Africa’s Startup Centers – Nairobi
We started our series on Africa’s Startup Centers with Lagos and will be focusing on Nairobi in this week’s piece. There are over 400 startups in Nairobi and it has worked to create an ecosystem around Kenya and East Africa as a whole that has radically altered the ambitions and perception of what is possible amongst new graduates in East Africa. The map from VC4A provides great visibility on this.
It all began around 2009 in Kenya when M-PESA was founded by Safaricom. The mobile payment provider did many things for Kenya; many of which are still being understood as the ramifications continue to play out. What is known, is that over 45% of Kenya’s GDP is transacted over M-PESA and it has provided the framework and system for a flood of new entrepreneurs who were suddenly able to start a business and process transactions using their mobile phone. M-PESA also garnered global attention for its sheer success and obvious improvement in the quality of life for the average Kenyan.
Since then, the startup scene in Nairobi has matured and developed several more success stories. Stories such as that of Ushahidi, a crowd-sourced information app which was used during Kenya’s political crisis of 2009/2010 to gather information and then use it for meaningful insights. Even better is that one of Ushahidi’s founders was a young woman, encouraging women to be startup founders as well. This has been refined and developed over time for all sorts of uses, such as garnering insight into the current US election.
2009 was also noteworthy because it was the year that Mombasa got fiber optic cable, which was gradually laid out across the country. It was the start of something new, something optimistic. Mobile penetration in Kenya is now over 80% and the IT sector has contributed to more than a quarter of all GDP growth in Kenya since 2000. The government is also working feverishly to establish Konza, which is an economic city, 60km south of Nairobi designed to provide the infrastructure, resources, and environment to help curate successful tech startups. Konza is intended to be ready by 2030, it is being planned with high-density, walkability, and sustainability in mind. The first building is currently under construction, and Phase One will include a university, an office complex, and a hospital.
The government also mandated that at least 30% of all government tenders should be awarded to startups, as a way to encourage entrepreneurial growth. It is a rather hackneyed approach, but one hopes that it does encourage the growth of innovative, Kenyan businesses. Kenya being a former British colony provides the comfort of common law and English being the primary language of business. This makes it much easier for Kenya’s business to tailor themselves for an international audience whilst still building businesses for Kenyans and East Africa.
iHub has been a massive catalyst in establishing Nairobi’s startup scene. First started in 2010, and funded my both local and international partners, iHub provided the environment, community, and resources to help the nascent startup scene. iHub continues to remain one step ahead of Nairobi’s needs and is intending to expand its workspace by early next year They are also intending to become 100% self-funded using many of the models seen elsewhere in the world. iHub has worked with international partners in the past to establish Gearbox which provides rapid prototyping services. This type of service is often very expensive or inaccessible in far more developed startup centers. It provides a big leg up to entrepreneurs in Kenya.
Nairobi is somewhat unique in Frontier Markets in that many of the startups are truly innovative, rather than simply being adaptations of established business models (the ‘Groupon’ of Africa, the ‘Ali Express’ of Africa, etc.). Examples include Virtual City which provides agriculture and supply chain analytics, M-Farm which connects farmers with produce buyers, BRCK which has both hardware and software solutions for education and industry, Angani provides cloud computing services across Africa, and Maisha Meds which is solving a number of healthcare issues including the fact that over 60% of medicines sold in Africa are fake.
As you may surmise, it is relatively easy to invest and operate in Kenya and there is a robust, exciting technology scene. That means that there is a lot of capital chasing opportunities in Kenya. There are over 50 VC funds investing in Nairobi including significant capital from China and India. Major firms including Fanisi Capital, Novastar Ventures, and Savannah Fund have successfully raised and deployed capital.
From our perspective, if your portfolio is large enough, investing in African VC is a great way to diversify your portfolio, and Kenya is the easiest place to do it, at least until Nigeria improves a little bit more.
If you have any follow-up questions, please let us know.