Personal Finance

Incentivise investors to boost start-up funding

iHub-guests

Guests during a start-ups workshop at incubation centre iHub in Nairobi on March 8, 2018. PHOTO | DIANA NGILA | NMG

Summary

  • Last month the Ministry of ICT published a new policy that gave a lot of focus to innovations.
  • The policy set as a priority growth of home grown innovations.
  • As some of the incentives, the policy recognised the need to procure home grown solutions therefore creating demand for local technological solutions.

The Kenyan start-up and innovation sector is receiving a lot of positive legislative reforms. Last month the Ministry of ICT published a new policy that gave a lot of focus to innovations. The policy set as a priority growth of home grown innovations. As some of the incentives, the policy recognised the need to procure home grown solutions therefore creating demand for local technological solutions.

The policy also recognised the need for innovation funding and highlighted various possible forms of innovation funding. Some include funding for innovators at pre-prototype stage. It has been a huge challenge for this category of innovators to secure funding from financiers due to lack of historical records and collateral. The policy highlights the need to have diversified financing options for innovators.

The policy also noted the importance of angel and venture capital as available funding options and further noted the possibility of capital market listing for some qualifying innovations. Though policies are not enforceable as law, this was a step in the right direction.

From previous experience I have observed that though there are a number of innovators in Kenya, very few innovations make it past the prototype stage due to a number of challenges, chief of them being lack of finances and business skills.

I am therefore excited that there is a proposed law, the Start-Up Bill 2020, to govern start-ups. The spirit of the law is largely to provide a conducive environment for start-ups to grow. The purpose of the law is to give a framework to encourage growth and sustainable technology, create a better environment for innovations, attraction of talent and creation of job opportunities for the youth.

When this proposed law, is read together with the new ICT policy, one can discern that the government means business when it comes to promoting innovations. However, the question remains. Is the law adequate?

The proposed law provides a mechanism through which start-ups shall be registered and nurtured into incubator programmes, run by licensed incubators. There are fiscal and non-fiscal incentives accorded to registered start-ups under the programme. Some include funding and tax incentives.

While the proposed law provides incentives to the start-ups, it does not provide any to stakeholders for example investors. I believe if some incentives are provided to investors, then there will be a higher supply of venture capital.

Most investors are reluctant to invest in innovations as it is a high risk investment in their view. Most of the times the start-up concepts have not been tested and it is difficult to predict returns. On the other hand, a successful innovation presents an opportunity for investors to earn very high returns despite the risk.

It was hoped that the Moveable Property Securities Act would allow innovators to use their intellectual property rights certificates as collateral to secure funding for commercialisation of their innovations. The law has had little impact on funding of innovations. Lenders are still reluctant to lend into innovation funding.

My recommendation would be therefore be to consider giving venture capitalists some sort of incentives to attract more investment into the sector.

Competition for venture capitalists is high and it would be important to provide market incentives to attract global venture capitalists into the Kenyan innovation space.