Lack of Funding

Not all hubs have the possibility to take care of each individual member. Some hubs just choose not to while others simply do not have the capacity to do so. Jessica Colaco from the iHub research team explains that, “direct mentoring and matchmaking of members is not the core activity of iHub team members”. Rather, “groups of members are looked at” and the team develops services and offers activities for these groups. In many of the newly established hubs, there is limited capacity to perform such individual services or targeted capacity development. In Nairobi, where the scene is further developed than in neighboring East African countries, other structures take over when a venture is ready for a real investment.

A further challenge that hubs are facing is the lack of access to investors and established funding structures. In Kenya, the current buzz surrounding technology start-ups has attracted international investors and at present there is no shortage of funding for technology innovations. But even here it is not always easy to match investors and entrepreneurs, as start-ups in Kenya usually need much smaller investments than the minimum amount required by investors.

The accelerator 88mph is one example for new funding models that are created to adapt to the needs of African start-ups. 88mph has a seat in Cape Town and Nairobi. It is a private venture initiative by Paul Graham, whose goal is to promote
technology start-ups in Africa by providing the right kind and size of seed funding. In December 2012 the incubator supported 15 startups in Nairobi and ten in Cape Town by providing funds and working space to young entrepreneurs. Nikolai Barnwell, from 88mph in Nairobi, describes his job as “more of a human resource process - there are loads of opportunities but not enough good people.” Often, lack of business skills stops a venture from becoming successful, rather than the lack of ideas or opportunities.” 88mph tries to compensate by networking, making connections and providing legal and accounting support but does not engage in active skill development. A venture receives around 10,000 to 15,000 US-Dollar and either succeeds or doesn’t within a set time frame. Of course, not every startup ends up as a working business, for 88mph a success quota of “two out of ten would be good!”

Whereas in Nairobi the problem is matching appropriate and sustainable funding with local needs, there is a general lack of financing opportunities in other East African urban centers. Getting seed funding is nearly impossible for young
start-ups in Addis Ababa, where venture capitalists are rare and banks are not willing to invest in young entrepreneurs.

"Getting Seed Funding is nearly Impossible for Young Start-Ups in Addis Ababa, where Venture Capitalists are Rare and Banks are not Willing to Invest in Young Entrepreneurs."

>> Ch. 5 Balancing Funding Needs with Independence