Are social impact innovations distracting Kenya from real business?
Dozens of Kenya’s technology entrepreneurs have received awards, cash prizes and grants both locally and abroad. The majority have been honoured for their contribution in fighting poverty and making it easier for rural communities to access basic services like healthcare.
While this has put Kenya on the global map as a hub for technology, investors are worried that the emphasis on social impact technology is distracting entrepreneurs from building real tech businesses. With this trend, can the country envisioned to be the ‘Silicon Savannah’ build a Microsoft, Apple or Yahoo?
According to Nikolai Barnwell of 88mph, an investment fund, there is a lot of “free” money floating around that is pushing techies towards social impact apps.
“I fear that the kind of entrepreneurs you see in the Kenyan environment as a young techie are not people who build businesses, but people who work as consultants, people who have small companies doing IT and giving talks. They have a lot of freedom, short working days and very comfortable lives. Then there are the entrepreneurs with social apps and they get a lot of media coverage. These are the people considered to be successful. There is not enough focus on businesses that make money,” says Barnwell.
“The information is disproportionally skewed towards social impact. People are getting the idea that African tech is all about social impact,” adds Barnwell.
Sean Smith, analyst and manager of new investments at Invested Development, a fund focusing on alternative energy and mobile technology startups, concurs that grants are drawing focus away from the market and on to things that are not sustainable. He, however, argues that it is possible to have both social impact innovations and profit-driven businesses in the same ecosystem.
“Entrepreneurs need to have the rigours to build sustainable businesses using the money they get. They need to have some level of discipline,” says Smith.
Su Kahumbu-Stephanou, the developer of iCow, a platform that enables farmers to access agricultural education and extension services, says that social impact projects play a critical role, especially in a country where millions of people live below the poverty line.
“In a country like Kenya, a continent like Africa, our focus should be on poverty alleviation and impact, not money in the bank,” says Kahumbu-Stephanou.
She adds that grants are fundamental in the journey towards sustainability. “Products that are scalable and create huge impact are generally expensive to create and maintain, more expensive than most entrepreneurs can fund … Most other forms of finance are too expensive.”
She argues that it is incredibly important for entrepreneurs to maintain the majority shareholding in their companies, adding that receiving VC investment too early often results in the entrepreneur having little leverage. This can lead to the entrepreneur feeling that he or she “works” for the VC.
Mikul Shah, the founder and developer of EatOut Kenya, an online restaurant guide, received a grant last year to build a mobile site for their platform.
“Grant money is the best thing an entrepreneur can get because you are getting money without giving away equity in your business. Most grants are given to social impact projects and therefore more entrepreneurs are inclined towards social impact tech. Entrepreneurs should, however, stay focused and be aggressive enough to find business angles in social impact tech,” says Shah.