Nairobi Tech Ecosystem Pivots to 2.0

nairobi-2730268_1920Beyond the hype, tech ecosystems are massive drivers of economic growth. Success begets more success, talent attracts talent, and entire regions are transformed.

What does it take to nurture a healthy tech ecosystem?

Here in Nairobi, as I visit a start-up CEO in yet another co-working space, or sip a perfect cappuccino with a friend talking through the nuances of software architecture, I realize that Nairobi has survived the mega-hype cycle.  And it’s loaded with wisdom on what it takes to arrive at vibrant tech ecosystem.

Just like natural ecosystems, the tech variety thrive in an environment dense with different players intermingling to help each other succeed. Nairobi has almost everything, with one final elusive piece starting to snap into place.

Superstar Scale-Ups

I won’t rehash Nairobi tech history (you can read about here). Suffice to say, two catalytic launches planted the foundation.

  1. 2007: Big telecom Safaricom launched M-Pesa, making everyone’s dumbphone a smart bank connection.  This was a massive fintech platform play before we called it fintech, and before platforms were sexy. Not surprisingly, 10 years later, fintech is the superstar sector here.

  2. 2010: A group of entrepreneurs launched the iHub, Africa’s first innovation/tech hub. Living up to its name, the iHub networked the many unconnected spokes. Hundreds of companies were born.

Predictably, most of these startups died. But, several dozen companies, including iProcure, Sendy, M-Kopa, and BitPesa, made it out of start-up land and are now scale-ups.  Just in the last few months, Nairobi’s tech scene was buzzing with the news that 15-year-old Cellulant raised $47.5M and Africa’s Talking raised $8.6M.

(Before you knock the size of these “big” deals, remember Arkansas has a larger GDP than Kenya)

Every healthy ecosystem has successful godfathers who pay it forward to the next generation. We’ve all heard of the Paypal Mafia, the early Paypal founders who went on to found LinkedIn, Tesla, YouTube, Yelp. In three years, will we see a group of influential companies spawned by the iHub Tribe?

Emerging Stars: Second-Gen Start-ups

“Kids these days have it so easy,” is true — Nairobi is more nurturing and provides better growth tools. Walking through the battlefield of the previous startups, there are many corpses — and many post-mortems. Today’s startups are wiser. They now know that techies and business people need each other. They now know that drumming up hype is not the same as closing deals.

They also know a harsh truth about Nairobi: it’s a great place to start, but too small to stay. As such, many startups enter other African markets early. A few examples of early-stage companies with significant non-Kenyan customers include iPay (payments), Innova (financial tools for capital markets), JamboPay (payments), Brave Venture Labs (hiring/recruiting), and Intelipro (marketing/business analytics). In fact, some successful companies start in Kenya, expand to dozens of other countries, only to find Kenya is their smallest market.

Supporting Cast

Healthy ecosystems contain diverse players that advise, fuel, and connect the startups. Each benefits symbiotically from their startups succeeding:

  • Big Corporates partner with incubators and startups to gain early, sometimes-exclusive access to innovation. Safaricom Alpha is a great example, recently announcing a social networking initiative to augment MPesa.

  • International Players – Google, Acumen, and Stanford are investing significantly in entrepreneurs here. But, I’m most excited about newly-launched Endeavor. Endeavor has been growing healthy tech ecosystems for the last 20 years in 30+ countries.

  • Investors at every level.  Nairobi is now home to investors – angels to larger funds – driven by different motivations (synergies across Africa, impact, faith, and pure profit). Arguably, capital is not the bottleneck in the ecosystem.  Savvy entrepreneurs look for the funding that comes with connections, strategic advice, and domain experts. Cellulant CEO Ken Njoroge recently spoke about making 400 pitches before carefully selecting their investor partners.

  • Co-working Spaces such as Nairobi Garage, Metta, the Twig, the Hive, and the Banda have exploded. In addition, sister ecosystems have emerged for creatives (The Nest, Creatives Garage and the Heva Fund) and hardware entrepreneurs (GearBox).

A Robust Talent Pipeline

Everything rises and falls with talent, and usually it starts with college grads. Not surprisingly, incubators have launched at Nairobi universities, including Strathmore, Kenyatta, and the University of Nairobi.  And speaking of incubators, iHub, the poster child of African tech incubators, is learning and pivoting.

Mid-level talent is just as important and growing. Think about the hundreds of high-capacity directors that have been working for 10 years at Microsoft, Google, Oracle, IBM, Huawei, and GE. They won’t stay at the bigs forever. I just talked to a startup that recruited a senior IBM Data Scientist who worked on Watson.

Some would argue that Kenya still lacks the necessary large swaths of good developers and engineers. Big corporates don’t seem to hire local developers — there aren’t enough. So they are forced to outsource, which works against the ecosystem.

Finally, the X factor is culture. What are the unwritten, understood rules of engagement? So many entrepreneurs I talked to had stories about stolen ideas, sabotage, or crazy poaching. There is still too much “going it alone.” Nonetheless, there is a growing sense that a rising tide raises all boats. A healthy look-past-the-hype, cautious optimism fills the air.

Over the last 15 years of working in startups, I’ve learned one thing: battle-tested ideas are easy, battle-tested teams are priceless. Nairobi’s tech teams now have the scars to prove it.

What is Nairobi known for? One of the largest slums. A national park filled with wild animals. Crazy matatu culture. An African Hub for multinationals and NGOs. And soon, as entrepreneurs learn to trust and collaborate more, a burgeoning tech ecosystem.

Acknowledgments: Caroline Stocksdale contributed research and analysis to this article

Disclosures: The author holds a financial stake in Google, but not in any of the other companies listed above.


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