In recent years, Kenya’s tech startup scene has garnered substantial attention and investment, with hopes of realizing the Silicon Savannah dream. However, beneath the surface, there are unsettling signs of distress, as at least eight Kenyan-born tech startups have shuttered their doors in the past two years, while a ninth appears to be teetering on the brink despite substantial investor funding. We delve into the challenges faced by these startups and seek to shed light on why they may be heading towards what some have termed a “sinking ship.”
The Startup Saga
A comprehensive analysis by the Business Daily published on September 11, 2023, reveals a grim picture: eight startups, fueled by a total investment of over Ksh.11.2 billion, have crumbled in the face of adversity. The situation becomes even more concerning when we examine the case of Twiga Foods, an agri-tech firm that has raised an astounding Ksh.23.4 billion (USD 157.1 million) in venture capital. Recently, Twiga Foods announced plans to trim its workforce by a third, citing a harsh funding climate.
As quoted by the newsroom, Twiga’s CEO, Peter Njonjo, lamented the funding drought that has enveloped the market, despite the company’s impressive cumulative funding of $160 million since its inception in 2013. This raises an important question: Are funding challenges the sole culprits behind the demise of these startups?
Beyond Funding Drought
While many startups point fingers at the funding drought, a closer look at available data and resounding sentiments from previous interviews with founders suggests a more nuanced narrative. It appears that factors beyond funding may be contributing to the ‘sinking ship’ phenomenon.
One of the reasons is business viability. Some startups may have struggled due to questions surrounding the viability of their business models. It is essential for these companies to offer unique solutions that address tangible problems in the market. Without a solid foundation for providing value, even the most significant investment can’t guarantee success.
Secondly, the ‘short-term vision’ effect is another reason, as some entrepreneurs may be too focused on building businesses for valuation and hoping for buyouts. Without continuous innovation and operational models that keep changing with the tech landscape and trends, it is almost impossible for any business to thrive in today’s tech-driven world. It essentially boils down to sustainability and long-term planning, as well as a deep understanding of market dynamics, which are crucial for survival.
Existing Support System
The success of any business is directly proportional to the business ecosystem in which it operates. A perfect example is what is currently happening between China and Apple Inc., which has resulted in a loss of an estimated $30 billion for the company—a story for another day.
The existing support system and business environment play a crucial role in the success or failure of businesses, especially startups. Recent developments, including the introduction of new taxations and low interest rates, have added to the challenges faced by these young businesses. While taxes are necessary to fund public services and infrastructure, excessive or poorly designed taxes can burden startups, making it difficult for them to grow and thrive.
One would say that the current tax systems have created a financial burden and strain on startups, limiting their financial resources and making it challenging to invest in growth and innovation. Investors may have also been spooked by the new stringent fiscal policy moves by the government, as well as low interest rates, and potentially this may have had a dipping effect on the flow of capital into the startup ecosystem, increasing investors’ appetite in other emerging markets.
Despite Kenya’s President being a vocal advocate for the nation’s ambition to become Africa’s ICT hub, the recent setbacks in the startup ecosystem call for a reevaluation of the Silicon Savannah dream. While ambitions are high, the practical challenges faced by startups demand a more comprehensive approach to fostering innovation.
The Collateral Damage
Several startups, including Sendy, Gearbox, Zumi, SkyGarden, Notify Logistics, Kune, BRCK, and WeFarm, have succumbed to these challenges. These entities collectively raised substantial sums of money before their unfortunate closure. Sendy, for instance, secured $26.5 million in funding before it had to make significant cutbacks.
Despite the challenges, some entrepreneurs are still bullish and are hoping to regain solid footing in the market by curving a path forward through cost-cutting strategies. The troubles facing Kenyan agricultural and other startups are likely not ending soon based on the statistics and trends, underscoring the need for a holistic approach that combines visionary leadership, sustainable business models, and robust long-term planning. Kenya’s Silicon Savannah dream may still be within reach, but it will require careful navigation through the turbulent waters of the tech startup world. Only then can the nation’s ambition to uplift livelihoods through technology and innovation gain the impetus it deserves.