Kenya: Software developers in Kenya are losing lucrative opportunities for funding because they lack clear business plans and strategies to take their ideas to market, new data shows.
This comes despite growing hype that Kenya is set to be the Silicon Savannah of Africa given the significant buzz around the country’s tech industry.
The results of a private equity confidence survey, however, indicate that Kenya’s tech industry could be losing ground to long-term rivals Nigeria and South Africa in terms of getting deals and early-stage start-up capital.
“Kenya’s technology industry is not performing as well as many would have expected,” said Ms Andrea Bohnstedt, the director of private equity consulting firm Africa Assets.
Africa Assets, together with auditing and consulting firm Deloitte, last week released the 2014 edition of the East Africa Private Equity Confidence Survey, which detailed the trends and developments in the region’s private equity industry.
The survey indicated that in 2013, Kenya took the lion’s share of the number of deals closed, clocking a total of 12 deals valued at over Sh9.6 billion.
This represented 46 per cent of the total number of deals in Eastern Africa and 69 per cent of the total reported values, illustrating Kenya’s lead in East Africa’s private equity industry.
However, despite an increase in the number and value of the billions pouring into Kenya’s small and medium-sized enterprises, agriculture and real estate sectors, both local and international investors gave the country’s technology sector a wide berth.
“There is a lot of potential for software companies, but this is not where the deals are, and the hype about Kenya as a Silicon Savannah is in fact not translating into business opportunities for the technology sector.
“People are more spoiled by pitching competitions, and few developers are actually concerned in building scalable companies that investors will risk putting money in,” said Ms Bohnstedt.
In the last five years, Kenya has seen an almost feverish uptake of technology, particularly in software development.
The “App Economy” has seen the rise of more than eight incubation labs in the country in just four years.
In these incubation labs and co-working spaces, hundreds of young developers belt out phone and web-based applications every day, with the aim of taking their innovations to market.
However, most techpreneurs lack the appropriate initiative and strategy required to transform their ideas from applications to technology start-ups that can generate revenue, attract funding and create employment.
Dr Kamau Gachingi is the director of Nairobi University’s Fab Lab, an engineering incubation lab that specialises in development of hardware technology and robotics.
According to Dr Gachingi, there is a significant mismatch between Kenyan developers and potential venture capitalists.
“Individuals or companies with the desire to invest in an innovation will often bring to the table an equity-sharing agreement to be met before they agree to put money in the idea, and this is where most disagreements arise,” he said.
“For example, an investor might put forward a proposal for a 60:40 split in equity because the investment is high risk, but this often dissuades the developer from signing on.”
Gichingi adds that some developers lack appropriate business skills and training to put together convincing business proposals and pitch ideas to would-be investors that win funding.
“There is a lot of start-up money to be won by developers in venture capital, particularly since the technology industry in this country is still growing,” he said.
“There is also some degree of suspicion on both sides, and both the tech industry and investors need to bridge this gap and work towards channelling some of this capital into early stage start-ups.”
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