operation and are backed by tangible security.

"Many business owners in this industry struggle to access the capital required to step up their ventures as they do not have the collateral and track record required to secure finance with traditional institutions," says Mr Rishi Khubchandani, general manager of GroFin Kenya, an investment company.

But there is also the issue of whether being a good application or software developer translates to being a good entrepreneur.

"Even if they are backed with the necessary finance, they often lack the education, skills and access to information required to turn their entrepreneurial spirit into bankable project ideas," Mr Khubchandani says.

Ms Hilda Moraa, a team member at Weza Tele -- a local start-up, advises entrepreneurs not to look for funding if they are still at the discovery stage of their idea.

"You are looking at people who are willing to invest their resources in you, and your company; (therefore) you need to have an action plan first," she says.

She advises start-ups to "work on the product first before looking for someone to invest in them."

There are several investment companies in the region that local entrepreneurs can tap into. They include GroFin, Fanisi, InvestQ and Capital Investments.

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