Kenya, a corporate incubator; period

Over the past 5 days (Dec 26th - 30th 2014) I was having an interesting interaction with my ISP who unfortunately also happens to be my cable TV provider so when they disconnect my service I am forced to read a book.

Their service has never really been great but since they got a flood of foreign investor funds it has been on a steep downward trajectory, but that is an issue for later in the article or, if I forget, another time.

The organisation is a true case study of how Kenya is becoming a big incubator which unfortunately does not end up benefiting the local investor as the companies get swooped up by foreign investors.

One way to look at this would would be that we are receiving the short end of the stick while the other is that Kenya is a great place to test a concept but not to raise early stage financing.

Unfortunately, after the experience of boot strapping their start-ups the founders seem to have sworn to teach their Kenyan brothers (and their sisters too) a lesson by selling it off to foreign investors once it shows signs of exponential growth.

My provider is called Zuku and at some point in time it was called Wananchi Online with some element of a company called SimbaNet and remnants of an ISP called MitsumiNet and a cable TV company called Mitsumi Cable TV Network.

I am not quite sure who is who or who bought who as my service is provided by one entity while I make payments to another.

Wananchi Online was started by two, then young, Kenyans one of whom now heads the Google office in East Africa. It had at one time an investment from the founding Chairman of the Trans-century Group, the late Mr. Gachui, who also was one of the pre-IPO investors at Access Kenya.

MitsumiNet was an ISP that set up Mitsumi Cable and, if I am not mistaken, bought out Lion Cable TV Network (owners of the KPLC routing rights that allow Zuku to hang their cable on the electricity poles).

MitsumiNet and Mitsumi Cable TV where both started by two immigrant brothers of Asian origin who are currently running one of the 3 largest ICT distribution companies in the region. Many will wonder why I was very specific about their heritage, I will clarify that it is not racist just factual.

In addition to the factual nature of the inclusion is the fact that the incubation only function for Kenya transcends the indigenous issue as well as race, creed or colour.

The amalgamation of these various companies resulted in the creation of the first triple play provider in Kenya, an endeavor that had evaded many for a long time.

Its meteoric growth happened under the watchful eye of one of Kenya's finest KC's (inbox me for an explanation of a KC) Mr. Richard Bell who was also pivotal in the development of the Internet ecosystem as the founder of Swift Global one of Kenya's first ISPs.

In addition Bell was also instrumental in the formation of Kenya Data Networks, now a wholly owned subsidiary of Liquid Telecom of South Africa and previously owned by Mr. Naushad Merali industrialist extraordinaire. He was also actively involved in the creation and operation of the Kenya Internet Exchange Point (KIXP).

The formation of Wananchi Group and the new regulatory framework by the then Communications Commission of Kenya, that provided a single license for all communications related services totally changed the playing field and left many organisations dead on the battlefield

Now that you have a clearer history of how my provider came into being let me get back to the gist of my post.

The formation of this new entity has been as a result of the efforts and energies of the Kenyan people, but the benefits are slowly accruing to others (https://wananchi.com/shareholders/).

I am not crying wolf over spilled milk just making it clear to my fellow countrymen that unless we get actively involved in the pre-incubation activities of businesses we shall remain spectators and commentators.

This is not unique to Wananchi as we saw the same with AccessKenya, the first ICT company to list on the Nairobi Stock Exchange (NSE) just to have it grabbed from the bosom of the local investor by Dimension Data of South Africa who proceeded to delist the company.

We have seen the same happen in the motor industry with the delisting of CMC Group from the NSE after being taken over by the Dubai based Al0-Futtaim Group.

In both the case of AccessKenya and CMC the minority local investor was forcibly bought out. We are seeing a similar future with Safaricom and ScanAD whose shares are getting bought out in large quantities by foreign investors.

On the unlisted field we have the recent buyout of a controlling share of HACO Industries (of the BIC pen fame) by Tiger Brands of South Africa and a total buyout of Nice and Lovely by L'Oreal yet we would have expected both companies to have been listed on the newly created Growth Enterprise Market Segment (GEMS) of the NSE.

It is interesting that Mr. Chris Kirubi, the owner of HACO, felt that selling off to a foreign investor was better than listing it on the NSE where his other entity, the Centum Group, has flourished. It seems we have a case of someone drinking wine while advocating for the other to be teetotalers.

The issue here is not only about tech startups but also finance, distribution and manufacturing and those swooping down are not only from the south but more recently and subtly our brothers from the West.

A few years ago they made their initial entry through the buy out of a little known bank called Bank Indo-Suez by Bank of Africa through some interesting ownership swaps in some tax free haven.

This was the first blood as soon after a bigger west African player, EcoBank, came calling and found the 2nd largest mortgage bank Akiba bank wallowing in limbo with the demise of its founder. They bought it and rebranded at lightening speed to make sure there was no doubt that they had arrived.

In the banking sector the most recent has been the buy out of Fina Bank by GT Bank. Fina was proving to be the bank of last resort for the SME and by extension the startup, it is unlikely that the new owners will be following this strategy.

Not to throw stones into only one field we also saw TransCentury walk away from the RVR Consortium giving way for a foreign player to take up their spot and thus benefit from the now maturing entity.

The cases I have indicated above clearly show that we are very good at doing the diligent work of providing a conducive environment for the early development of businesses but lose interest in the mundane activities of its maturing existence.

I wonder whether it could be an inherent flaw in us as a people which would then explain why we still export most of our cash crops, raw.

We currently have 5 active hubs cum incubators around the country, fine within arms length of Nairobi City, which are producing many well thought through solutions.

Unfortunately we have no infrastructure to fund beyond the donor and corporate PR funded competition stage such as Business Daily's the Next Big Thing, Safaricom's AppWiz, the various Samsung, Nokia (oops! Microsoft), ICT Authorities business plan competitions among a myriad of others.

What will then happen and, in some cases, already has is that we shall have investors from abroad walk in and pick them up for a song at which time we shall start screaming patriotism and then our famous rallying cry "tuna omba serikali itusaidia" (we plead to the government to rescue us).

This situation is not generally a bad thing, such as we have serial angel funders, if we feel that our strength is in nurturing the start-up until it finds its feet then let it be so but let us do it strategically and profitably.

My brother-in-law is an expert at this, he has issues with hens but he loves chicks so what he does is he buys day old chicks and cares for them during the most fragile first 5 to 10 days after which he sells them off for a cool 300-500% profit.

He loves the thrill of being on the edge where a single viral infection could wipe out the entire brood leaving him empty handed.

That is what angel investing is all about, being in the thick with your shirt sleeves folded. It is not glamorous, but like a kindergarten teacher the emotional rewards are priceless but also the monetary ones aren't too bad.

Our universities are busy training business administrators whose skills make them unsuitable for dealing with startups while at the other end we are all busy waiting for IPO's to invest our cash.

It is a proven fact that angel investing in a developing ecosystem is more about holding hands (I had initially written hand holding but the difference is huge), giving each other a shoulder to cry on. Skills which unfortunately are not taught in class in the real world.

In addition you need to develop the thick skin to shatter unbaked dreams and the motherliness to nurture others with the divinity to tell the difference. Mentoring and patronage are a critical component in the angel investing realm, if you cannot give your time for free then this is not for you.

A huge ravine has developed between the two entities and someone has to make the journey down to the bottom and back the other end so as to provide a way for the rest to get across.

The question now is whether we have the will to do this, as it is clear that we do have the means.