Kenyan telemedicine start-ups struggle to attract global investors

Digital healthcare system was pretty unknown before Kenya reported its first Covid-19 case last year.

In part, Kenyans were used to visiting dispensaries, chemists or hospitals physically to get medical services.

As the need to reduce hospital visits-as much as possible-to combat the spread of the virus rose, so did the uptake of telemedicine.

Now, Kenya’s tele-health start-up space is thriving as demand for virtual health services such as checkups, medicines, referrals, consultations, among other services, rises.

The growth emanates from the need for affordable, innovative and technology enabled systems considering inefficiencies in local hospitals in areas such as medicine supply chain as well as patient management.

Despite the growth, however, the ecosystem is dominated by companies owned by non-Kenyans such as Copia, MYDAWA and Maisha Meds.

Local e-health start-ups are struggling to raise investments owing to low confidence on the part of international venture capitals (VCs).

While high-income countries (HIC) start-up founders as well as local expatriates with international connections find it easy to raise capital, those from Kenya struggle due to lack of confidence among investors.

For example, out of Sh22.1 billion ($207 million) that was raised by 37 e-health African start-ups last year, Sh13.4 billion ($125 million) or 82 percent went to seven start-ups such as mPharm ($52.5 million) and Copia ($32 million) that are foreign owned.

Others are Kasha ($12 million), MYDAWA ($10 million), Pharma Secure ($7.9), Healthy Entrepreneurs ($6 million) and Maisha Meds ($5.2 million).

Only one of the abovecompanies has an African founder or co-founder.

“African innovators who lack ties to high income countries (HIC) find it particularly difficult to raise funding. Receiving education from or garnering work experience in HICs, and having nationals from HICs as founders or co-founders on the team, can play a key role in facilitating access to global investor networks,” a report by health consulting firm Salient titled Innovation in Health Product Distribution In Sub-Saharan Africa notes.

The study defines telemedicine as remote medical consultation between consumers and health professionals. It excludes provider-to-provider telemedicine services and telemedicine without delivery of medicine to patients.

The report sampled 61 health-tech innovators, half of which are in Kenya and Uganda-including Rocket Health and MYDAWA-between December 2020 and April 2021.

MyDawa, for instance, which was founded in 2007 by Neil O’Leary, an Irish, has so far raised more than Sh752.9 million ($7 million) from international VCs.

It now provides medication, health, wellness and personal care products through mobile phones, laptops, among others.

Apart from MyDawa, e-commerce platform Copia also sells over-the-counter medicines. It was started in 2013 by Silicon Valley veteran Tracey Turner and Jonathan Lewis.

The two are some of the start-ups in the country that are owned by international founders.

Only last month, a new report , the Disrupt Africa Tech Startups 2020 Funding, showed that the country’s start-ups in agritech, fintech ecommerce, logistics and e-health secured record funding on the African continent.

Between 2015 and 2020, for example, investments in the country increased to Sh26 billion from Sh20.8 billion ($191.4 million), representing 27.3 per cent of the continent’s total investment.

perception bias

Nigeria came second with Sh16.3 billion followed by South Africa (Sh15.5 billion), Egypt (Sh15.4 billion), Ghana (Sh2.2 billion) and Morocco at Sh1.1 billion.

“This is the largest amount of funding ever achieved by a single country. The record was previously also held by Kenya, when in 2019 the country’s start-ups netted Sh16.2 billion ($149.2 million),” the report noted.

Whereas that majority of African founders without HIC ties have raised less than Sh16.1 million ($150,000) in external funding, innovators with ties to HIC countries — through work experience, education, or non-African co-founders raised over Sh107.6 million ($1 million) in support.

"The apparent fundraising ceiling reflects long-running beliefs about perception bias on the part of global investors in Africa’s tech ecosystems, particularly among venture capital investors who appear more likely to fund innovators with HIC ties” the Disrupt Africa Tech Startups 2020 funding report said.

“However, e-health investments trails commerce at 10.3 percent followed by fintech (24.9 per cent) and e-commerce and retail tech (13.9 percent)” it added.

investment ecosystems

To ensure Kenya owned startups succeed, the study recommends investment in local companies. Others being rural coverage and increased access to affordable capital.

“Reshape investment ecosystems to ensure more equitable funding and professionalsed support is accessible to high-potential African founders who typically lack access to global networks, including female founders and innovators in Francophone Africa,” the Salient report urges.

Besides capital, lack of regulations for e-pharmacy (digitally enabled direct-to-consumer (D2C) distribution) and telemedicine impede growth.

Unlike Kenya where plans to develop such regulations have not yet started, developments are ongoing in Nigeria, Ghana and Uganda.

“Innovators operate in a gray area, and this limits the types of services they provide. For example, some D2C distribution companies report focusing primarily on over-the-counter products because the lack of e-pharmacy regulations represents a risk in launching online distribution of prescription products.”

Telemedicine innovators also highlight that lack of regulation constrains geographic expansion since each country requires regulatory assessments, increasing time and cost.

“Clear and harmonised guidelines would help facilitate geographic expansion” the report said.

Another challenge is the recently adopted digital tax that the Kenya Revenue Authority (KRA) through which it targets to net some 1,000 businesses and persons.

The Income Tax (Digital Service Tax), 2020 came into effect in January where KRA is eyeing businesses and persons selling services and goods online in its latest push to bring more taxpayers into its net.

“Finally, in Kenya a new digital tax presents a burden for e-commerce companies as it raises the price of services. The tax regulation is also not clear on e-commerce-specific transaction challenges such as returned items, which can complicate operations,” the report adds.