Technology

Why local angel investors are missing link on startup scene

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Summary

  • Foreign angel investors have been reaping handsome returns from their partnership with Kenyan start-ups that spring up all the time.
  • These foreign investors pump funds into promising local startups, after which they reap big once the enterprises pick up and turn in profits.
  • Such angel investors benefit immensely by converting the debt into a stake in the new companies.

Foreign angel investors have been reaping handsome returns from their partnership with Kenyan start-ups that spring up all the time.

These foreign investors pump funds into promising local startups, after which they reap big once the enterprises pick up and turn in profits. Such angel investors benefit immensely by converting the debt into a stake in the new companies.

The fast growing agritech firmTwiga Foods, for instance, is now servicing a Sh3 billion facility to streamline its farmer and distribution operations.

Kenya being an innovation hub in the region and even globally, there will always be brilliant ideas such as Twiga with a huge potential and which angel investors are scouting.

The question then is how Kenya can have homegrown investors with financial muscle to take the risks of financing startups when they are still going through teething challenges?

Calls have been rising in the startup scene for the establishment of a national angel investors’ kitty that will help local innovators and entrepreneurs to scale. The argument for such a kitty is that the benefits of such startups once they register succes is that benefits will accrue to the local economy in terms of increased profits for local players and creation of jobs.

Experts say there should arise a robust discourse on how local ideas can be match up with local financiers, noting that this is how Kenya can benefit from ideas emenating from its innovators. They add that by creating an enabling environment for startups to thrive, Kenya can attract a group of local angel investors keen to compete with their foreign counterparts

Strathmore business school don, Dorcas Otieno noted that an innovator-investor conversation at county, national and regional level is key to mooting commercially viable solutions to local problems.

Ms Otieno said Kenyan businesspeople should personally take interest in innovation exhibitions where they will meet new partners, new ideas as well as opportunities to diversify their investments into new products and services.

“While an idea is generated by an individual and perfected by a group of people, Kenya needs to churn out angel investors ready to ‘burn’ their money on nascent but promising projects. This means a fund that enables young innovators to try their hands on different projects from proof of concept, prototyping to scaling up their operations,” she said.

The don said it is sad that Kenya lack an active platform for local angel investors to fund business ideas thereby creating an open field for American and European financiers to tap into Kenyan innovations.

“We need to benefit our own to ensure all profits made from new businesses remain here but as it is foreign investors are quick to fund Kenyan enterprises while Kenyan businesses and wealthy investors are averse to taking up ideas generated locally,” she said.

Ms Otieno said Kenyan investors should take advantage of the emerging wealth in Kenya-based innovations that are homegrown, cheaper to adopt and scale as opposed to foreign products that are mooted for other audiences and that hardly understand Kenya’s cultural norms.

“The time is ripe for a ‘Buy Kenya Build Kenya’ conversation largely driven by our young people who have the ideas but lack funds to fulfil their dreams. Once a forum is created during innovation fairs, investors must take such fairs seriously by sending scouts to look for products they can fund to scale,” she said.

In an interview with MarketPlace, Ms Otieno said giving university students such opportunities help prepare them for the job market from a job creation point of view as opposed to the employee mentality that has been blamed for generating hundreds of unemployable youths.

The 202 Hult Prize Oncampus director Anthony Ndirangu said youth ideas must be nurtured early to breed an active base of thinkers who see opportunities in every challenge.

Last year, Mr Ndirangu accompanied students Pankaj Varsani and Skipper O’Brien to Abuja,Nigeria where they entered their recyclable bin project in the competition.

“We need an ecosystem that encourages young people to prototype their ideas and come November 27 and November 28, Kenyan youth will showcase their prototypes, finished products and ideas to the market at Strathmore for eventual uptake, he said.

Hult Prize is an annual, year-long competition that crowd-sources ideas from college students after challenging them to solve a pressing social issue around topics such as food security, water access, energy, and education. The Prize is a partnership between Hult International Business School and the United Nations Foundation.

The next annual Hult Prize event will be held on November 27-28 at Strathmore University, Africa’s designated Hult Prize regional centre.