Category Archives: SME solutions

Meal Deals with Rupu & EatOut Kenya

Today a unique partnership was announced between Rupu and EatOut.

EatOut is a very useful sites that offers restaurant & cuisine information, reviews, and even enables bookings, keeping their clients in tune with what’s happening in the restaurant scene, and up to date on specials, and events. They have signed up 150 restaurants in Nairobi, Mombasa Malindi Diani, and soon Zanzibar.

Rupu who launched in December 2010, offer discounts on their site of between 50% – 90% through the concept of group buying – and found that their customers were asking for restaurant deals. The benefits to consumers are the sharp price discounts (which Kenyans love – see bazaars, Gikomba and the buy-one-get-one-free at Pizza Inn & Steers); while to business owners, they benefit from free marketing & publicity, introduction of new customers who are committed to buying, minimum guarantee of sales if a deal goes live and instant cash which is split 50/50 between the business and Rupu.

The first deal of the week under the partnership is with the new Sankara Hotel which wants to show its not as pricey as its current image.

Booking can be done through the restaurant or EatOut – and Rupu have trained & equipped business owners in authentication and redemption of vouchers. Transactions are completed online or by mobile phone, and take a few seconds if you have enough money in your M-Pesa or Zap account, with a booking interface is via pesapal. Credit cards, whose use is not as prevalent, will be introduced later this year.

Getting Local Funding for ICTs in Kenya

Local funding for ICT’s is the genesis of a Report on ICT (PDF) released by Kenya’s Capital Markets Authority. It was funded by the Rockefeller Foundation and drawn by Strategic Business Advisors (SBA).

The CMA had set up rules for Venture Capital firms, but there has been little uptake despite the offer of 10-year tax holiday – and VC firms operate in the East Africa region, but many are based in Mauritius and other countries. In seeking other ways of enabling ICT’s to obtain local funding in the region, a task force was set up (chaired by Richard Bell of Wananchi) – and which comprised 25 people drawn from the government, technology, venture capital, private investment – and featured input from Kenya, Uganda, Rwanda, South Africa and Tanzania.

One of the solutions considered was impact investing which the Rockefeller Foundation has championed as a new asset class that will draw the private sector into making socio-economic investments that solve age old problems.

Some Findings:

  • ICT’s do not attract local funding in East Africa and while it is easier for large Telco’s to get money, it is early-stage firms who require funding the most ($10,000 – $150,000) – this is where most mobile software development firms fall owing to the low barriers to entry.
  • Most ICT companies are Small & Medium Enterprises (SME’s) – who face the same challenges as other SME’s – including low collateral, skills, capital etc.
  • Investors also face challenges such as difficulty doing due diligence, lack of sector information, red tape (it took 8 years to set up one particular VC firm) – and while there are angel investors, there is no angel investor network.

How & why to get local funding into ICT

  • Education and policy reforms with insurance, financial, and other investor groups in regards to the ICT sector.
  • Regulatory changes; easing of regulations for ICT firms to raise funding locally, and encourage more IPO’s. Many firms invest in Asia because it gives clear exit strategies through IPO’s.
  • Support technology incubation, mentorship and angel networks.
  • There will be a multiplier effect; once foreign investors observe the investments and returns that locals get, they will probably replicate that ten times over.

Will this happen? Will local pension and insurance regulators relax their rules to allow the funds they oversee to be deployed in the risky world of local ICT? These same regulators have spent years tightening the screws to clean up wasteful spending in real estate, and loopholes through which retirement funds were lost.

The report is a start, and it lay out the path to local funding of ICT’s. These investments are very risky as is real estate which insurance, unit trusts, and SACCO’s are edging back in to.

How developers can make money with Safaricom – Part II

One of the unintended effects of Airtel’s price wars with Safaricom in Kenya is that it has made Safaricom more responsive to Kenyan developers in terms of collaboration on products, services, platforms etc.

This has long been a peeve of local developers that’s Safaricom has not been (open), leading to the company coming up with a mooted innovation board as a forum to improve the interaction process with local developers.

And if you do get the chance, remember it’s a two year money-making cycle of boom and bust with Safaricom.

Entrepreneurship Moment: Apprentices, Intellectual Property, Mentors, Partners

Over the last few weeks, I have been exposed to various events and lessons that touched on entrepreneurship. We had the Legatum business awards winners feted in Nairobi, talks by some young US technology start-up executives, and got to watch the movie ‘Social Network’, and final episodes of the Apprentice beamed live from the US.

Talk 1: Russell Simmons, a co-founder of Yelp.com, and a Jawed Karim, co-founder of Youtube, were here for i/o Ventures which aims to incubate start-up entrepreneurs and formalize angel investing – this is because giving back is a big deal in Silicon Valley.

They talked at the Nairobi iHub and some of the business advice they imparted to local entrepreneurs included:

  • What you are working on, will be different in 3 to 4 years, but keep going & don’t give up.
  • If you have bad chemistry with an employee/co-worker, fire them as soon as possible – as dealing with them takes up so much productive energy.
  • It’s hard to find good team members. But it may be better to recruit from universities, as enthusiasm trumps experience.
  • Get your product out immediately, don’t over tweak – perfect it as you go along. Also, instead of juggling many projects, focus and do one project really well – hit a home-run and people will line up for more.
  • On Intellectual Property: In Kenya, theft of ideas is a big worry with young companies seeking partners & financiers, but their advice was that in Silicon Valley, theft of ideas not an empirical problem.
  • If you have an idea, someone else has the same idea – and having an idea does not give you an advantage, it’s about being better to execute better than anyone else.
  • Don’t be afraid to share your ideas, because once you launch, everyone will see it anyway.

Talk 2: Paul English co-founder of Kayak.com who’s working on Join Africa, a last-mile (wifi) connectivity project with University of Nairobi, University of Kigali and MIT also gave a talk on entrepreneurship. Excerpts:

  • Most important elements for him were the team, customers and profit incentive.
  • Don’t make customers happy – blow them away – kayak.com is the best for getting cheap flights (actually make more money from hotels than airlines)
  • Take risks, but pick partners carefully.
  • He has no customer service, everyone in the company does that
  • Be the best; He said even if an employee took their code to a rival, he believes he’d’ still build a better travel site.

At the talk, Communications PS Bitange Ndemo also talked about push to have a sub-patent law and creative commons in Kenya, as opposed to unwieldy patents – these are suitable for local development of incremental innovations as many creations will not qualify to pass an IP test. He also believes it’s best country for have flexible laws until we develop further.

Apprentice: Got to watch the final few episodes of Donald Trump’s Apprentice – which this year featured Kenyan-born Liza Mucheru-Wisner. She was one of the 16 contents, picked from several thousand applicants, and made it to the final three. She would have gone further but for a sudden decision by Trump to fire her even when her team had won a challenge.

Earlier, in defending her decision on that project, she got into a debate with Trump about race as a factor in the marketing of products, and Trump said he fired her because she did not get along with her fellow contestants – and she was shocked because they were all in a competition to win, not be popular.

The Apprentice is a TV show with a plot, structure, bad guys, and a defined ending. But it’s a microcosm for business & entrepreneurs who face different challenges, have to play multiple tasks, whose plans don’t always go right, may not have the resources they need and don’t get to work with the right people – and there’s always a bit of improvisation to get a win.

It’s all cut and edited into a dramatic hour-long package for TV, which means that we don’t see a lot of the hard work that contestants put in. Liza said she actually got along with all the contestants and the harsh comments were never repeated in front of contestants during tasks, but only came out in the boardroom, when everyone was fighting to remain on the show.

Despite not being the Apprentice, she does not feel like she lost. She represented herself well, put a spotlight on herself and her passion (education, kids, technology), and as a result, she got lots of offers to consider, one of which may involve becoming a goodwill ambassador.

Social Network: This is a well-received movie about the origins of Facebook – and which leads Roger Ebert’s list of top movies of 2010. I got a 50/= ($0.6) bootleg copy in Nairobi and it’s a must-see for any entrepreneurs – with lessons on maintaining focus amid changing business concepts & expectations, management, and picking/rejecting partners.

Investing in Africa Moment

Legatum Africa Awards: Three Kenyan companies – Biodeal Laboratories (generic drug manufacturer), Craft Silicon (financial software developer) and Mellech Engineering (construction & engineering), have been selected as finalists in 2010 Africa Awards for entrepreneurship.

They are competing for $350,000 in fund prizes, with a grand prize of US$ 100,000 and five other prizes of US$ 50,000 each. The other finalists in the top 10 are Malcom-Ezindaleni Hydraulics (SA) NTR Technology (Botswana), Planbuild (Uganda) Sigma Electric ( Ethiopia) Steel & Tube Industries (Uganda), Tutuka Software ( SA) and Wilkins Engineering (Ghana) – who were also shortlisted from more than 2,700 entries.

Legatum, a privately owned investment group and Omidyar Network, a philanthropic investment firm, organized the awards, who’s winners will be announced on December 6 in Nairobi.

Agriculture Equity: The African Agriculture Fund, a private equity fund closed on US$ 135 million of funding in November 2010. The funds will be invested in the agriculture value chain from primary production to processing at $20 million per portfolio company.

The Fund also has a dedicated SME sub-fund and a technical assistance facility of 10 million euros, to support out grower schemes in large companies and business development services in SMEs.

Transparency Equity: Late in October, Omidyar and Hivos created the Africa Transparency and Technology Initiative (ATTI) – a fund that will support technology-driven initiatives that give citizens the tools to hold their governments to account. Omidyar Network will invest up to $2 million and Hivos will administer the fund.

Diaspora Fund: The Enkare Innovators Fund was launched and is seeking US$850 Million from Diaspora for investments in Eastern, Southern & Northern Africa with early focus on Kenya, Tunisia, Egypt and South Africa. This is via a private placement that will run from January to July 2011 and is promoted by Cauave Deaa Et Al Capital Partners

Silicon Valley Visits: The Kenya ICT Board will host a team from I/O ventures, comprising entrepreneurs & founders will from Silicon Valley who will visit Nairobi on December 14 & 15 and who are seeking young ICT entrepreneurs to mentor.
Mombasa housing development
Impact Investing: Impact Investments are a new asset class as per a report being launched this week in Nairobi, London and New York – by the Rockefeller Foundation, Global impact investing network, and J P Morgan.

These refer to investments that have an intended purpose of positive social or environmental good besides a financial return – and probably what Acumen Fund have been referring to as patient capital.
– Impact Investments are primarily debt or equity, and are investments not philanthropy investments
– They studied 1,100 investments and found that about 500 were less than $500,000, and only 35 were more than $10 million
– Impact investments are founds in sectors like agriculture, water, housing, education, health, energy and financial services (micro-finance is the most mature sub-sector)
– There are now metrics, tools, ratings, conferences – all devoted to impact investing and how to measure non-financial impact; One benchmark called IRIS (based on IFRS) and others are Pulse and GIIRS . Currently impact investments are measured primarily by investors own proprietary systems, or by a mix some investor goals such as job creation, asset accumulation, or energy efficiency
– The report has a robust outlook for the sector and concludes that there are potential impact investing requirements over the next 10 years of between $400 billion and $1 trillion, with potential profit of $183 billion to $667 billion, and with the bulk of these to be found in the urban housing sector.

Further Reading

Invent for Mobile: CGAP article which asks how viable companies in mobile health and mobile money can attract VC funding and interest.

Large Private Equity: FT article – about private equity in Africa by Andrea Bohnstedt (@andreabohnstedt), the publisher of Ratio Magazine