Balancing Funding Needs with Independence

Many of the new innovation hubs that support local start-ups face their members’ issues themselves: How to make money and create a sustainable business model. Due to the current attention on the growing IT-scene, and hubs in particular, getting initial funding through private sector investors or development organizations is not the biggest issue. Instead, the key challenge is how to avoid dependencies on single funders, both private and public, and instead create a mix of financial resources that allows the hubs to function, plan and expand independently and at their own pace. Most hubs try to work with an income mix consisting of membership and service fees as well as sponsoring.

Membership: Some hubs work with membership fees. The iHub for instance has a three tier membership. Being a member is a prerequisite for taking part in many of the training and networking activities, although most events can be freely attended by the general public. Entry level membership is free and is merely a strategy to include people in the network and keep the community growing. The red membership, which includes a permanent co-working space, costs around 120 US-Dollar per month. A number of other hubs, such as the iceAddis hub, have copied this membership approach. Other hubs have chosen not to adopt a paid membership model, but rather agree deals on the return of investment of
start-ups based at their hubs. This gives the hub a share of the profits should the start-up based at their hub succeed. Such is the case at ActiveSpaces in Cameroon. Here, the only requirement is that people using the hub have an active project they are working on. New members are selected by pitching their ideas to the other community members. The community then decides whether to grant membership based on the strength and potential of the idea. After initial acceptance, members are asked to demonstrate progress on their work with the aim of keeping up the project’s momentum and driving participation levels.

Services: Service provision has become a major revenue stream for most hubs. Hubs act as an entry point to the local private sector, entrepreneurs, academia and investors and often have valuable insights into local developments and
dynamics. Therefore, hub staff are often sought after consultants. The iHub has turned this into a business model by creating the iHub Research Department. The iHub research team started out in 2011. Today, they are a recognized source
of knowledge on the African and Kenyan technology scene and conduct their own research and offer services to national and international clients. The iHub team predicts that 50 percent of the hub’s future income will come from the research team. Other services can include the provision of space and facilities to third parties wishing to host events or matchmaking services. At the iHub, corporate members are charged a monthly fee of Ksh 1.000 (around 9 Euro) per job post on the website. “This way large organizations can contribute to the iHub’s operating costs and in return they have greater access to the iHub community through their initiatives,” said Hilda Moraa Morara in one of her iHub research papers.

Sponsoring: While many hubs across the continent make use of sponsoring to generate funds, most don’t want to rely on this kind of funding in order to remain autonomous. Although many hubs work with aid, relying fully on donor money as a funding resource is not seen as a sustainable starting point for community-driven ventures. The two hubs founded in Dar es Salaam in 2012 show just how different financing models can be. TanzICT is financed with aid money from the Finish government and is part of a broader development scheme. KINU was founded in September 2012 and launched with grants from Google and Indigo Trust, a foundation that funds technology-driven projects mostly in Africa. Although most hubs accept different forms of private-sector funding, full corporate sponsorship or the reliance on a single private sector investor is not an the iHub “been named the Google iHub or the Nokia Innovation Hub” the venture would have failed. “It had to be owned by the community, and that meant both name and usage.”

>> Ch. 6 Competition or Collaboration