Puzzle of Kenyan startups in trouble after Sh34bn funding

At least eight Kenya-born tech start-ups have closed down in the past two years while a ninth one appears distressed despite having raised close to Sh35 billion in investor funding in total, dampening hopes of the country achieving its Silicon Savannah dream.

A Business Daily analysis has established that the eight startups collapsed after absorbing a combined total of Sh11.2 billion (in current exchange rates) while agri-tech firm Twiga Foods, which has taken up Sh23.4 billion in venture capital, is presently sending disturbing signals.

Read: How funds drought slowed Nairobi’s innovation beacon

Twiga Foods announced last month that it would be shedding a third of its workforce as part of its strategy to cut operational costs by up to 40 percent, with CEO Peter Njonjo decrying a funding drought that he said had enveloped the market.

The move came despite the company having raised a cumulative figure of $160 million (Sh23.4 billion) since inception in 2013.

Although most of the startups blame their troubles on a funding drought, available data and interviews with founders suggest other factors, including the viability of their business models, could be at play in a trend of businesses that is stalling the country’s Silicon Savannah dream.

President William Ruto has in the recent past sought to play up Kenya’s ambition to become Africa’s ICT hub, inviting US tech firms to pursue the emerging investment prospects in our country’s Silicon Savannah during a side event at the US-Africa Summit in December last year.

“Our aspiration to uplift millions of livelihoods through technology and innovation now has new impetus,” he said.

Logistics startup Sendy, the latest to face headwinds, raised the second biggest chunk among the collapsed entities, hitting a cumulative amount of $26.5 million (Sh3.9 billion) by October last year.

The firm had in the same month closed down its retail and supplier platform known as Sendy Supply and in the process axed 20 percent of its workforce.

Sendy’s misfortunes were preceded by those of engineering technology firm Gearbox which laid off three-quarters of its permanent staff months earlier, gave up half of the operating space and shifted to a low-cost business model on account of scarcity of funding prospects.

Gearbox told the Business Daily that it had raised a total of $5 million (Sh730.5 million) during its nine years of operations.

Earlier this year, e-commerce platform Zumi, which dealt in non-food commodities, announced that it was closing down citing a dry-up of funds despite raising a cumulative $1 million (Sh146.1 million) since inception in 2016, according to Crunchbase records.

Last year saw at least five start-ups bow out of the Kenyan market, with a majority heaping blame on difficult market conditions as well as funding hitches.

Among those wiped out in the wave were online e-commerce platform SkyGarden, supply-chain enabler Notify Logistics, food-tech venture Kune, Internet supply firm BRCK as well as agri-tech start-up WeFarm which ran an e-shop stocking farm products.

Data show that all the analysed entities had bagged major funding deals before going under with SkyGarden taking up $6.9 million (Sh1 billion), Notify Sh45 million, Kune $1 million (Sh146.1 million), and BRCK $4.2 million (Sh613.6 million). WeFarm led the pack in raising an aggregate $32 million (Sh4.7 billion).

In a past interview with the Business Daily, Mr Njonjo sought to dispel speculation that Twiga Foods was facing headwinds, saying that they expect to gain a sound footing in one year’s time after the implementation of the cost-cutting strategy.

“If you look at what happened between 2017 and 2021, there was a significant increase in the amount of capital that was available for start-ups globally. The reason that was the case was because interest rates were very low,” said Mr Njonjo.

“There then rose a huge appetite to invest in emerging markets and what we saw was that the venture capital that was coming to the continent was very high. It was around that time that we also raised a huge portion of our financing before the funds later dried up.”

He said the firm channelled the funds into long-term machinery and technological investments.

Anza Now CEO Bobby Gadhia, whose initial tech firm PC World Limited collapsed in 2016 after being in the game for 21 years, attributes the rapid collapses to founders’ failure to visualise ideas that provide unique solutions to tangible problems.

Read: Twiga tycoon Peter Njonjo transfers Ruto’s 20,000-acre deal to private company

“Tech is a very tricky space. Unless you have a unique solution that solves real problems, you cannot survive. People usually have emotional connections to their ideas but when you analyse closely, there is no substance to what they are offering,” said Mr Gadhia.

“Another emerging problem is that some entrepreneurs are focused on building businesses for valuation and hoping for big buyouts. The days for that kind of operational model are long gone.”

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