Kenya’s Tech Innovations, Japan’s Digital Divide

If you follow my blog, you know that I like to report on the many technological innovations coming out of East Africa, especially Kenya. There is no shortage of subjects to report on, from the nationwide spread of mobile money to portable solar solutions, but also the inventiveness of individual “hacks”, such as SMS-powered remote locking systems and home-made mobile phone sonar fishing devices.

While Kenya’s young tech entrepreneurs show no shortage of ingeniousness, the lack of technological advancement in Japan, of all places, is becoming a major cause of concern for policy makers and analysts.

“Police stations without computers, 30-year-old “on hold” tapes grinding out Greensleeves, ATMs that close when the bank does, suspect car engineering, and kerosene heaters but no central heating.”

In a recent piece for the BBC entitled Revealing Japan’s Low-tech Belly, Michael Fitzpatrick paints an alarming picture of a nation whose hi tech prowess was once the envy of Germany and the US.

“Japanese banks, post offices, government offices, all are staffed with three to five times the employees because they must do every process once on paper and then again on computer.”

An aging technophobic population, a government bureaucracy which refuses to go digital, local phone manufacturers rapidly losing market share to Apple, “tech standards and business practices incompatible with anything beyond its borders”. This is the digital divide crippling Japan that we rarely hear about.

My Comment on White African’s “Finding and Funding African Innovators”

Ooops, 4 months have slipped past without a single post from moi. Not good, not good. Anyway, no use in crying over missed opportunities. Time to recover my blogging mojo.

Earlier this evening I was drafting a comment to a blog post by Erik Hersman. As my response grew longer and longer, I decided I might as well publish it here too. It also serves as a sort of summary of my last 4 months. Well, that and my twitter feed. Thank God for 140 character “blog” posts :)

The two main questions posed by Erik in his post were,

1. How do you find the entrepreneurs and innovators in Africa who need investment funding to scale? 2. Who funds them?

So I threw in my 3 shillings…and here’s the original.

“As a European citizen and resident who has provided seed capital ($15 k - $30 k) to two East African start-ups already, I’d like to share some of my experiences.

Let me preface my comments by saying that I don’t think the outlook for seed capital / angel investments in Africa is bleak. Most low level angel investing is informal, and informal investing is, by its very nature, informal. It’s the “friends, family and fools” round, so we don’t get to hear about it very often.

Higher up the sophistication ladder you have angel investor groups, investment syndicates, matchmaking operations and of course VCs. While there does seem to be a dearth of these groups operating in, or concentrating on Africa at the moment, this is changing fast.

An experienced and accredited “Western” angel investor, who may be interested in investing in pre-revenue African tech start-ups will often go through Angelsoft at some point on his/her journey. There the investor will try to link up with investor groups or just review deal flows in a particular country or sector. This is where the problems start. There are 460 angel groups/VC companies registered with Angelsoft (representing almost 20,000 investors) but fewer than half a dozen have any focus on Africa. Of these one of the most reputable is Bid Network, as mentioned above by @egm and @jon. I know some of the management staff at Bid Network and they are all upstanding individuals who work hard, but they’ll be the first to admit that they don’t really have many projects in the general IT sector, let alone cutting edge mobile Internet or web services start-ups. Most of their deals are in agro-processing, alternative energy, and tourism, etc.

Another big problem with angel investing is the high failure rate. Depending on whose stats you read between 40 % - 85 % of start-ups never get past the 2nd year, so angel investing is risky business in any market, even without the specific peculiarities involved in backing ventures in Africa.

However, @HASH is absolutely right about having to get your boots on the ground. I have made two trips to Africa in the last 3 months. I visited four countries specifically to meet people involved in local tech scenes, to follow up on leads, ask a thousand questions, develop a better understanding of local markets and to really get a feel for what kinds of projects might succeed.

As a result of this research and these trips I formed a company, Chembe Ventures Ltd (thanks for the plug, @Jon) to make and hold these investments. The first venture I seeded was Status.ug Ltd, a Kampalan group developing a mobile social media network for Uganda. The product has its origins in a mobile Facebook updating app originally incubated by Appfrica Labs and Jon Gosier, and conceived by Felix Kitaka, a talented programmer whom some of you may know. The second investment is in an innovative results monitoring software. I’d rather not give too much away about that one just yet.:)

I’m expecting a co-investor and old friend who shares my passion and optimism for Afritech to join me as a partner next month. Eventually, we will launch a web site to showcase the Chembe Ventures investments and become more active and open in sourcing opportunities. Our goal is to be present in 3-4 countries by the middle
of next year. However, in these early stages, remaining low-key and credible, as well as working closely with those projects already seeded, are much more important to us than trying to be seen as something bigger than what we really are.

Obviously, we don’t expect to get rich quickly. Small but fair stakes with options in innovative ventures run by ambitious, talented and trustworthy entrepreneurs is the name of the game. It’s only a matter of time before bigger VC firms start looking seriously around the region. Hopefully, we can be their tour guides.

But of course there are problems…This comment is long enough already without getting into region/country-specific issues of poor investor protection legislation, corruption, tax burdens and bureaucracy. There are also more generic barriers one has to deal with. These are the same all over the world, from the Silicon Valley to the Rift Valley: flawed business plans, due diligence hiccups, unrealistic expectations, annoying “introducers”, agents and other BS merchants.

However, I think there are two or three missing links in the emerging “angel investor meets viable tech project matchmaking ecosystem” which are specific to much of Africa right now:

1. More organized, recognisable and credible groups of angel investor networks (primarily local!) are needed as well as organised foreign independent, nimble, seed capital providers.

2. The sector is crying out for a regional, professional matchmaking service focusing exclusively on cutting edge East African tech entrepreneurs. This is a must! It doesn’t have to list a hundred half-baked ventures. A half dozen well vetted projects and two or three successful matchups a year is a feasible and achievable target.

3. A success story! A hugely successful East African (not South African) start-up. It doesn’t matter whether it’s acquired by Google, or has its own successful IPO. This sector needs a Wow! story within the next two years. There’s nothing like a well publicised “fairytale” of a few bright kids from Nairobi or Lusaka making millions to spur the imagination of both potential investors and developers alike.

In closing there are two more issues I think are worth addressing here. Perhaps I’ll get some flack for bringing these up, but here goes.

Firstly, let’s ask a question. Is the idea that there is a huge overflow of tech entrepreneurship in the African IT scene just bursting to be funded, nurtured and incubated a bit of an illusion? Sure there are bundles of raw talent, skill and innovation and of course ingenuity, but, and this is true for some countries more than others, are African techies too risk averse? Too unwilling to take a chance? I disagree with @HASH when he says that in Africa “the gap between success and failure is a lot less forgiving”.

Secondly, as @HASH pointed out many of the sharpest coders end up working for multinationals or NGOs. What’s just as worrying is that many of the more ambitious
tech entrepreneurs also find it easier to tailor their killer apps for the non-profit sector. I’m sure we all look forward to a time when writing a solid business plan becomes more profitable than writing a sexy grant proposal.”