THE KENYA ICT STARTUP LANDSCAPE By the …cdn.nailab.co.ke/uploads/Nailab Evaluation Report_3 Final...STARTUP LANDSCAPE By the Nailab Incubation Programme 2016 Funded by: ICT Authority

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Nailab 2013-2016

The Kenya ICT Start-up Landscape Report

THE KENYA ICTSTARTUP LANDSCAPE

By the Nailab Incubation Programme 2016

Funded by:ICT Authority Kenya

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Disclaimer

This document was prepared by The Nairobi Incubation Lab (Nailab). The quality of information, conclusions and recom-mendations contained herein are consistent with the level of effort involved in the support for services for undertaking Final Evaluation of the Kenya ICT Based Incubation Programme (KICTBIP) and are based on: i) Information available at the time of its preparation, ii) Data supplied obtained from secondary sources and iii) the assumptions, conditions and qualifications set forth in this document. The document is intended for use by the above client subject to the terms and conditions of its contract with Lartech. Any other use of, or reliance on, this report by any third party without prior consent from the above client, is at that party’s sole risk.

Funded by:

ICT AuthorityTelposta Towers, 12th Floor, Kenyatta AvenueP.O Box 27150-00100, Nairobi, KenyaTel: +254 202 211 960/61Email: [email protected]

Report submitted by:

The Nairobi Incubation LabBishop Magua, Ngong RoadP.O. Box 23800 - 00100Nairobi, Kenya

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TABLE OF CONTENTS

TABLE OF CONTENTS 3PILOT INCUBATOR IN SUMMARY 9EXECUTIVE SUMMARY 11

Preamble 11

Approach and Methodology 11

Kenya’s ICT Entrepreneurship Ecosystem 11

Framework, Design and Structures 12

Implementation Process 13

Achievements, Impact and Sustainability 15

Lessons Learned 17

Gleaned and documented lessons are: 17

Recommendations 18

The evaluation recommends as follows: 18

1.0 INTRODUCTION 21

1.1 Preface 21

1.2 Background Information 21

1.3 Objectives of the Evaluation 23

1.4 Structure of the Report 23

2.0 METHODOLOGY 25

2.1 Introduction 25

2.2 Approach to the Assessment 25

2.3 Methodology 25

2.3.1 Inception Meeting 25

2.3.2 Literature Review 25

2.3.3 One-on-One Interviews 26

2.3.4 Start-up Case Studies 26

2.4 Data Analysis and Documentation 26

NOTES 27

3.0 KENYA’S ICT ENTERPRENEURSHIP ECOSYSTEM 29

3.1 Introduction 29

3.2 The Ecosystem 29

Table 3.1: Ecosystem Map 30

3.2.1 Business Finance 31

Figure 3.1: SME Financing Options 31

Source: Argidus Foundation Report, 2015 31

Figure 3.2: Angel Investing in Kenya 32


Figure 3.3: Impact Investment in Kenya 32


3.2.2 Entrepreneurial Support 33

Figure 3.4: Organisations Offering Entrepreneurship Support Services 33


Figure 3.5: International SMEs Supporters 34

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3.3 Policy and Regulatory Framework 34

3.4 Government and Private Institutions 35

3.5 Market 35

3.6 Human Resources 36

3.7 State of Infrastructure 36

3.8 SWOT Analysis of the Ecosystem 36

Table 3.2: SWOT Analysis of the Ecosystem 37

3.9 Summary 37

NOTES 39

4.0 FRAMEWORK, DESIGN AND STRUCTURES 41

4.1 Introduction 41

4.2 Programme Framework 41

4.3 Programme Design 41

Figure 4.1: Nailab Offices at Bishop Magua along Ngong Road 42

Source: Nailab Incubation Report, 2014 42

4.3.2 Business Sustainability Model 42

Meeting Room for 42

Brainstorming 42

sessions for 42

startups 42

Kitchenette which 42

doubles as a meeting 42

and working area 42

for the start-ups 42

External working area 42

used for events, 42

workshops 42

4.3.1 Premises 42

4.3.3 Design Risks and Assumptions 43

4.4 Governance Structure 43

Figure 4.2: Program Governance Structure 43

4.4.1 The Board of Directors 44

4.4.2 Steering Committee 44

4.4.3 Staffing Arrangements 44

4.5 Incubation Curriculum 44

Figure 4.3: Incubation Curriculum 45

Source: Nailab Business Plan 45

4.6 Summary 45

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5.0 IMPLEMENTATION PROCESS 47

5.1 Introduction 47

5.2 Recruitment of the Incubation Manager 47

Figure 5.1: Incubation Manager Advertisement 47

Source: Nailab Incubation Manager Report, 2014 47

5.3 Recruitment and Admission into the Programme 48

5.3.1 Awareness Creation 48

Figure 5.2: Means of Awareness Creation for Selection Process 49

Source: Nailab Selection Report, 2013 49

5.3.2 Call for Applications 49

Figure 5.3: Poster for Start-up Application 50


5.3.3 Selection (Screening) 52

Table 5.1: Selection Criteria 52


5.3.4 Shortlisting, Interviews and Admission 52

Table 5.2: Start-ups Recruitment and Admission into the Incubator 53

Figure 5.4: Start-up Pitching 53


5.4 Incubation Programme 53

Figure 5.5: Comparison of Organisations Program Incubation Length 54

Source: GSMA Digital Report, 2014 54

5.4.1 Product Development (0-3 Months) 54

Table 5.3: Relevant Tools for Product Development 55

5.4.2 Business Development and Market Acquisition (4-6 Months) 55

Figure 5.6: Business Development Areas 56

Source: Nailab Incubation Progress Report 56

5.4.3 Demo Events 56

Figure 5.7: Past DEMO day event 57


5.4.4 Success, Graduation and Exits 57

Figure 5.8: Start-up Success Matrix 57


Figure 5.9: Characteristics of a Successful Start-up 58


5.5 Virtual Incubation 58

i. Ideas Africa Platform 59

Figure 5.10: Idea Africa Platform 59

Source: www.ideasafrica.com 59

ii. Outreach Events (Hackathons) 59

Figure 5.11: Hackathon Events 60


Table 5.4: Nailab Implementation Partners 62

5.6 Partnerships, Collaboration and Networking 62

5.7 Summary 63

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6.0 ACHIEVEMENTS, IMPACT AND SUSTAINABILITY 67

6.1 Introduction 67

6.2 Relevance and Appropriateness 67

6.3 Achievements of Stated Objectives 67

6.3.1 Supporting ICT Related Enterprises 67

Table 6.1: Status of Incubated Start-ups 68

Table 6.2: Operational Business at the Time of the Evaluation 69

Table 6.3: Cause of Death for Graduated Star-ups 69

CASE 1: RABBITIQ PIVOT TO HERDY 70

CASE 2: TASKWETU PIVOT TO MBOCH 71

CASE 3: PROJECT CIPHER 72

CASE 4: LIPAPLUS 72

CASE 5: CLADLIGHT 72

CASE 6: MOBU LIMITED 73

6.3.2 Impact on SME Sector and Socio-economic Environment 74

i. Employment and wealth creation 74

ii. Capacity (Skills) Development 74

iii. Social Inclusivity 74

iv. Gender Considerations 75

v. Seed Capital 75

vi. Viable Business Ventures 75

vii. Expanded Publicity 75

6.3.3 Collaborative Relationship with Related Initiatives 76

6.4 Efficiency and Effectiveness 76

6.5 Sustainability 76

6.6 Summary 77

7.0 LESSONS, CONCLUSIONS AND RECOMMENDATIONS 79

7.1 Lessons Learned 79

7.2 Conclusions 80

7.3 Recommendations 82

8.0 REFERENCES 83

Annexure 1: List of People Consulted 83

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ABBREVIATIONS AND ACRONYMS

BI Business Incubation

BOD Board of Directors

CBD Central Business District

CCN Common Core Network

CEO Chief Executive Officer

CIC Climate Innovation Centre

GDP Gross Domestic Product

GIIN Global Impact Investing Network

GoK Government of Kenya

ICS Investing in Children and their Societies

ICT Information and Communication Technology

ICTA The ICT Authority

IFC International Finance Cooperation

IPO Initial Public Offering

JKUAT Jomo Kenya University of Science and Technology

JOOUST Jaramogi Oginga Odinga University of Science and Technology

KENASVIT Kenya National Alliance of Street Vendors and Informal Traders

KEPSA Kenya Private Sector Alliance

KES Kenya Shillings

KICTBIP Kenya ICT Based Incubation Programme

KIRDI Kenya Industrial Research and Development Institute

MICT Ministry of Information and Communications Technology

MIED Ministry of Industrialisation and Enterprise Development

MSEA Micro and Small Enterprises Authority

Nailab The Nairobi Incubation Lab

NOFBI National Optic Fibre Backbone Infrastructure

PPP Public Private Partnership

PR Public Relations

SACCOS Savings and Credit Cooperative Society

SME Small and Medium Enterprises

SWOT Strengths, Weaknesses, Opportunities and Threats

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ACHIEVEMENTS

24 start-ups admitted

19 still in operations

General overview

IMPLEMENTATIONPARTNERS

PLAYERS

OPPORTUNITYPROGRAM IMPACTS

KEY CHALLENGES

• Accesstocapital• Lackofskilledmentors• Lowcustomeracquisition• Lowangelinvestment• Poorstateofinfrastructure

outsidenairobi

• EmploymentAndWealthCreation

• Capacity(Skills)Development• SocialInclusivity• GenderMainstreaming• EstablishmentOfSeedFund• DevelopmentOfViable

BusinessVenture• CollaborativeNetworks• ExpandedPublicity

• Impactinvestmentcapital(Funding)

• NationalGovernment(Market)

• CountyGovernmet(Market)

• Policyandregulation• Infrastuctureandresource• Researchanddevelopment• Growthenablers• Finance• Marketingchannels

• Accenture• Afrilabs• Delloitte• MicrosoftBizSpark• 1%Club• RafikiBank• Seacom• TrincMedia• Jkuat• NationMediaGroup• BrandIntergrated

Visual by:Nailab Accelerator LTD 03.11.2016

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PIL

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INCU

BAT

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IN S

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MA

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10 The Kenya ICT Start-up Landscape Report

NOTES


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EXECUTIVE SUMMARY

PreambleTechnology has emerged as the most dominant feature of our modern society. It has contributed greatly to the shaping of the kind of world in which we now live. Its impact is all pervasive, affecting all aspects of the daily lives of individuals and the significance and survival of economic, social and political institutions. To fulfil the promises aspired under the Kenyan Vision 2030, technology will be needed in the future still more than before to strike new directions for the country’s socio-eco-nomic development. Consequently, a suitably guided technological development process that enhances the emerging benefits, is a logical path for a prosperous, middle income Kenya.

With an increasing importance attached to technology for socio-economic devel-opment, the ICT Authority (ICTA), a state corporation in the Ministry of Information and Communication, obtained funding from the World Bank to support the de-velopment of the Kenya ICT Based Incubation Programme (KICTBIP). The Nairobi Incubation Lab (Nailab), a Kenyan Incubator based in Nairobi, was awarded the contract to implement the programme after a competitive call. The programme has been implemented since 2013 and is expected to wind up by the end of 2016. It is on this basis that Nailab appointed Lartech Africa Limited (Lartech) to conduct an assessment of the achievements realised by the programme and to make rec-ommendations on the gaps and/or challenges identified. This report presents the assessment findings.

Approach and MethodologyThe assessment was conducted using a participatory, consultative, analytical and objective approach. The findings are based on a methodology that involved desk review of project documents, consultations with Nailab staff; one-on-one inter-views with some of the start-ups; and data analysis. A total of six start-ups were consulted on their progress upon graduation from the programme. The report has been finalised following a review and comments received from Nailab.

Kenya’s ICT Entrepreneurship EcosystemThe ICT entrepreneurship ecosystem shows existence of a wide array of players, including: Private equity, corporate bodies, government institutions, incubators and accelerators, professional services and development organisations, venture and impact venture capitalists, technical support organisations, training and research institutions. The ecoystem also has hubs, networks, events and community spaces.

The growth drivers of the ecosytem revolve around access to capital, entrepre-neurship support, policy and regulatory framework, market opportunities, human resource capacity, state of infrastructure, and government and private sector sup-port. Access to capital (finance) is still a major concern. There is high dependence

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on informal sources of finance and bootstrapping due to high risk perception of the lenders and inability of the entrepreneurs to adequately pitch their business concepts (models). The situation is exacerbated by lack of collateral (security) and credit history. Nevertheless, a significant portion (50 percent) of the lenders or equity providers have started to appreciate emerging opportunities within the SME segment. The lack of acces to capital is further compounded by lack of early stage investment. It was found that only 2 percent of Kenyan start-ups (44 percent in ICT) had received funding from business angels compared to 37 percent at Silicon Val-ley. It was further noted that, with continued support, the ecosystem has potential of attracting impact investment capital, especially on ideas with strong social and environmental benefits.

Currently, entrepreneurship support is concentrated in the Capital Nairobi. The Bishop Magua Building along Ngong Road is considered as the start-up epicentre of Kenya and hosts most of the ecosystem support services. However, outside Nairobi, the level of support is still nascent and barely developing. Nairobi also en-joys better infrastructure development compared to other counties. It is important to note that the state of infrastructure has generally improved in the recent years following connection through the undersea cables and the laying of the National Optic Fibre Backbone Infrastructure (NOFBI) network thereby creating more mar-ket opportunities, especially in ICT related businesses.

The ICT market remains attractive and continues to grow in leaps and bounds due to momentous rise in mobile phone penetration (about 37.8 million subscribers, 88 percent so far) and an increasing rate of internet use (74 people per 100 inhab-itants). Internet access is mostly through the handsets. Promising opportunities within the ICT space include Apps; B2B solutions; software development; solu-tions in finance, health and education sectors; training and capacity development; and hardware. However, to tap these opportunities,concerns around human re-source capacity needs to be addressed.

The assessment found that human resource capacity, especially in the ICT eco-system was inadequate. More mentors are especially needed to overcome gaps in practical business and management skills.

Framework, Design and StructuresThe evaluation found that the adopted PPP framework was relevant and consis-tent with government strategies. The model is being encouraged to increase pri-vate sector involvement in the socio-economic development of the country.

In terms of set-up, we found that the programme was hosted within the Bishop Magua Building along Ngong Road, which is five (5) kilometres away from the city centre. The facility has a working area that can host about 50 people at any given

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time. It also has a conference room, a lounge, a kitchenette and the general space. It is well furnished and has high-speed internet services, a stable power supply and computer equipment and accessories. The premises are very accessible with ample parking and good security.

The programme governance structure consisted of the Board of Directors (BoD), the Steering Committee and Nailab Staff. The BoD was responsible for providing poli-cy guidance and oversight management of the implementation team. The Steering Committee, responsible for mapping and helping in managing the delivery of the contract, was appointed by ICTA. Additionally, the incubator operated on a two tier staffing arrangement that consisted of a dedicated staff on one hand; and a pool of external experts, hired on a needs basis to complement the internal capacity.

The roll-out of the programme was based on a training curriculum that covered a broad range of issues delivered in 12 modules within a 6-month period. The curricu-lum was developed in partnership with Accenture, based on identified training needs, and was therefore useful in standardising the incubation content. It was found that, based on the feedback from graduated start-ups, mentors and other stakeholders, the incubator while maintaining the overall framework reviewed the contents of the curriculum on a season by season basis to ensure richness, relevance, competence to match quality and skills levels responsive to the market demand.

The evaluation concluded that the programme design was well thought out de-spite the lack of a clear Risk Management Plan. Also missing was a sensitivity analysis of the adopted design on assumptions made.

Implementation ProcessNailab made substantial implementation progress having completed all the listed milestones, which are: This Final Evaluation Project Report, submission of Incep-tion Report; development of Incubation Business Plan, Recruitment of Incubation Manager; Selection, Admission and Incubation of Start-ups; Development of PPP Framework; Development of Capital and Operational Budgets; Development of Success Matrix and Graduation Criteria; and Compilation of Bi-annual Progress Reports. Pending is the finalisation and submission of the Final Project Report.

Despite the delays in the recruitment of the incubation manager and the failure to actualise the virtual incubation model, the overall implementation process, in our opinion, was well conceived and efficiently conducted.

The evaluation found that a clear start-up recruitment process was followed. The process started with awareness creation through newspaper features, social me-dia, outreaches, TV advertisement and blogs, physical posters and entrepreneur-ial network forums. Following awareness creation was the call for applications,

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which targeted both technology-based and social-based start-ups. The screening of applications was based on an approved criterion that considered factors such as ideas with maximum potential, business sustainability, commitment to the incu-bation programme and team composition. Based on the outcome of the screening process, start-ups were shortlisted for interview. A total of 396 applications were received between November 2013 and November 2015. 57 applicants (14 percent) were shortlisted for the interview out of which, only 25 (44 percent) were selected. One start-up declined the offer leaving a balance of 24 start-ups that went through the incubation programme. The low rate of shortlisted applicants was attributed to dismal quality of the business concepts that failed at the screening stage.

At the incubator, start-ups were subjected to a 6-months intensive entrepreneur-ship induction programme. The first three (3) months focused on product de-velopment and the final three (3) months on business development and market acquisition. 6-month incubation period, in our opinion, was adequate and within acceptable limits of an intensive yet productive programme.

During product development stage, the start-ups worked to create a back end of their solutions to ensure a flawless platform. They were also equipped with es-sential skills of running a business and coached on how to create the necessary systems. Some of the relevant skills imparted at this stage included: Accounting and Finance, Intellectual Property; Public Relations and Marketing; and Presenta-tion Skills. Tools used at this stage to help start-ups refine their models included: Srum, Javelin Board, Lean Canvas, Customer Journey, Value Proposition, Design Thinking, Product Development, User Design and Experience and Mentorship.

Apart from the curriculum drill, the Incubator organised internal mini-demos on a monthly basis for the start-ups to practice their pitches in preparation for the main DEMO event. The DEMO event provided the start-ups with a platform to launch their products (to the press, clients, partners and potential investors), and to network.

Business development and market acquisition focused on incorporation; aggres-sive marketing of the products; engaging early stage investors and fostering stra-tegic partnerships. Linkages with early stage investors were meant to generate seed capital to help the start-ups in developing their first consignment of product and/or accelerating their services. The end of this stage marked the completion of incubation process. However, several graduating firms opted to remain within the facility, which created a pool of talents for incoming start-ups; and also became an important source of revenue to the incubator in rental income.

Nailab was supposed to set-up a virtual incubation services framework to ben-efit SMEs outside the walls of the incubator to address geographical limitations among other factors. The ultimate outcome of virtual incubation was to promote

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entrepreneurship culture and innovation in remote areas to contribute to the ICT sector growth. In this regard, Nailab developed a virtual portal (www.ideasafrica.com) and conducted two outreach events (Hackathons). The ideasafrica portal al-lows start-ups to list their profiles to attract potential clients and investors; ask questions and hold discussions that promote start-up growth. The platform is so popular that it has attracted more than 900 start-ups listings and growing

The outreach events (hackathons) were held in Mombasa and Kisumu counties to identify their needs and to assess the viability of launching and setting-up satel-lite centres for virtual incubation. Mombasa hackathon attracted 150 participants, while Kisumu hackathon received 200 participants. These events climaxed with presentation of awards to the top three presenters.

The outcome of the outreaches (hackathons) revealed that the virtualisation model was not going to work due to: inadequate infrastructure, unreliable internet ser-vices, shortage of committed mentors, lack of exposure of mentors outside Nairo-bi, low level of technical skills and unwillingness of strategic partners to adopt the franchising model. Consequently, the concept was abandoned and funds meant for it used to establish a seed fund for the start-ups.

The evaluation found that Nailab identified and involved institutions and/or or-ganisations with appropriate and complimentary expertise from both the public and private sector. Some notable partners that participated in the implementation process were: Accenture, Afrilabs, Delloitte, Microsoft BizSpark, 1% Club, Rafiki Bank, Seacom, Trinc Media, JKUAT, Nation Media Group and Brand Integrated.

Achievements, Impact and SustainabilityThe incubation programme was found to be relevant and appropriate. It is aligned with the Kenya’s need to create a national framework for business incubation to support the growth of new start-ups in the ICT sector.

During the programme’s 3 years of implementation, 24 start-ups were admitted into the facility and successfully graduated. Out of these, 19 were still in operation while 5 had failed. This gives the incubator a success rating of 79.2 percent. Noting that only 30 percent of general SMEs business in Kenya reach their third birthday and by comparing business incubators within the infoDev’s network that reports a success rate of 75 percent, the evaluation finds Nailab’s success rating of 79 percent encouraging. The study, however, notes that very little progress was made on virtual incubation and it was not therefore possible to report on the number of virtual clients incubated.

Conversation with some of the operational start-ups revealed growth in size, ex-pansion in client base, ability to attract investment, an expanded network, collabo-

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rative (pivoting) schemes and growth in revenue. Notable challenges included lack of capital, lack of skilled human resource and customer scepticism. To address the challenges of access to capital, the evaluation found that Nailab had estab-lished a seed fund and has so far disbursed about KES 4.5 million to 11 start-ups. The average funding level was computed to be KES 400,000 ($4,000). The start-ups that have benefited from the seed fund include: Cladlight; Taskwetu, Keja-hunt; Gigwapi; Sokotext; Young Freddie; Usomi; Ujirani; Serviceline; RabbitIQ and Hisaplay. However, Usomi and Young Freddie folded up.

In terms of influencing the SME sector and the socio-economic environment, the programme has registered substantial progress in employment and wealth cre-ation; capacity development; social inclusivity, gender mainstreaming; establish-ment of seed fund; and development of viable business ventures. Furthermore, the incubator has successfully utilized the complementarity of various organisa-tions in a collaborative manner to improve its performance and create networks.

Beyond the challenges encountered during the recruitment of the incubation manager and rolling out virtual incubation programme, the evaluation team con-siders that the overall implementation process was well conceived and efficiently conducted with minimum deviation from what was agreed. It was noted that even where there were changes on the design, the same were done following close consultations with ICTA.

It was observed that while the goal of the pilot incubator of becoming a nation-al small technology business support centre that strategically contributes to the growth of the ICT sector was still work in progress, a good groundwork had been laid towards the realisation of the same. This is on the understanding that the in-cubation period was only three years, while most incubators take about 7 years to bloom. Subsequently, a discussion on achievement of self-sustainability, would be premature at this time notwithstanding major efforts being undertaken by Nailab to try to attain the same (sustainability).

Nailab has therefore considered various options including franchising and com-mercialisation. The franchising was abandoned following challenges inherent in the concept. Commercialisation strategies that are being pursued with some level of success include: Revenue allocations; livestreaming; digital community man-agement and communication; project management services; rental income; equi-ty agreements; proposal development for grants; and specialised incubation.

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Lessons LearnedGleaned and documented lessons are:1. It is not good to include outputs which are dependent on factors beyond the

programme. This sets the programme up for failure at least in those aspects. For instance, the success of virtual incubation needed an elaborate infrastruc-ture and requisite human resources which were essentially beyond Nailab to ensure that such requirements were available.

2. Mentorship capacity in most of the counties outside Nairobi was extremely limited. Even if there were mentors, they were extremely few in number and they did not have the time to spare for budding start-ups.

3. The relationship between ICTA and Nailab led to a greater recognition of the pro-gramme which led to better public response in relation to incubation activities.

4. Startups should start with identification of customer needs to develop the technology solution and not the other way round.

5. Successful start-ups depict certain common characteristics, including: Vision and dedication; strong business knowledge; strong funding; unique (innovative) product offering; strong market fit; strong advisory support and coherent team.

6. Start-ups need funding for rapid execution to achieve business growth, without which, the market moves on to the next big thing

7. Hardware start-ups are expensive requiring heavy capital investment in proto-type development before potential investors buy-in

8. Flexibility and dynamism are essential features of an incubation programme to help address unexpected risks and/or uncertainities

9. Start-ups should develop programmes to serve the national and county gov-ernments’ needs as they form a key clientele to put them on the pathway for global growth and scale-up

10. Completion of an application form and attendance of interview are not indica-tors of a start-ups readiness to take-up an incubation programme

11. Co-founder conficts and co-funder dynamics may result in faliure of start-ups especially where the framework of engagememt is not clearly defined. The same can be reduced through a thorough co-founder vetting process

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RecommendationsThe evaluation recommends as follows:1. Since the implementation of the incubation programme is to be scaled-up

to all the counties in the country, greater effort must be expended to ensure adequate infrastructural structures (premises and internet access) and high skilled human resource capacity (mentors) to meet the requirements of an effective incubation programme.

2. Consideration should be given to developing a second phase of the programme to pick up on those activities, such a virtual incubation, which were dropped as well as strengthening the realised achievements (gains). This should be initi-ated within the shortest time possible to try and avoid the loss of momentum should there be a hiatus between the pilot phase and the next. The second phase should target the already enthusiastic technology communities in Mom-basa and Kisumu, with Nailab as the centre. The second phase programme duration to be designed as four years since three years is not adequate to realise real growth. Furthermore, about a year is required for setting-up of the structures for such programme. This woud leave three years for effective implementation of the same.

3. The design of future programmes/project should be based on a project design document with clear logical framework for stated objectives as opposed to a business plan. Such design document should include clear and structured communication strategy, risk managemant plan, key assumptions, sensitivity analysis and a clear procedure for re-allocation of funds

4. Consideration should be given to the establishment of seed capital investmnet fund. Such a fund would assist in rapid replication of prototypes to capture the market. The Nailab seed fund should therefore be strengthened as a starting point.

5. Continue the human capacity development efforts to create a pool of mentors to overcome gaps in practical business and management skills. Consistent intervention in human capacity development would lead to an accumulation of knowledge that would ultimately attract angel investment and boost the confi-dence of the lenders on the budding start-ups.

19The Kenya ICT Start-up Landscape Report

NOTES


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Access to capital

Entrepreneurship support

Policy and regulatory framework

Market opportunities

Human resource capacity

State of infrastructure

Government and private sector

support.

Lack of skilled human resource

Lack of government support

Lack of capital

POLICY

GROWTH

DRIVERS

CHALLENGESMAJOR

START-UP PHASE GROWTH STAGE MATURITY STAGE

MARKET PATTERNS

The market is not developed and the chance of �nding a viable market might be limited

The market is blossoming with many customers

Customers tend to diminish, which leads to a decline of the market

Hubs & labs

Visual by: Nailab Accelerator LTD 03.11.2016

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1.1 PrefaceThe Nairobi Incubation Lab (Nailab) is a Kenyan Incubator based in Nairobi that launched in 2011 with the aim of lowering the entry barriers for ICT entrepre-neurs to start up and scale their businesses. Nailab secured a contract with the Government of Kenya through the ICT Authority (ICTA) to develop and imple-ment a pilot Information and Communication Technology business incubation program in Nairobi. The pilot programme was to run for a period of three years starting from 2013 to 2016. The programme implementation ended in June 2016. Consequently, upon completion of the project, there was a need to undertake a final assessment of the programme to evaluate the gains achieved and docu-ment the lessons learned.

This report, developed by Lartech Africa Limited (Lartech) at the request of Nail-ab, provides an assessment of the achievements realised by the program and makes recommendations on the gaps and/or challenges identified. The findings are drawn from an extensive research and analysis based literature review and stakeholder consultations.

1.2 Background InformationThe Kenya Vision 2030 is the national long term planning strategy that aims at transforming the country into a middle-income economy by the year 2030. The Vision 2030, adopted in 2006 is anchored on three key pillars - Economic, So-cial and Political. The economic pillar seeks to maintain a sustained economic growth rate of 10 percent per annum. Part of the envisaged growth is to be real-ised through the development of small and medium-sized enterprises (SMEs).

In the global landscape, the SME sector is increasingly recognised as the prime vehicle for economic development in both the developed and developing nations. The sector is a major source of employment, wealth creation, innovation and technological advancement. In Kenya, the SME sector accounts for about 80 per-cent of employment and contributes to over 92 percent of new jobs created an-nually. Research also shows that SMEs contribute about 45 percent of the Gross Domestic Product (GDP) .

Whilst SMEs are an integral part of the economy, the performance of the SMEs, especially in Kenya, has been dismal due to a myriad of challenges. Principal areas of concern that affect the performance of SMEs have been cited to include high failure rates, lack of access to finance; market related problems (customer acquisition), management problems, poor state of infrastructure, weak regula-tory environment and lack of access to technology. In many competitive econo-mies, some of these challenges and/or gaps are being addressed through Busi-ness Incubation (BI).

1.0 INTRODUCTION

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Business Incubation has been successfully used to stimulate the development of SMEs by reducing the early stage failure rates through inter alia; increased capac-ity of the entrepreneurs in soft skills, technical skills and business skills; business counselling; access to affordable services and facilities; access to SME finance; better linkages with both the academic community and industry; and quicker commercialization of innovations. BI programmes help in developing growth-ori-ented enterprises through support mechanisms thereby enabling the establish-ment, development and growth of such businesses into sustainability.

Basing on the importance of BI in the development of SMEs and especially for en-trepreneurs in the ICT ecosystem, the Ministry of Information and Communications (MIC) through the Kenya ICT Board (KICTB) sought to support the implementation of the Information and Communication Technology Business Incubation Program aka ICT incubator . To do this, KICTB planned to first set up a pilot Information and Communication Technology business incubator over a period of three years.

The overarching goal (vision) of the pilot incubator is to eventually become a na-tional small technology business support centre to strategically contribute to the growth of the ICT sector. The immediate objectives of the pilot incubator were stated as:

1. Support emerging ICT and ICT-enabled businesses and incubate them towards growth and success

2. Demonstrate a measurable impact on the SME sector and the socio-economic environment of Kenya

3. Establish collaborative relationship with related initiatives in Kenya including infoDev’s mobile applications lab (mLab), the IFC SME Solutions Centre, the planned Climate Innovation Centre (CIC), the East Africa virtual business incu-bation pilot program and other relevant organisations and institutions.

The organisation or consortium that was charged with the establishment and op-eration of the ICT incubator to realise the above objectives was chosen through a competitive selection process. Consequently, ICTA awarded the contract to the Nairobi Incubation Lab (Nailab) in January 2013 following the outcome of the eval-uation of the bids tendered. Nailab, an incubator, was launched in 2011 by Sam Gichuri, Anna Chojnacka and Bart Lacroix. Anna and Bart are co-founders of 1% Club.

Since the award of the contract in January 2013, Nailab implemented the Kenya ICT based pilot incubation programme, which ended in June 2016. Nailab wishes to evaluate its performance and has requested Lartech to carry out an end of project review of the structures, processes and systems that were put in place, to identify the gaps, and to document achievements and lessons learnt.

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1.3 Objectives of the EvaluationThe main objective of the end of programme evaluation was to assess the achieve-ments on the Kenya ICT Based Incubation Programme; identify the impacts and challenges; and make recommendations to inform future design of similar proj-ects. More specific objectives of the final evaluation, as outlined in the Terms of Reference (TOR) were to:

1. Conduct secondary information and literature review on Kenya ICT Based Incu-bation Project implemented by Nailab.

2. Conduct and present a detailed and exhaustive review of the structures, pro-cesses, and systems created by the project and the gaps pertaining to the ICT Based Incubation Program implemented by Nailab, both for Nailab and the incubated start-ups, to establish the extent of project success.

3. Conduct and present a detailed and exhaustive review of the start-ups incubat-ed, progress achieved and the business growth attained after incubation.

4. Develop all data gathering tools required for quality data collection in close consultation with the Nailab team and to pre-test them.

5. Examine and clearly analyse the success factors and opportunities created for the start-ups.

6. Clearly bring out the gaps and highlight the gains achieved by ICT Based Incu-bation Program implemented by Nailab and examine its effect on the ecosys-tem.

7. Analyse both primary and secondary data and to present a detailed draft and final report on the ICT Based Incubation Program.

8. Prepare and present two copies of final evaluation report with inputs from the Nailab team.

1.4 Structure of the ReportThe report is organised into five chapters and five appendices. Chapter 1 introduc-es the report and presents the background information and assessment objec-tives. Chapter 2 provides the approach and methodology used for the evaluation. Chapter 3 presents Kenya’s ICT Entrepreneurship Ecosystem. Chapter 4 reviews the framework, design and structures adopted. Chapter 5 discusses the imple-mentation process. Chapter 6 presents the achievements, impacts and sustain-ability. The lessons learned, conclusions and recommendations are presented in Chapter 7.

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2.0 METHODOLOGY

2.1 IntroductionThis chapter presents the approach and methodology of the evaluation. The meth-odology adopted for the assessment was based on a holistic framework involv-ing active and meaningful participation of all the stakeholders. The assessment followed a design that was essentially based on qualitative methods to generate the necessary amount of information for reaching useful and sound conclusions and the documentation of lessons learnt. Both primary and secondary data were used for the assessment. Secondary data were obtained from the relevant pro-gram documents provided by the client. Primary data was collected through Key Informant Interviews (KIIs), Observation and Photographs.

2.2 Approach to the AssessmentThe evaluation of the ICT incubation programme followed a participatory, consul-tative, analytical and objective approaches as described below.

Approach Description

Participatory Working closely with Nailab, ICT Authority and selected start-ups in sharing the knowledge and experiences during and after the assignment

Consultative Broad consultations with relevant stakeholders and borrowing from the good practices elsewhere to inform the assessment

Analytical Analysis of the local and international context to draw relevance to this assignment thereby leading to logical arguments and systematic conclusions

Objective All data collected was analysed in an objective manner without any biases.

2.3 MethodologyQualitative methodology using a mix of methods was adopted for the study. A semi-structured questionnaire was prepared for interviewing Nailab staff, in-cubated start-ups and other stakeholders who were directly engaged with the programme. The use of mix methods allowed for triangulation of findings which enabled the drawing of conclusions and making recommendations. A succint de-scription of the methodology used including Inception Meeting, Literature Review, One-on-One interviews and Case Studies are presented in the subsections below.

2.3.1 Inception MeetingAn inception meeting with the project staff was held in February 2016 to discuss the objectives of the assignment and get to a glimpse of the program outlook. A major outcome of the meeting was the sharing of programme documents, mile-stones and the identification of participant start-ups in the interviews.

2.3.2 Literature ReviewThe evaluation team undertook a literature review of all the relevant project doc-uments provided by the client. The purpose of the desk review was to examine in detail existing data sources with the intention of getting a better understanding of the programme in terms of the objectives, activities and outcomes. Literature

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Review was also used to contextualize the incubation concept to give better un-derstanding of the ICT Ecosystem. Documents reviewed included but not limited to: Project Inception Report, February 2013; Project Public Private Partnership Framework, October 2015; Bi-annual Reports; Kenya Vision 2030; Science, Tech-nology and Innovation Act, 2013; Micro and Small Enterprises Act, 2012.

2.3.3 One-on-One InterviewsThe information obtained from literature review was augmented with a wealth of information collected through key informant interviews, one-on-one interviews with Nailab staff including the Chief Executive Officer, Communications and Mar-keting Manager, Incubation and Expansion Manager and Outreach and Incubation Coordinator. Interviews were also held with ICTA and the Ministry of Industry, In-vestment and Trade.

2.3.4 Start-up Case StudiesThe Nailab facility was set-up to help the start-ups grow their businesses. The evaluation team conducted an in-depth analysis of some of the start-ups that had been incubated to understand their growth, impact, opportunities and challenges. A case study of six start-ups selected randomly from each of the seasons that Nailab had incubated was undertaken. The selected start-ups were: Taskwetu, RabbitIQ; Project Cipher; Lipaplus; Mobu and Cladlight.

2.4 Data Analysis and DocumentationThe analysis of the assessment data, mainly qualitative, forms the basis of this report. The qualitative information collected from the interviews was recorded, transcribed, corroborated, grouped into thematic variable and processed through content analysis, validated through internal and external triangulation. The anal-ysed data was consolidated and documented into this study report. The report has been finalised following comments from Nailab.


NOTES


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INFRASTUCTURE AND RESOURCE

GROWTH ENABLERS

POLICY AND REGULATION

RESEARCH AND DEVELOPMENT

MARKETING CHANNELS

FINANCE

• Research and Training Organizations

• Government and Government Institutions

• Events• Media• Networks

• Incubators and Accelerators• Hubs and Community Spaces

• Mobile Operators• Corporates• Private Organisations• Professional Service Organisations• Technical Support and Consortiums

ECOSYSTEM MAKEUP


• Private Equity• Financial Institutions• Impact Venture Capital• Venture Capital• Development Organisations

FINANCE

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3.0 KENYA’S ICT ENTERPRENEURSHIP ECOSYSTEM

3.1 IntroductionThere is a strong realisation that while Kenya’s economy is highly dependent on Agriculture and agro-based processing, other key economic drivers are emerging to address the issues of poverty and unemployment, particularly for majority of young Kenyans aged below 35 years .

The SMEs continue to play an important role in improving economic growth and industrial development of nations by contributing to the creation of employment, income generation opportunities, wealth creation and promotion of entrepreneur-ship. In Kenya, the SMEs create over 80 per cent of employment and contribute to over 20 percent of the Gross Domestic Product (GDP). The sector is diverse, consisting of different types of enterprises with varying growth profiles. These en-terprises can be traced in ICT, Agriculture, Healthcare, Energy, and Financial Ser-vices sectors.

The ICT sector in Kenya has recorded a significant growth in software, mobile technology and application software (app). The growth is ascribed to improved in-frastructure that has led to increased mobile telephone subscribers and internet users. Entrepreneurial interest within the ICT space has spurred greater business appetite leading to a burgeoning number of innovative tech start-ups. This trend is attracting a plethora of players (National and Internationally) to help the start-ups grow from idea to scale; and to raise the much needed capital. This chapter maps out the various players within the ICT entrepreneurial ecosystem in Kenya.

3.2 The EcosystemThe journey of business starts from ideation (conception) to maturity and finally to the exit stage. All these stages encompass a wide array of stakeholders that constitute the entrepreneurial ecosystem. Provided in Table 3.1 overleaf is a map of the ecosystem players within the ICT entrepreneurship space developed from review of literature.

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MOBILE OPERATORS INCUBATORS AND ACCELERATORS IMPACT VENTURE CAPITAL

VENTURE CAPITAL

Airtel @iLabAfrica / @iBizAfrica Accion Venture Capital

Orange 500 Startups Acumen Fund 500 Start-ups

Safaricom 88 mph Bamboo Finance 88mph

Yu Africa Business Angel Network D.O.B. Equity Africa Media Venture Fund

CORPORATES Afrilabs GroFin Amadeus Capital Partners

Cisco Systems Growthub Africa Growth Hub Africa Business Partners International

GE IFC SME Solution Centre Invested Development eVA Fund

Huawei Kenya Climate Innovation Centre Jacana Partners Fanisi

IBM East Africa Kenya Markets Trust Khosla Impact Grassroots business fund

Intel Nokia Lakehub Kukua Fund Innovation 4 Africa

Microsoft m:lab East Africa Leapfrog Kitendo Capital

Nokia-Siemens Nailab HUBS AND COMMUNITY SPACES

Mbada Ventures

PRIVATE EQUITY Open Capital Advisors *iHub Savannah Fund

Catalyst Savannah Fund Africa IQ SPARK Ventures

East Africa Capital Partners

Sinapis Group Business Lounge TBL Mirror

EC Private Equity Spotone Global Solutions Gearbox Tech Equity

FINANCIAL INSTITUTIONS

Swahili box VC4Africa TLcom

Bank of Africa Unreasonable Institute RESEARCH AND TRAINING

EVENTS, MEDIA AND NETWORKS

Chase Bank Upstart Africa *iHub_Research Africa Assets

Eco Bank Village Capital eMobilis Africa Gathering

Equity Bank Villgro Kenya infoDev Africa Interactive

Guaranty Trust Bank Spring Accelaror Nokia Research Centre Demo Africa

NIC Bank *Spark Accelerator Program Research Solutions Africa

How we made it in Africa

KCB PROFESSIONAL SERVICE ORGANISATIONS

Safaricom Academy Human IPO

GOVERNMENT INSTITUTIONS/FUNDS

Chembe Ventures World Bank Mobile Monday Kenya

Communication Commission of Kenya

Open Capital Advisors Amani Institute Pivot East

Kenya ICT Authority Board

Techno serve Eastlands College of Technology

Tech 4 Africa

Konza Tech City DEVELOPMENT ORGANISATIONS Egerton University Venture Beat

Ministry of Information and Communications

DFID Kenya Kenya Institute of Management

Venture Burn

Communication Commission of Kenya

FSD Kenya Kenyatta University (Chandaria -BIIC)

Young Entrepreneurs Network

Kenya ICT Authority Board

TECHNICAL SUPPORT and CONSORTIUMS

Strathmore University Kenya Association of Women Business Owners

Uwezo Fund AkiraChix Tangaza University of Kenya

Youth Enterprise Development Fund

Africa Business Angels Network United States International University

PRIVATE ORGANISATIONS

ANDE University of Nairobi ( C4DLab and FabLab)

KENASVIT EAVCA Kenya Industrial Research Institute

KEPSA Maseno University (Kekobi)

Table 3.1: Ecosystem Map

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3.2.1 Business FinanceAll successful start-ups have to raise money at some time in the business growth process. Despite the entrepreneurial ecosystem fully dotted with private equity providers, commercial lenders, venture capitalists and impact venture capital pro-viders, most entrepreneurs still find capital raising a big challenge.

A review of literature has shown that about 68 percent of the SMEs in Kenya use retained earnings to finance their businesses. Factors that hinder access to fi-nance include high interest rates, high cost of recovery for bad debt, poor contract enforcement, low awareness about existing products, lack of security (collateral), lack of investment ready models, underdeveloped SMEs, equity capital markets and distrust of providers of capital. To reduce some of these barriers, the start-ups have various financing options to choose from, including Banks, microfinance institutions, chamas and SACCOS. A significant portion of these players now rec-ognize the market opportunity SMEs present.

Figure 3.1: SME Financing OptionsSource: Argidus Foundation Report, 2015

Ideally, a start-up requires financial support through all the stages of its lifecycle. Review findings have shown that there is very little early stage investment capital (Business Angels). It is noted that that only 2 percent of Kenya’s start-ups had received funding from business angels compared to 37 percent at Silicon Valley. Most (44 percent) of the business angel funding is in the ICT sector (GSMA Digital Entrepreneurship in Kenya, 2014). Figure 3.2 shows a summary of angel invest-ment in the country.

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Figure 3.2: Angel Investing in KenyaSource: Argidus Foundation Report, 2015

Kenya also functions as a hub and destination of impact investment. According to a recent study by Global Impact Investing Network (GIIN) cited in Argidus report (2015), at least 136 impact capital vehicles are active in Kenya. The impact invest-ment profile is captured in Figure 3.3.

Figure 3.3: Impact Investment in KenyaSource: Argidus Foundation Report, 2015

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3.2.2 Entrepreneurial SupportKenyan business support ecosystem has evolved over the last 5 years. Nairobi County is the start-up capital with a number of entrepreneurial networks and business support initiatives. Entrepreneurship support ecosystem outside Nairobi County is still nascent.

Entrepreneurial support in this context relates to non-financial services and prod-ucts offered to the start-ups at various stages of their business needs. These ser-vices are primarily aimed at promotion of entrepreneurship development through training and networking; enterprise development; incubation services (Business Development, Mentoring and Curriculum Development); and Entrepreneurship Education (Skills transfer and business advice). These support domains are cap-tured in Figure 3.4 below.

Figure 3.4: Organisations Offering Entrepreneurship Support ServicesSource: Argidus Foundation Report, 2015

Additionally, there are international organisations, shown in Figure 3.5, that pro-vide support to the development of SMEs in the county. These organisations offer a wide range of support services cutting across several sectors, including the ICT sector.

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Figure 3.5: International SMEs SupportersSource: Argidus Foundation Report, 2015

3.3 Policy and Regulatory FrameworkAn enabling policy and regulatory framework enhances the ease of doing busi-ness and accelerates entrepreneurship development. The government of Kenya recognises the same and has formulated several policy instruments to promote entrepreneurial growth and ICT development. These policies include: The Vision 2030; Kenya Information and Communications Act, 2013; Data Protection Bill, 2012; Media Act, 2013; Kenya National ICT Master Plan (2014 – 2017); 30% Procurement Policy for women, Youth and the Disabled; Diaspora Policy; Micro and Small En-terprises Act, 2012; Science, Technology and Innovation Act, 2013; and Draft ICT Policy, 2016.

Despite the policy commitment by the Government, the same is not optimal. Ad-ditional Policy interventions are required along the prevention of double taxation, restrictive repatriation laws, incentives to start a business and intellectual prop-erty protection.

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3.4 Government and Private InstitutionsGovernment bodies responsible for entrepreneurship development include: Min-istry of Industrialisation and Enterprise Development (MIED); Ministry of Infor-mation and Communications Technology (MICT); Micro and Small Enterprises Authority (MSEA); and The ICT Authority. The MICT has the lead role in the devel-opment of ICT. The ICT Authority works under the MICT and is tasked with rational-ising and streamlining the management of all Government of Kenya ICT functions. ICT Authority’s broad mandate entails enforcing ICT standards in Government and enhancing the supervision of its electronic communication. The Authority also promotes ICT literacy, capacity, innovation and enterprise in line with the Kenya National ICT Master Plan 2017.

Private sector organisations that support entrepreneurship development are the Kenya Private Sector Alliance (KEPSA) and the Kenya National Alliance of Street Vendors and Informal Traders (KENASVIT).

3.5 MarketDefining a market is crucial. Market definition relates to finding an existing need and fulfilling it. By finding a market that has a need, one can often turn a start-up into a profitable venture without much marketing expense.

Kenya remains an attractive market for ICT related businesses due to a momen-tous rise in mobile phone penetration and an increasing rate of internet use. In the beginning of 2016, mobile phone subscription stood at 88 percent (about 37.8 million subscribers). During the same period, internet usage stood at 31.9 million, which implies that every 74 people per 100 inhabitants uses the internet (www.ca.go.ke). These trends are expected to continue.

Market opportunities within the ICT ecosystem exist in apps, Business to Business solutions, software development; ICT solutions in Financial, Health and Education sectors, ICT Training and community problem solving; and Hardware.

It is important for the start-ups and the SMEs to keep a close study of the market following product or service evolution. At the start-up phase, the market is not de-veloped and the chance of finding a viable market might be limited. At the growth stage, the market is blossoming with many customers. At maturity stage, custom-ers tend to diminish, which leads to a decline of the market. Entrepreneurs should keep studying the market to understand emerging opportunities and be flexible enough to make the necessary changes.

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3.6 Human ResourcesManaging a growth oriented business, whether your own or someone’s else re-quires unique management expertise. A talented entrepreneur recognises that the central fact of management is the accomplishment of tasks through other people. The vast majority of successful business have been built around an en-trepreneurial team. In some instances, partnerships have been forged to create a balanced management team. In fact, the stronger the human resource base, the more successful the business is likely to be.

Kenya lacks adequate human resource in ICT to support the growth of the sector (Kenya National ICT Masterplan, 2014-2018; World Bank, 2013). This trend has led to shortage of mentors or high quality mentorship to help entrepreneurs; Insuffi-cient management skills, which is the reason why investors were not backing the start-up; and lack of skills in intellectual property rights.

3.7 State of InfrastructureThe Government of Kenya (GOK) continues to prioritise ICT infrastructure devel-opment. In this regard, the GOK has made considerable progress to enhance the landing of several undersea fibre cables (SEACOM, TEAMS, EASSY and LION), and finalisation of the National Optic Fibre Backbone Infrastructure (NOFBI), which connects all the 47 counties. The GOK has also developed the Common Core Net-work (CCN) as a shared ICT architecture, and the tier-2 Data Centre infrastructure that ensures security of data and applications. There are also plans to develop a wireless broadband network countrywide. In addition, operators in the private sector are also developing their own ICT infrastructure. They include the mobile telecommunications businesses such as Safaricom and data operators like Jamii Telcom and the Wananchi Group.

The connection to the undersea cables and the NOFBI network provides Kenya with numerous investment opportunities and presents great prospects for spur-ring economic growth through reliable and high capacity bandwidth.

3.8 SWOT Analysis of the EcosystemThe strength, weaknesses, opportunities and threats grid of the ICT sector is pre-sented in Table 3.2 overleaf.

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Strengths Weaknesses

• Ambitious workforce resulting in many start-ups

• Large Internal Kenyan market

• Strong Policy and Regulatory Framework

• Significant economic growth in Kenya

• Advanced Infrastructure Development

• Strong Innovation Culture

• Existence of ICT Masterplan

• Complex procurement process for local players

• Lack of tailored (tax) legislation

• Technical education and industry needs misaligned

• Limited availability of investments

• Lack of governmental ICT representation

• Lack of Public Private Partnerships in ICT (PPP’s)

• Diplomatic services lack focus on ICT opportunities

Opportunities Threats

• Significant governmental Investment in ICT

• Labour costs provide labour arbitrage potential

• Growth of average size of Kenyan companies

• Recognized ICT hub developments (incubators)

• Intended creation of Konza as ICT ecosystem

• Entry of international ICT players (Nokia, IBM)

• Creation of East African Community provides larger market

• Growing Kenyan market attracts international ICT players threatening local ICT companies

• Globalization of the ICT industry simplifies international service delivery to Kenyan companies

• African economic development creates significant near-shore competition

• Established human capital flows to MNC’s

Table 3.2: SWOT Analysis of the Ecosystem

3.9 SummaryThe review of the ICT ecosystem shows the existence of a wide array of players, in-cluding: Private equity, corporate bodies, government institutions, incubators and accelerators, professional services and development organisations, venture and impact venture capitalists, technical support organisations, training and research institutions. The ecoystem also has hubs, networks, events and community spaces.

The growth drivers of the ecosytem revolve around access to capital, entrepre-neurship support, policy and regulatory framework, market opportunities, human resource capacity, state of infrastructure, and government and private sector sup-port. The review shows that access to capital is still a major concern. There is high dependence on informal sources of finance and bootstrapping due to high risk perception of the lenders and inability of the entrepreneurs to adequately pitch their business concepts (models). The situation is exacerbated by lack of collater-al (security) and credit history. Nevertheless, a significant portion (50 percent) of the lenders or equity providers have started to appreciate emerging opportunities within the SME segment. The lack of acces to capital is further compounded by lack of early stage investment. It was found that only 2 percent of Kenya’s start-ups (44 perecnt in ICT) had received funding from business angels compared to 37 percent at Silicon Valley. It was further noted that, with continued support, the ecosystem has potential of attracting impact investment capital, especially on ideas with strong social and environmental benefits.

Currently, entrepreneurship support is concentrated in the Capital Nairobi. The Bishop Magua Building (on Ngong Road), is considered the start-up epicentre of

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Kenya and hosts most of the ecosystem support services. Outside Nairobi, the level of support is still nascent and barely developing. Nairobi also enjoys better infrastructure development as compared to other counties. It is important to note that while the state of infrastructure has generally improved in the recent years following connection to the undersea cables and the laying of the NOFBI network, more work on the same is needed outside Nairobi to create more market oppor-tunities, especially in ICT.

The ICT market remains attractive and continues to grow due to momentous rise in mobile phone penetration (about 37.8 million subscribers, 88 percent so far) and an increasing rate of internet use (74 people per 100 inhabitants). Internet access is mostly through the handsets. Promising opportunities within the ICT space include Apps, B2B solutions, software development; solutions in finance, health and education sectors; and training and capacity development. However, to tap these opportunities,concerns around human resource capacity needs to be addressed.

It was noted that human resource capacity, especially in the ICT ecosystem is in-adequate. More mentors are needed to overcome gaps in practical business and management skills. Consisted intervention in human capacity development would lead to an accumulation of knowledge that would ultimately attract angel invest-ment and boost the confidence of the lenders on the budding start-ups.


NOTES


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10

20

30

40

50

60

NAILAB PROGRAM PROCESS

PROGRAM GOVERNANCE STRUCTURE

Finance and Operations

Marketing and Communication

IncubationManager

CIO Business Development /Commercial Manager

Accounts

Administration

HR

PR, Branding andCommunication

Events

Incubation &Mentorship

Incubation Services

Government andCorporates

CHARACTERISTICS OF A SUCCESSFUL START-UP

Strong Funding

Supportive Advisory Board/Mentors

Strong Product Market Fit

Vision and Dedication

Strong and Knowledgeable co-founders with good

technical and business skills

Board of Directors

Steering Committee

CEO

Awareness Creation

Selection (Screening)

Shortlisting, Interviews and Admission

Incubation Programme

Demo Events

(0-3) months Product Development

(3-6) months Business Development and

Market Acquisition.

Call for Applications


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4.0 FRAMEWORK, DESIGN AND STRUCTURES

4.1 IntroductionAs already discussed, in January 2013, the World Bank Group (WBG) through ICTA, partnered with Nailab to launch a $1.6 million technology incubation programme in an effort to support the growing information and communication technology (ICT) start-up community. The programme focused on early stage business ideas with a high likelihood of creating a large social and economic impact, highly scal-able with minimum investment requirement to prototype and having a strong val-ue proposition. This chapter reviews the programme framework, design and gov-ernance structures.

4.2 Programme FrameworkThe programme was a three-year service contract structured around the pub-lic-private-partnership (PPP) framework (model). The PPP framework is an ar-rangement between a public institution (contracting entity) and a private entity, under which the private entity undertakes to provide a service on behalf of the contracting entity. The private entity receives a benefit for performing such func-tions or services by way of compensation from the public entity or fees charged to clients (consumers) or both. Being a pilot program with full government funding (grant), the incubator did not charge any fees to the start-ups for the duration of the incubation (6 months). However, other income generation models, such as rental income, were used to improve the financial standing of the incubator.

The PPP model is encouraged by the GoK and is well within Kenya’s legal frame-work. Relevant supporting instruments include the Public Private Partnership Act, 2013; Public Procurement and Disposal Act; 2015; The Privatisation Act, 2005; The Constitution of Kenya, 2010; The County Government Act, 2012; The Government Contracts Act, 2010 (Revised, 2012); The Public Finance Management Act, 2015; and the Transition to Devolved Governments Act, 2012 (Revised, 2013). The frame-work is also aligned to the Government of Kenya’s Economic Reform Agenda and Strategy that aimed at increasing private sector involvement in the socio-econom-ic development.

4.3 Programme DesignThe primary document used to assess the project design was the Nailab Incuba-tion Business Plan. This document was organised in line with the Terms of Refer-ence of the contract. The plan provides necessary information on Nailab services; market information and marketing strategy; web plan; strategy and implementa-tion; SWOT analysis; fundraising strategy and finance plan; milestones; and gov-ernance structure.

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4.3.1 PremisesThe incubator is hosted within the Bishop Magua Building along Ngong Road, which is five (5) kilometres away from Nairobi City Centre. It has a space of 3,713 sq. feet (345 sq. m) – a capacity that can host about 50 people at any given time. The facility includes a common working area, a conference room for small beak-out meetings and trainings, a lounge, a kitchenette and the general space. The general space is sometimes rented or used for training and/or hosting external events. The facility is well furnished and has high-speed wireless internet access, stable electricity supply and basic computer equipment and accessories. The incubator premises are very accessible with ample parking and good security.

Meeting Room forBrainstorming

sessions forstartups

Kitchenette whichdoubles as a meeting

and working areafor the start-ups

Central working Area,where the startups all work together andshare/enguire from each other to enhance the quality of

their products

External working areaused for events,

workshopse.t.c

Figure 4.1: Nailab Offices at Bishop Magua along Ngong RoadSource: Nailab Incubation Report, 2014

4.3.2 Business Sustainability ModelThe programme was designed to admit companies that were in the start-up phase (less than five years old). These companies were to be focused on ICT or be ICT-enabled, knowledge intensive businesses. However, ICT-oriented compa-nies that demonstrated an impact on the local socio-economic landscape were considered in the overall business sustainability model. Business sustainability also included having, within the incubator, an appropriate mix of entrepreneurs at concept stage (pre-revenue), early stage (post revenue) as well as growth (ex-pansion) stage.

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4.3.3 Design Risks and AssumptionsThe business plan for the pilot incubation programme does not mention any risks associated with the model or assumptions made. As a result, there was no framework for mitigation of emerging risks during implementation. A clear Risk Management Plan enables timely resolution of risks. Furthermore, a sensitivity analysis of the adopted model, on failure of critical assumptions, was not carried out. Key assumptions of the programme were that: incubation would be strictly aligned to the business plan; virtual incubation would be easily rolled-out across the country, three years was sufficient to complete the project and double start-up turnover.

4.4 Governance StructureNailab was the executing organisation of the programme working in full coordina-tion with ICTA. The project governing framework consisted of the Board of Direc-tors, the Steering Committee, the Nailab CEO and Technical and Administrative staff as shown in Figure 4.2.

Figure 4.2: Program Governance Structure

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4.4.1 The Board of DirectorsThe incubator had a Board of Directors responsible for providing policy guidance and oversight management of the implementation team.

4.4.2 Steering CommitteeThe incubator set up a steering committee that met regularly to map and help in managing the delivery of the contract. The committee represented the key players and consisted of ICTA Technical Team, ICTA Consultant, Nailab CEO and Nailab Incubation and Expansion Manager. The committee met regularly to oversee proj-ect progress, discuss emerging challenges, review budget, review the programme schedule and offered the necessary advice.

4.4.3 Staffing ArrangementsThe incubator is designed on a two-tier staffing arrangement. First, it has dedi-cated staff who are responsible for the day-to-day management and coordination of program activities. In addition to the CEO, the incubator had the Incubation Manager in charge of Incubation and Mentorship services; Finance and Opera-tions Manager in charge of Accounts, Administration and Human Resources; Mar-keting and Communication manager in charge of PR, Branding Communication and Events; and Business Development/Commercial Manager in charge of Gov-ernment and Corporate Affairs. Secondly, the facility relies on external experts to complement the internal staff.

4.5 Incubation CurriculumThe incubation curriculum framework shown in Figure 4.3 was developed with the support of Accenture, Netherlands. The curriculum is composed of 12 modules complete with training guide covering product and business development phases of the incubation programme.

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Module 1 and 2 Module 3 and 4

Introduction to Entrepreneurship and Leadership in New Venture

Creativity, Innovation, Applied Design Thinking

Business Plans and Business Models

Market Research and Building Your Business Model


Customer Discovery and validation

Building Cash Flow, Projections, Understanding Basic Financial Statements

Marketing and communication

Successful Partnership with Investors


Valuing a Business, Liquidity, Exists, IPOs and M&A

Strategic Partnerships Negotiations, Contracts and Legal Issues

Recruiting, Hiring and Compensation

Figure 4.3: Incubation CurriculumSource: Nailab Business Plan

The evaluation team notes that capacity building of start-ups using the right cur-riculum and tools is pertinent to increasing survival rates as it enables correct diagnosis of challenges and barriers that are likely to hinder business growth. The curriculum was developed based on identified training needs, and therefore rele-vant. It helped in the standardisation of the incubation training content.

It was also found that, based on the feedback from graduated start-ups, mentors and other stakeholders, the incubator while maintaining the overall framework reviewed the contents of the curriculum on a season by season basis. The review aimed at ensuring content richness, relevance, competence to match quality and skills levels responsive to the market demand.

4.6 SummaryProgrammes/Projects are built on assumptions on how and why they are sup-posed to achieve the agreed objectives through the selected strategy. This set of assumptions constitutes the programme/project theory and can be explicit (e.g. set of deliverables/milestones/log frames) or implicit in a programme/project document. It was noted that the Nailab Incubation Business Plan constituted the programme document under the contract. Consequently, the review has relied on it to analyse the framework, design and the governance structures.

The PPP framework adopted by the project was relevant and consistent with gov-ernment strategies. The model is being encouraged to increase private sector involvement in the socio-economic development of the country.

In terms of set-up, the incubator is hosted within the Bishop Magua Building along Ngong Road, which is five (5) kilometres away from the city centre. The fa-cility has a working area that can host about 50 people at any given time. It also has a conference room, a lounge, a kitchenette and a common (general) space. It is well furnished and has high-speed internet services, a stable power supply and

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computer equipment and accessories. The incubator premises are very accessible with ample parking and good security.

The programme governance structure consisted of the Board of Directors (BoD), the Steering Committee and Nailab staff. The BoD was responsible for provid-ing policy guidance and oversight management of the implementation team. The Steering Committee was responsible for mapping and helping in managing the delivery of the contract. Additionally, the incubator operated on a two-tier staffing arrangement that consisted of a dedicated staff on one hand; and a pool of exter-nal experts, hired on a needs basis to complement the internal capacity.

The incubation programme roll-out was based on a training curriculum that cov-ered a broad range of issues delivered in 12 modules within a 6-month period. The curriculum was developed in partnership with Accenture, based on identified training needs, and was therefore useful in standardising the incubation content.

The evaluation notes that the programme design was well thought out. However, a key notable gap in the programme design was the lack of a clear Risk Man-agement Plan that would have given an early warning to technical, financial and operational risks. As a result, there was no framework for risk recognition and mitigation. Furthermore, a sensitivity analysis of the adopted design, on failure of critical assumptions, was not carried out.

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5.0 IMPLEMENTATION PROCESS

5.1 IntroductionThis section presents an analysis of the programme implementation process. It reviews the recruitment of the incubation manager; analyses the process of recruitment and admission of start-ups; discusses the incubation programme; highlight issues around virtual incubation; and presents the programme imple-mentation partners.

5.2 Recruitment of the Incubation ManagerThe program implementation process commenced with the recruitment of a suitable Incubation Manager, a key requirement under the Nailab contract. The role of the incubation manager was to inter-alia: oversee the day-to-day proj-ect management and operation of the incubator; oversee the pilot programme’s outcome; lead the implementation team in developing matrices, formulas and models for efficient project delivery; and document the project outcomes at con-clusion of the contract.

The recruitment process for the position started in August 2013 and got filled on 21 January 2014 following a long and rigorous recruitment, interview and selection process. The successful candidate reported at the Nailab Offices on 3 February 2014.

Figure 5.1: Incubation Manager AdvertisementSource: Nailab Incubation Manager Report, 2014

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The program business plan does not indicate a timeline upon which the Incubation Manager was to be recruited. However, based on the study findings, it is clear the recruitment was completed a year after contract signature. The lengthy recruit-ment process was occasioned by stringent qualification requirements that yielded very few responses on the first call. The requirement for a computer science and software development qualification had to be dropped to get meaningful respons-es at the second call. It was concluded that a candidate with project management, business development and entrepreneurial skills was adequately suited to serve in the capacity of an Incubation Manager . To address the gap of software devel-opment skills, the incubator recruited a Product Manager with a strong software development background.

5.3 Recruitment and Admission into the ProgrammeThe recruitment window for the new start-ups under the KICTBIP opened in 2nd September to 18 October 2013. A total of five (5) start-ups were selected to join the programme. The selected start-ups followed a process that involved awareness creation, call for applications; selection and shortlisting; panel interviews and ad-mission. In addition to the normal recruitment process, Nailab also has a policy of admitting start-ups with great business potential into the Incubator .

5.3.1 Awareness CreationBefore commencement of the selection process, an extensive awareness cre-ation and publicity was undertaken on the incubation selection process. This was done through newspaper features (Standard Business Focus, The Daily Nation, Business Daily); Social Media (Facebook and Twitter); Hackathons (Mombasa and Kisumu); TV and Blogs (Humanipo, Tech Moran); Posters (Public Notices) and en-trepreneurial network forums. Additionally, Nailab participated in a number of events to enhance its visibility. These events included: Mtaa Challenge, Save Our Heritage Campaign, Barcamp Nairobi, 2013; and Blackberry. These events were used to raise awareness on how ICT can be a solution to addressing some of the problems in the local context and how to make a business out of ICT based solu-tions. The Incubator has also been instrumental in participating in less formal arrangements for the purposes of expanding the networking space.

While these approaches played an important role, they focused very much on the programme and immediate stakeholders. It is therefore suggested that in future, there will be need to expand the content of information and audience being tar-geted. This may be realised through development of a communication strategy for such programmes.

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!

Figure 5.2: Means of Awareness Creation for Selection ProcessSource: Nailab Selection Report, 2013

5.3.2 Call for ApplicationsThis is the first step of the incubation process completed through an application form. The form is designed to capture as much information to allow the selection panel to make concise decisions about the applicant. The application form in-cludes details of the applicant, co-founder information, the need for the product and the target markets among others.

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Figure 5.3: Poster for Start-up ApplicationSource: Nailab Selection Report, 2013

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Nailab call for applications targeted both technology-based and social-based start-ups. Social ventures admitted to the program were those with innovative ideas geared towards solving social problems. The advertisements were done through Nailab Partners (Afrilabs, ICTA); social media pages, physical posters to various hubs and labs (ihub, growthhub,88mph, ilab, Fablab, Lakehub, Mombasa tech and PAWA254); Universities (JKUAT).

5.3.3 Selection (Screening)The selection (screening) allows for quality control and ensures the admission of only suitable start-ups into the incubator. The criteria for screening the start-ups was developed by Nailab and approved by ICTA. Key aspects for consideration were: ideas with maximum potential, business sustainability, commitment to the incubation programme and team composition.

Selection Criteria Aspects

Ideas with Maximum Potential • Viability or Feasibility of the Business Idea (Financially, Technically and Market)

• Idea Value Proposition

• Innovation to Social Change

• Scalability through Web or Mobile Platforms

• Minimal Investments

Business Sustainability • Level of Education

• Team complementarity/Synergy

• Sources of Finance

• Prior Entrepreneurial/Employment Record

• Level of Self Reflection

Commitment to the Incubation Programme • Completed application form

• Submission of a working prototype

• Submission of relevant CVs

• Demonstrated willingness/openness to learn

• Marketing acumen

Team Composition • Skill diversity

• IT experience

• Business Experience

• Time the team has spent together

Table 5.1: Selection CriteriaSource: Nailab Selection Report, 2013

5.3.4 Shortlisting, Interviews and AdmissionBased on the approved selection criteria, Nailab shortlisted, recruited and admit-ted to the incubator the number of start-ups shown in Table 5.2. Only those start-ups that gained three (3) or five (5) or more votes from an independent review pan-el of 5 or 7 members respectively were considered for interviews. The interview involved a five-minute presentation (pitching) of the business idea .

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Season Recruitment Window Applications Received

Shortlisted Applicants

Selected Start-ups

Declined Offer

Admitted to Incubator

Season 3 November 2013/ January 2014

32 9 5 0 5

Season 4 May/November 2014 60 8 5 0 5

Season 5 October/November 2014 80 12 6 1 5

Season 6 July 2015 139 20 5 0 5

Season 7 August/November 2015 85 8 4 0 4

Total 396 57 25 1 24

The incubator received a total of 396 applications between November 2013 and No-vember 2015. Out of the applications received, only 57 applicants (14 percent) were shortlisted for the interview. Upon pitching of the business idea, only 25 (44 per-cent) were selected. Out of those selected, one start-up declined the offer leaving a balance of 24 start-ups that passed and went through the incubation program. The low rate of shortlisted applicants was attributed to low quality of business ideas (that did not meet the set criteria).

Table 5.2: Start-ups Recruitment and Admission into the Incubator

Figure 5.4: Start-up PitchingSource: Nailab Selection Report, 2013

5.4 Incubation ProgrammeThe incubation programme was initially designed to run for 12 months per cohort . However, the Incubator decided to adjust the programme from 12 months to 6 months. The first three (3) months focus on product development whilst the final three (3) months focus on business development and market acquisition.

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The change of program duration was informed by the need to realize better growth and results. The incubator realised that start-up entrepreneurs lacked the urgen-cy and drive to produce results due to the perception that with the 12 months’ pe-riod, they had adequate time. Furthermore, a benchmarking visit to Y-Combinator (the leading incubator in the world) by the Nailab CEO revealed that 6 months was adequate time to develop and potentially launch a product. The revised six-month incubation programme enabled the incubator to run 2 seasons in a year leading to better results as compared to the 12 -month programme.

In assessing whether the adjustment of the program duration was well within limits of what other organisations in the country were offering, a comparison of incubation programme lengths was effected as shown in Figure 5.5. Apart from KIRDI, which provides 12-month incubation period, all other organisations work within 6-month duration or less. These findings put the Nailab 6-month duration within the acceptable limits of an intense yet productive programme.

Figure 5.5: Comparison of Organisations Program Incubation LengthSource: GSMA Digital Report, 2014

5.4.1 Product Development (0-3 Months)During the product development stage, the start-ups work to create a back-end of their solutions to ensure a flawless platform. At this stage, the start-ups are equipped with essential skills for running a business, coached on how to create systems for their business from registration to legalities of trademarking or pat-enting, smart book keeping, hiring and marketing to using different communica-tion tools for customer retention.

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Relevant training during this stage include: Accounting and finance; Intellectual Property; public relations and marketing and presentation skills. This stage of in-cubation culminates with a DEMO day where the start-ups launch their products to their potential customers, investors and/or potential consumers.

Table 5.3 highlights the relevant tools, for coaching sessions, that were used during the project development. They included: Srum, Javelin Board, Lean Can-vas, Customer Journey, Value Proposition, Design Thinking, Product Development, User Design and Experience and Mentorship. These tools help the start-ups to refine their models or methodology at an early stage without inconveniencing the end-users.

Methods (Tools) Objectives

Scrum The start-ups create work plans for weekly and monthly activities through clear work logs and meet defined milestones

Javelin Board The start-ups validate their product with potential customers through gathering of feedback, especially on the market fit, for improvement of the product offering at an early iteration process

Lean Canvas The start-ups figure out the business model as well as come up with an elevator pitch

Customer Journey The start-ups develop a customer’s journey with their product to identify customer pain points and points of interaction, which helps in creating a smooth experience for the customer to arrive at a better product value proposition

Value Proposition The start-ups are assisted to identify unique product attributes to attract and retain customers

Design Thinking The start-ups come up with different scenarios to select the best and easiest model for development

Product Development The start-ups are assisted to develop working prototypes using the easiest and most effective tools available

User Design and Experience The start-ups develop products that are appealing to the customers in terms of aesthetics (looks) and feel to complement the user journey

Mentorship The start-ups are linked with seasoned industry leaders (experts) who walk them through incubation period through advise on how to do business both in soft skills and business skills

Mentorship The start-ups are linked with seasoned industry leaders (experts) who walk them through incubation period through advise on how to do business both in soft skills and business skills

Table 5.3: Relevant Tools for Product Development

5.4.2 Business Development and Market Acquisition (4-6 Months)This stage of the incubation programme focuses on business development, cus-tomer acquisition and retention. Key activities during this stage include business incorporation; aggressive marketing of the products; engaging early investors and fostering strategic partnerships. The start-ups are linked with early stage inves-tors to get initial operating (working) capital to develop their first consignment of product or accelerate their services. This is realized through meetings with the

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potential investors. A bi-weekly meeting are also held with the start-ups to review their performance and address any emerging challenges through development of appropriate mitigation measures.

Figure 5.6: Business Development AreasSource: Nailab Incubation Progress Report

5.4.3 Demo EventsNailab encouraged the start-ups to learn from each other by holding their own meet-ups, in addition to using each other as focus groups (Delphi Technique) for testing their products/services. Consequently, apart from the curriculum drill, the Incubator organised internal mini-demos on a monthly basis for the start-ups to practice their pitches in preparation for the main demo-day event. The internal demos were also used to measure progress and mitigate risks. The main demo event provided the platform for the start-ups to launch their products to the press, clients, partners and potential investors. The DEMO day event is an important event attended by various stakeholders including but not limited to: Industry play-ers, entrepreneurs, members of county assembly, experienced professionals, ICTA and Cabinet Secretary (Ministry of Information and Communication).

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Figure 5.7: Past DEMO day eventSource: Nailab Incubation Progress Report

5.4.4 Success, Graduation and ExitsCohorts graduate from the incubation program after every six months as already discussed. The start-up success matrix developed by the incubator encapsulated in Figure 5.8 include: support, consistency, funding and employment opportunities.

Figure 5.8: Start-up Success MatrixSource: Nailab Incubation Progress Report

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Apart from the success matrix, the characteristics of a successful start-ups were noted as shown in Figure 5.9.

Figure 5.9: Characteristics of a Successful Start-upSource: Nailab Incubation Progress Report

Despite graduation after every six months, several graduating firms opted to re-main within the facility and have been absorbed as tenants thus forming part of the sources of revenue for the incubator.

5.5 Virtual IncubationNailab was supposed to develop a virtual incubation services framework to benefit SMEs outside the walls of the incubator owing to geographical limitations among other factors. The ultimate outcome of virtual incubation was to promote entrepre-neurship culture and innovation in remote areas to contribute to ICT sector growth.

Virtual incubation was to work by providing live-stream education sessions, online interaction with mentors and coaches, and shared incubation material including business session videos and relevant literature. To realise this objective, the in-cubator developed a virtual portal (www.ideasafrica.com) and conducted two out-reach events (Hackathons).

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i. Ideas Africa PlatformThe ideas Africa platform allows start-ups to list their profiles to attract potential clients and investors. The platform is also used to ask questions and hold discus-sions that promote start-up growth. The platform is so popular that it has attract-ed more than 900 start-ups listings and is still growing.

Figure 5.10: Idea Africa PlatformSource: www.ideasafrica.com

ii. Outreach Events (Hackathons)Nailab organised and rolled out two (2) outreach events (Hackathons) in Mombasa and Kisumu counties. The aim was to identify the needs of the people in these counties and to assess the viability of launching and setting-up satellite centres for virtual incubation in those areas.

The Mombasa hackathon was a 2-day event held between 20 and 21 September 2013. It was conducted in partnership with the Mombasa Tech Community and JKUAT Mombasa CBD campus. The hackathon attracted 150 participants. 28 busi-ness ideas were presented on the first day out of which 15 made it to the second day of presentation. The event concluded with the announcement of the winners as follows: Travel Easy (Best); My Tutor App (1st Runners Up) and Mulika Mwizi (2nd Runners Up).

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Figure 5.11: Hackathon EventsSource: Nailab Incubation Progress Report

a. Mombasa Hackathon (September, 2013) b. Kisumu hackathon (May, 2014)

The Kisumu hackathon was also a 2-day event held between 16 and 17 May 2014. The event was conducted in collaboration with LakeHub (Kisumu Tech Communi-ty). About 200 participants attended the function. At this event, the County Govern-ment of Kisumu expressed strong support for the ICT sector and pledged to work hand in hand with the start-ups. Thirteen (13) Apps, mainly in the areas of health, insecurity and unemployment were developed and presented. The event conclud-ed with the announcement of Msecurity as the overall winner. Pata Kibarua and Smart Clinic emerged second and third best respectively.

Figure 5.12: Msecurity Award CeremonySource: Nailab Third Bi-annual Report

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The hackathons were used to assess the viability of a virtual incubation model. While the attendance met the target, it emerged that only a small number of par-ticipants were actually developing betas. In Mombasa for instance, about half of the participants had no laptops while the rest were mostly giving support or help with brainstorming. Nailab also sought partnerships with universities that had showed some willingness to provide incubation space but these institutions lacked funds for setting up the hubs for the entrepreneurs. In the end, the virtualisation component of the incubation model was abandoned due to the following challenges:

1. Inadequate Infrastructure: There were no premises for entrepreneurs to meet and co-create. Without a central place where the potential start-ups can meet, it was difficult to incubate due to high renting costs of facilities with internet services. The lack of a central facility also meant that positive aspects of incu-bation such as peer- to-peer learning that fosters the development of higher quality solutions would be absent.

2. Unreliable Internet Services: Reliable internet services is a core element for effective virtual incubation. Nailab found that access to fast and reliable inter-net connection was a serious challenge outside Nairobi City. This was a major setback to virtual incubation, which relies heavily on live-streaming and vid-eo-conferencing sessions, in addition to access and content download .

3. Shortage of Committed Mentors: It was difficult to find qualified mentors with time to spare for budding entrepreneurs. Even where such mentors exist, the number with the required level of expertise to produce high quality entrepre-neurs to support start-ups physically to complement virtual incubation was very small. The situation is worst outside Nairobi, which meant that the start-ups would have been at a loss due to lack of guidance through product actual-isation and growth.

4. Lack of Exposure: The few mentors and trainers outside Nairobi City had very limited exposure to the entrepreneurship culture and development, which made it difficult to realise solutions of international scale and optimal potential.

5. Low Level of Technical Skills: It was noted that there was a significantly low level of programming and software development skills even among university level students.

6. Lack of Adoption of Franchising Model by Strategic Partners: The franchise model developed by Nailab was to form part of the virtual incubation through provision of internet services and a central working location. However, potential players (colleges and universities) developed cold feet and the model collapsed.

Having dropped the implementation of the virtual incubation model, the incubator decided to reallocate the funds meant for the same towards the establishment of a seed fund, which enabled the provision of seed capital to start-ups. However, the

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Evaluation team noted that the programme design did not include provisions for reallocation of funds. It is necessary, in future programmes, to develop clear pro-cedures as part of the project design where reallocation of funds is envisaged. In principle, such a procedure would involve identifying the need for a potential reallo-cation of funds, propose how the fund is to be reallocated and the list of activities to be supported. The procedure would then be approved by the contracting authority.

5.6 Partnerships, Collaboration and NetworkingNetworking, Partnerships and linkages are effective ways of balancing strengths and weaknesses to produce a well-balanced team; and for bridging technological and resource gaps. Nailab identified and involved institutions and/or organisations with appropriate and complimentary expertise from both the public and private sec-tor. Table 5.4 provides a summary of partners that were involved and role played.

Partnership Area of Collaboration Role Played

Accenture Netherlands

Technical Support • Supported in drafting the Nailab incubation curriculum

• Training on business plan writing, communication, marketing, sales and making elevator pitches

• Setting up systems and procedures for efficient work delivery

Afrilabs Networking, Funding and Mentorship

• Networking exposure

• Network enlargement through new connections

• Funding opportunities for start-ups

• Mentorship for start-ups

Deloitte Training • Offered free (pro bono) financial training services for the start-ups

Microsoft BizSpark Software • Offered free (pro bono) software for the start-ups

• Product marketing

• Access to training support

1% Club International Marketing, Networking and Funding

• Promotion of KICTBIP start-ups

• Connection to potential investors (case clad light)

• Sensitisation of entrepreneurs about crowd-funding as a source of capital

• Connection to mentoring and coaching facilities

Rafiki Bank Mentorship and Finance • Business mentorship

• Low-cost loan capital for start-ups

Seacom Internet Access • Provided to the ICT Incubator subsidized high-speed internet access through their Corporate Social Responsibility (CSR) program

Trinc Media Training • Offered free (pro bono) social media training for Incubator staff and the start-ups

• Free Marketing of the start-ups

JKUAT Outreaches • Supported Nailab during the planning of the outreach program in Mombasa County. Assisted in advertisement and call for application from start-ups.

Nation Media / Business Daily

Marketing for Start-ups • Provided a platform for The Next Big Thing (TNBT), an entrepreneurship competition in 12 different business fields. Nailab was a technology partner and also provided judges who were responsible for picking finalists in the ICT category.

Brand Integrated Training • Business Branding

Table 5.4: Nailab Implementation Partners

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Other partnership developed with the incubator to impact the youth with ICT skills included Investing in Children and their Societies (ICS); Proportion Foundation, JOOUST (Jaramogi Oginga Odinga University of Science and Technology) and the Kakamega ICT Consortium.

5.7 SummaryNailab made substantial implementation progress. All the 11 listed milestones, including this evaluation report, have been completed. The rest of the completed milestones are: Submission of Inception Report; development of Incubation Busi-ness Plan, Recruitment of Incubation Manager; Selection, Admission and Incuba-tion of Start-ups; Development of PPP Framework; Development of Capital and Operational Budgets; Development of Success Matrix and Graduation Criteria; and compilation of Bi-annual Progress Reports. Pending is the finalisation and submission of the Final Project Report.

Despite the delays in the recruitment of the incubation manager and the failure to actualise the virtual incubation model, the overall implementation process, in our opinion, was well conceived and efficiently conducted.

Nailab followed a clear start-up recruitment process that started with awareness creation through newspaper features, social media, outreaches, TV advertise-ment and blogs, physical posters and entrepreneurial network forums. Following awareness creation was the call for applications, which targeted both technolo-gy-based and social-based start-ups. The screening of applications was based on an approved criterion that considered factors such as ideas with maximum poten-tial, business sustainability, commitment to the incubation programme and team composition. Based on the outcome of the screening, start-ups were shortlisted for interview. A total of 396 applications were received between November 2013 and November 2015. 57 applicants (14 percent) were shortlisted for the interview out of which, only 25 (44 percent) were selected. One start-up declined the offer leaving a balance of 24 start-ups that went through the incubation programme. The low rate of shortlisted applicants was attributed to dismal quality of the busi-ness concepts that failed at screening stage.

At the incubator, start-ups were subjected to a 6-months intensive entrepreneur-ship induction programme. The first three (3) months focused on product de-velopment and the final three (3) months on business development and market acquisition. 6-month incubation period, in our opinion, was adequate and within acceptable limits of an intensive yet productive programme.

During product development stage, the start-ups worked to create a back end of their solutions to ensure a flawless platform. They were also equipped with es-sential skills of running a business and coached on how to create the necessary

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systems. Some of the relevant skills imparted at this stage included: Accounting and Finance, Intellectual Property; Public Relations and Marketing; and Presenta-tion Skills. Tools used at this stage to help start-ups refine their models included: Srum, Javelin Board, Lean Canvas, Customer Journey, Value Proposition, Design Thinking, Product Development, User Design and Experience and Mentorship.

Apart from the curriculum drill, the Incubator organised internal mini-demos on a monthly basis for the start-ups to practice their pitches in preparation for the main DEMO event. The DEMO event provided the start-ups with a platform to launch their products (to the press, clients, partners and potential investors), and to network.

Business development and market acquisition focused on incorporation; aggres-sive marketing of the products; engaging early stage investors and fostering stra-tegic partnerships. Linkages with early stage investors are meant to generate seed capital to help the start-ups to develop their first consignment of product and/or accelerate their services. The end of this stage marked the completion of incubation process. However, several graduating firms opted to remain within the facility, which created a pool of talent for incoming start-ups; and also become an important source of revenue in to the incubator rental income.

Nailab was supposed to set-up a virtual incubation services framework to ben-efit SMEs outside the walls of the incubator to address geographical limitations among other factors. The ultimate outcome of virtual incubation was to promote entrepreneurship culture and innovation in remote areas to contribute to ICT sec-tor growth. In this regard, Nailab developed a virtual portal (www.ideasafrica.com) and conducted two outreach events (Hackathons). The ideasafrica portal allows start-ups to list their profiles to attract potential clients and investors; ask ques-tions and hold discussions that promote start-up growth. The platform is so pop-ular that it has attracted more than 900 start-up listings and is growing.

The outreach events (hackathons) were held in Mombasa and Kisumu counties to identify their needs and to assess the viability of launching and setting-up satel-lite centres for virtual incubation. Mombasa hackathon attracted 150 participants, while Kisumu hackathon received 200 participants. These events climaxed with presentation of awards to the top three presenters. The events increased Nailab’s visibility and exposed budding entrepreneurs to mentorship opportunities.

The outcome of the outreaches (hackathons) revealed that the virtualisation mod-el was not going to work due to: inadequate infrastructure; unreliable internet services; shortage of committed mentors; lack of exposure of mentors outside Nairobi; low level of technical skills; and unwillingness of strategic partners to adopt the franchising model. Consequently, the concept was abandoned and funds meant for it used to establish a seed fund for the start-ups.

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We have noted that Nailab identified and involved institutions and/or organisa-tions with appropriate and complimentary expertise from both the public and pri-vate sector. Some of the notable partners who participated in the implementation process were: Accenture, Afrilabs, Delloitte, Microsoft BizSpark, 1% Club, Rafiki Bank, Seacom, Trinc Media, JKUAT, Nation Media Group and Brand Integrated.

Our analysis of the implementation process concludes with a suggestion to ex-pand, in future programmes, the content of information and audience being tar-geted through a clear and structured communication strategy. Furthermore, there is need to include clear procedures for reallocation of funds in the subsequent designs for similar programmes.

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INCUBATION IMPACT

on SME Sector & Socio-economic

Environment

Job creation

Training and skills development

Social Inclusivity

Gender Inclusivity

Funding availability

New technology

Shared knowledge

NAILAB


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6.0 ACHIEVEMENTS, IMPACT AND SUSTAINABILITY

6.1 IntroductionThis section analyses the extent to which the stated objectives of the incubation programme were achieved. It also highlights the programme relevance and ap-propriateness; efficiency and effectiveness and sustainability.

6.2 Relevance and AppropriatenessWhilst the SME sector has a lot of promise and potential to create a positive im-pact on the Kenyan economy and to help in the realisation of the Vision 2030, the sector faces a plethora of challenges. These include lack of access to finance, inadequacy of business support providers, weak policy and regulatory framework, inadequacy of high quality human capital, inadequate supporting infrastructure, weak culture of innovation and inadequate research and development. Addressing these challenges, to optimise the impact of SMEs, requires greater coordination and harmonisation of interventions through strategic alliances.

The sector thrives in an environment founded on technology and innovations as envisioned by Vision 2030. However, most start-ups within the SME landscape are faced with several early growth challenges and impediments. These challeng-es include increasing the capabilities of the entrepreneur in terms of soft skills, technical skills and business skills, business counselling, access to affordable services and facilities, access to SME finance, better linkages with both the ac-ademic community and industry, and quicker commercialization of innovations. This justifies the need for devising interventions that reduce or eliminate some of the impediments that the start-ups face to promote business growth.

Business incubation is a relevant and important tool that has been used success-fully in many competitive economies to stimulate the development of high-growth entrepreneurs and their start-up businesses. This has been done by dramatical-ly reducing the early stage failure rate of these small businesses. Business in-cubation programs help to develop growth-oriented companies through support mechanisms that enable them to establish, develop and grow their businesses to become sustainable entities. They can be defined as places where entrepreneurs receive value-added support and access to critical tools, information, education, contacts, capital, and other resources that may otherwise be unaffordable, inac-cessible, or unknown to the supported entrepreneurs. In this regard, the incubation programme that was implemented by ICTA in collaboration with Nailab was rele-vant. The concept was also appropriate and in line with the need to create a nation-al framework for business incubators to support the growth of new start-ups.

6.3 Achievements of Stated Objectives6.3.1 Supporting ICT Related EnterprisesThe first objective of the pilot incubator was to support emerging ICT and ICT-en-abled businesses and incubate them towards growth and success. In this regard,

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the incubator registered a considerable level of achievement. The incubator suc-cessfully supported and incubated 24 start-ups shown in Table 6.1 below under the ICTA project.

Start-up Name Season Status

Cladlight

Sokotext

Kejahunt

SwapKitabu 3 Operational

GoKibali

Taskwetu

Young Freddie (Alive) Operational

Hisaplay

Taskwetu

Young Freddie (Alive) 4

Hisaplay

Mode Mara

NinjaPrep Dead

Serviceline

RabbitIQ 5 Operational

Lipaplus

Ujirani

Byt Dead

Utafiti

Cipher

Mobu 6 Operational

Betsafi

YayaHub Dead

JIRU

Autobay

Midnight Sun 7 Operational

UBI (scansasa)

Out of the graduated firms, 5 had failed while 19 were still operational. This gives the incubator a success rating of 79.2 percent, which is a much higher number than the generation business survival rate in Kenya. A recent study conducted by Invest in Africa and Strathmore Business School in Kenya reports that 70 percent of general SME business fail within the first three years.

By way of comparison, business incubators within the infoDev’s network, com-prising only developing countries, reports a success rate of 75 percent . Therefore, the evaluation finds the Incubator’s success rating of 79 percent encouraging.

Table 6.1: Status of Incubated Start-ups

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The evaluation found that the operational start-ups had grown in size, acquired more clients, attracted investment from venture capitalists (locally and interna-tionally) and are generating meaningful revenue from the sale of their products.

The evaluation further found that besides the 24 start-ups that benefited through a formal recruitment process, there were 3 other start-ups that benefited by vir-tue of being within the incubator at the commencement of the ICTA project. These start-ups were: Gigwapi, Usomi and Duma Works. Apart from Usomi that has folded, Gigwapi and Duma Works are still operational.

Table 6.2 shows the number of graduated firms from the programme and opera-tional at the time of compilation of this evaluation. The survival percentages varied from 60 percent to 100 percent. Firms that graduated from the incubator in 2014 had the highest survival rate at 100 percent followed by those that graduated in 2016 at 88.9%. Firms that exited from the incubator in 2015 registered the lowest survival 60 percent.

Business Age Graduated Firms Operational Firms

Graduation Year Years Count (N) Count (N) Percent (%)

2014 2 5.0 5.0 100.00

2015 1 10.0 6.0 60.00

2016 <1 9.0 8.0 88.89

Total 24.0 19 79.17

Name of Graduated Start-up Cause of Failure

NinjaPrep Co-founder dynamics

Ujirani Co-founder dynamics

Mode Mara Co-founder conflicts

Byte Lack of market readiness

YayaHub Lack of entrepreneurship drive and motivation

Table 6.2: Operational Business at the Time of the Evaluation

Table 6.3 provides a summary of the cause of failure for the five firms that grad-uated from the programme. Key causes were co-founder dynamics, co-founder conflicts, lack of market and lack of entrepreneurship drive and motivation.

Table 6.3: Cause of Death for Graduated Star-ups

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In addition to the normal incubation process, the evaluation found that Nailab had disbursed about KES 4.5 million in seed capital to 11 start-ups to address the constraints of credit and lack of capital. The average funding level was found to be about KES 400,000. The start-ups that have benefited from the seed funding so far include: Cladlight; Taskwetu, Kejahunt; Gigwapi; Sokotext; Young Freddie; Usomi; Ujirani; Serviceline; RabbitIQ and Hisaplay.

Studies have shown that better access to finance improves firm’s performance through facilitation of market entry, business growth, risk reduction, better in-novation and entrepreneurship activity. Access to finance enables firms to exploit growth and investment opportunities which enhances business survival thereby boosting economic performance.

Provided below are brief profiles of some of the selected operational start-ups that were interviewed during the evaluation. The aim is to illustrate the perfor-mance and the challenges faced.

CASE 1: RABBITIQ PIVOT TO HERDYDescription: This is a herd management app. It is used to help farmers track, monitor and ensure maximum animal (rabbit) yields through the use of infor-mation that is collected using an auto-generated QR Code that is unique to each rabbit within the herd. The collected information serves to integrate the rabbit management into the farmer’s day to day chores. Using the app, farmers are able to tell when the rabbit is ready to give birth and/or wean. The app also al-lows access to veterinary services via short messaging service (SMS). All these leads to cost savings.

Customer/Staff/Revenue: The start-up has reached a customer-base of more than 152 farmers spread across Kenya, Uganda, Zimbabwe, Zambia and India; and targets customer base is 11,000 users. With a team of 4 staff, the start-up makes on average about KES 150,000/= per month through monthly subscriptions.

Diversification: Due to the tremendous demand, the start-up is pivoted to Herdy Express which seeks to diversify the use of the app to the management of oth-er livestock management for instance goat, cattle, sheep, poultry and pig. The start-up has also forged partnerships with AgriProFocus and Agrovino among others. AgriProFocus promotes agriculture entrepreneurship and networking, while Agrovino is an event centre.

Challenges: Lack of skilled human resources, strong consumer appetite for free usage, rebranding to Herdy Express.

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CASE 2: TASKWETU PIVOT TO MBOCHDescription: Taskwetu is an online platform that allows users to schedule and track their tasks. The users pay a service charge which allows them to follow task progress to completion. It targets mainly the diaspora residents who may require particular service/errand done for them here in Kenya. The product functionalities include project management, document procurement, and running of errands. Taskwetu has a partnership with Sendy, a logistics company.

Staff/Revenue: The start-up had 4 office staff, 5 errand-runners, 2 painters, 2 plumbers, 1 carpenter, and 3 university graduates. The monthly revenue base is about KES 40,000/=

Challenges: Lack of adequate capital, human resources; marketing and lack of customers’ trust about app. Taskwetu eventually pivoted to Mboch, an on demand home cleaning service as they were faced with low margins in revenue and vol-umes of the errands.

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CASE 3: PROJECT CIPHERDescription: This is a low cost off -the-shelf, plug-and-play hardware house se-curity system that checks for intruders, fire, and gas leaks, then relays the infor-mation via phone technology to the owner of the house in real time. Based on the nature of the information, the owner is able to respond accordingly. The finalisa-tion of the product is being supported by Intel under the D4IoT (Development for Internet of Things). The business has a huge potential for growth.

Challenges: Limited resources for physical modelling (prototyping) and meeting cost of production

CASE 4: LIPAPLUSDescription: Lipaplus is a mobile Point of Sale (POS) terminal system that works on the Android Mobile Devices. The start-up was founded on the need to enable SME merchants be able to receive payments easily and effortlessly. By just swip-ing a debit card or chipping it to Lipaplus card readers, one is able to receive pay-ments from customers without worrying about balance or insecurity. The system also allows carrying out sales, inventory and financial analysis through the phone. The owners of the company hired a company from China to develop for them the API (application platform interface) for the hardware. The company is in talks with Kenya Commercial Bank (KCB) to approve the platform for payment. The main challenge is the lack of trust by customers on the use of credit cards. The start-up has staff of two members (co-founders) and plans to contract additional staff where necessary

CASE 5: CLADLIGHTDescription: This is a high visibility wearable jacket for “bodaboda” cyclists and motorcycle riders. The technology seeks to solve motorbike related accidents by increasing visibility of the riders both during the day and in the night. The jacket is equipped with signal transmitters that display the direction the driver intends to turn. The LED transmitters are in compliance with the traffic colours. Red for brakes and amber for turns and Hazards. The technology can also be used to lo-cate the position of the vehicle. The successful uptake of the business would lead to a significant reduction in motorbike related deaths, which currently stands at 22% of registered accidents in the country.

Product Range: The jackets come in three categories: Basic, Pro and Mossi. Basic jacket is the cheapest at KES 3,499/=, followed by Pro and KES 7,999/= and Finally, Mossi and 15,999/=.

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Basic Jacket Pro Jacket Mossi Jacket

CASE 6: MOBU LIMITEDDescription: Mobu is a customer relationship management app that helps mer-chants to create personalized and meaningful conversations with their clients in terms of discounts, tastes and preferences, stock availability and new arrivals. The app is able to organise information into contacts, segment customers into target segments, send rewards to loyal customers and sending bulk messages. Users are charged KES 100/= monthly or KES 1,000 annually for using the app. Over 20,000 business persons are using the application to send messages to their clients. This number of users is expected to continue growing.

Challenges: Financial constraints and lengthy referrals

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Based on the forgoing, it is evident that the incubator supported budding start-ups in the ICT sector that responded to the call for applications and ultimately got admitted to the programme.

6.3.2 Impact on SME Sector and Socio-economic EnvironmentThe second objective of the incubation programme related to demonstrating a measurable impact on the SME sector and the socio-economic environment of Kenya. According to Khalil and Olafsen (2010), incubation provides entrepreneurs with an enabling environment at the start-up stage, reduce the costs associated with launching an enterprise, increase the confidence of the entrepreneur and link entrepreneurs to the resources and networks required to scale-up the enterprise. This implies that business incubation accelerates enterprise growth, saves time and money and generates social and economic benefits. During the evaluation, the following have been gleaned during the evaluation.

i. Employment and wealth creationThe pilot incubation programme has had both direct and indirect impact on em-ployment levels in the country through the incubated start-ups. Based on the assessment findings, majority of the incubated start-ups have between 3 to 10 employees, which implies that between 51 and 170 employees have joined the job market since the inception of the programme. These job opportunities translate into incomes which trigger other spending and demand in the local economy.

ii. Capacity (Skills) DevelopmentA critical mass of business technopreneurs capable of interfacing with the SME sector to provide hands-on mentorship and business scaling guidance (coaching) has been created. The evaluation results points to a growing number of alumni from Nailab, that participate in DEMO events to critique and offer guidance sup-port to new start-ups. Our conservations with some of the graduated start-ups showed significant improvement in business acumen and at the fullness of time, such skills would have a huge impact in the country’s socio-economic environ-ment. The growing pools of Nailab graduate would also help address the chal-lenges of mentors or quality mentorship in the ecosystem. This pool of graduate start-ups could be used to roll out incubation services to other regions outside Nairobi.

iii. Social InclusivityMost of the incubators are concentrated in Nairobi. Consequently, most parts of the country lack reliable mentors to guide SMEs growth and development. By con-ducting outreach missions in Mombasa and Kisumu and conducting training in Kakamega, appetite for techno-entrepreneurship has been scaled-up. This is in line with the Vision 2030. Social inclusion is the process of improving the terms for individuals and groups to take part in society. As a results of the outreaches,

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the counties have developed a high degree of enthusiasm for ICT activities thus offering a chance to the upcoming technology communities to take advantage of the burgeoning opportunities in the SMEs sector. Furthermore, by expanding its service beyond the traditional IT support, Nailab was able to offer support to so-cial and hardware enterprises that lacked such programmes. This has stimulated SME growth.

iv. Gender ConsiderationsThe pilot incubation programme invited calls from both female and male partic-ipants. By incubating women, the programme has addressed some of the chal-lenges faced by women in starting up business as cited in the SME literature.

v. Seed CapitalThe seed fund concept and crowd funding were very important in addressing cap-ital challenges faced by the SMEs. This study notes that most (82%) of the start-ups that were given seed funding, were still in operation. Consequently, the incu-bator has contributed to addressing the concerns of the ‘Missing Middle’, which is basically capital funding.

vi. Viable Business VenturesAt the start of the programme, it was very difficult to get quality and mature busi-ness ideas with high potential for growth. The contribution of the programme to the SMEs sector has been through consistent graduation of quality start-ups. This hypothesis is supported following the outcome of The Next Big Thing Event con-ducted in 2013 in partnership with the Nation Media Group. During this time, a total of 400 applications were received but only 11 were shortlisted as finalists. Out of this, three (3) were from Nailab. At the culmination of the final event, two (2) of Nailab’s start-ups (Sokotext and Cladlight) were endorsed as most innovative . The crowdfunding bootcamp event that was held in March 2014, attracted 19 Start-ups (including 4 from Nailab) to publish their crowdfunding campaign. Sokotext and Kejahunt emerged first and second taking a price of KES 300,000/= and 90,000/= respectively. It is important to note that when viable business ventures are re-leased into the corporate world, their chance of success and contribution to the national economy are high. This evaluation found that start-ups that applied in the latter seasons were of superior quality and mature with higher potential for growth.

vii. Expanded PublicityNailab and its start-ups have been featured in international technology and busi-ness blogs and news stations including CNN, BBC and TechCrunch. This expand-ed publicity has increased start-up profiles, which in turn has attracted interest from potential clients and investors for the start-ups.

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6.3.3 Collaborative Relationship with Related InitiativesThe third objective of the incubation programme was to establish collaborative re-lationship with similar initiatives in Kenya including infoDev’s mobile applications lab (mLab), the IFC SME Solutions Centre, the planned Climate Innovation Centre (CIC), the East Africa virtual business incubation pilot program and other relevant organisations and institutions.

As discussed in section 5.5, the project was able to successfully utilize the com-plementarity of various organisations (both private and public) in a collaborative manner to realise the stated objectives. In our opinion, these partnerships were efficient and contributed significantly to the incubator’s delivery of results.

6.4 Efficiency and EffectivenessApart from the challenges encountered during the recruitment of the incubation manager and rolling out the virtual incubation programme, the evaluation team considers that the overall implementation process was well conceived and effi-ciently conducted with minimum deviation from what was agreed. It was noted that even where there were changes on the design, the same were done following close consultations with the ICTA.

The overarching goal (vision) of the pilot incubator is to eventually become a na-tional small technology business support centre and to strategically contribute to the growth of the ICT sector. According to the best judgment of the evaluation team, the Incubator is on the right path to realising this vision, considering that the incubation period was only three years (most incubators take about 7 years to fully mature). Very little progress was made on virtual incubation and it was not therefore possible to report on the number of virtual clients. The factors that made virtual incubation impossible have been discussed in section 5.5 of this report. The programme might have been more effective if some of the challenges were timeously addressed.

6.5 SustainabilityWhilst the ideal scenario for an incubator is to reach a point of total self-sustain-ability, not many incubators are really able to do that. In this programme, Nailab carried out major efforts to attain sustainability upon completion of the three-year pilot period to ensure continuity of the program interventions. Consequently, the Incubator considered various sustainability models including franchising and commercialisation models. The franchising model suffered significant problems and was therefore dropped.

The incubator has therefore followed the commercialisation strategy. In this re-gard, Nailab Ltd is allocating 15% of its commercial revenue to the incubator in addition to the following:

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1. Livestreaming, Digital Community Management, and Communication: The in-cubator has developed the techsahara.com (www.techsahara.com), which it uses for livestreaming of specific events through livelink to enable the online audience to be part of the event; generation and execution of communication strategies; and activation of the Nailab online community for specific project using Facebook, Twitter, Instagram and YouTube.

2. (Project Management Services: The incubator gets its revenue from charging management fees on some of the projects executed through Kuhustle (www.kuhustle.com), which is an online platform that sources for projects across the globe and uses African experts to deliver the jobs.

3. Rental Income: The incubator receives rental revenue by hiring out its space to the graduated firms (alumni) and hosting business events (product launches, hackathons, cocktails and business workshops). Incubation literature show that rental income should cover a minimum of 40% of an incubator’s opera-tional expenses.

4. (Equity Agreement: The incubator has entered into an agreement with some the promising start-ups with high growth potential for a 10% equity stake. However, is important to note that equity ownership may be risky as successful businesses take about 4-7 years to reach profitability.

5. Grants: The incubator is actively writing proposals to obtain grants. It is worth noting that the incubation process is capital intensive. Consequently, three years was such a short time for the incubator to reach self-sustenance. How-ever, the ground is set and with addition grants from the government and part-ners, the incubator will be able to run on its own, perhaps within the next four years.

6. Specialised Incubation: The incubator also offers specialised incubation ser-vices to various organisations upon request, which an important source of rev-enue. Some of the incubator has served/serving include: UNFPA (Innovation in Reproductive Health); KCB (2jiajiri) and AMREF (Maternal Health).

6.6 SummaryThe incubation programme was found to be relevant and appropriate. It is aligned with the Kenya’s need to create a national framework for business incubation to support the growth of new start-ups in the ICT sector.

During the programme’s 3 years of implementation, 24 start-ups were admitted into the facility and successfully graduated. Out of the graduated start-ups, 19 are oper-ational while 6 had failed. This gives the incubator a success rating of 79.2 percent. It is important to note that very little progress was made on virtual incubation and it was not therefore possible to report on the number of virtual clients incubated.

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Our conversation with some of the operational start-ups showed growth in size, expansion in client base, ability to attract investment, an expanded network, col-laborative (pivoting) schemes and growth in revenue. Notable challenges included lack of capital, skilled human resource and customer scepticism. To address the challenges of access to capital, Nailab established a seed fund and has so far disbursed about KES 4.5 million to 11 start-ups. The average funding level was computed to be KES 400,000 ($4,000). The start-ups that benefited from the seed capital included: Cladlight; Tasketu, Kejahunt; Gigwapi; Sokotext; Young Freddie; Usomi; Ujirani; Serviceline; RabbitIQ and Hisaplay. However, Usomi and Young Freddie died.

In terms of influencing SME sector and socio-economic environment, the pro-gramme has registered substantial progress in employment and wealth creation; capacity development; social inclusivity, gender mainstreaming, establishment of seed fund, and development of viable business ventures. Furthermore, the incu-bator has successfully utilized the complementarity of various organisations in a collaborative manner to improve its performance and create networks.

Beyond the challenges encountered during the recruitment of the incubation manager and rolling out virtual incubation programme, the evaluation team con-siders that the overall implementation process was well conceived and efficiently conducted with minimum deviation from what was agreed. It was noted that even where there were changes on the design, the same were done following close consultations with the ICTA.

We observe that while the goal of the pilot incubator of becoming a national small technology business support centre that strategically contributes to the growth of the ICT sector is still work in progress, a good groundwork had been laid towards the realisation of the same. We base our judgment on the understanding that that the incubation period was only three years, while most incubators take about 7 years to bloom. Subsequently, a discussion on achieving total self-sustainability, would be premature at this time despite major efforts being undertaken by Nailab to try to attain sustainability. In this regard, the Incubator has considered various models including franchising and commercialisation.

The franchising concept suffered significant problems and was therefore dropped. Commercialisation strategies that are being pursued with some level of success include: Nailab Ltd allocation of 15% of its revenues to the Incubator; livestream-ing, digital community management and communication; project management services; rental Income; equity agreements; proposal development for grants and specialised incubation.

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7.0 LESSONS, CONCLUSIONS AND RECOMMENDATIONS

7.1 Lessons LearnedFollowing the assessment of the programme, several lessons can be drawn as follows:

1. It is not good to include outputs which are dependent on factors beyond the programme. These sets the programme up for failure at least in those aspects. For instance, the success of virtual incubation needed an elaborate infrastruc-ture and requisite human resources which were essentially beyond Nailab to ensure that such requirements were available.

2. Mentorship capacity in most of the counties outside Nairobi was extremely limited. Even if there were mentors, they were extremely few in number and they did not have the time to spare for budding start-ups.

3. The relationship between ICTA and Nailab led to a greater recognition of the programme which led to better public response in relation to incubation activ-ities.

4. Startups should start with idenfication of customer needs to develop the tech-nology solution and not the other way round. The developed solution should follow a clear process of validation and testing

5. Successful start-ups depict certain common characteristics, including: Vision and dedication, strong business knowledge, strong funding; unique (innova-tive) product offering; strong market fit and strong advisory support

6. Start-ups need funding for rapid execution to achieve business growth. With-out which, the market moves on to the next big thing

7. Hardware start-ups are expensive requiring heavy capital investment in proto-type development before potential investors buy-in

8. Flexibility and dynamism are essential features of an incubation programme to help address unexpected risks and/or uncertainities

9. Start-ups should develop programmes to serve the national and county gov-ernments’ needs as they form a key clientele to put them on the pathway for global growth and scale-up

10. Completion of application form and attendance of interview are not indicators of a start-ups readiness to take-up an incubation programme

11. Co-founder conficts and co-funder dynamics may result in faliure of start-ups especially where the framework of engagememt is not clearly defined. The same can be reduced through a thorough co-founder vetting process

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7.2 ConclusionsThe main objective of evaluation was to assess the achievements on the Kenya ICT Based Incubation Programme; identify the impacts and challenges; and make recommendations to inform future design of similar projects. The evaluation find-ings show that the programme significantly met its objectives and has presented important lessons to inform future programming. The evaluation conclusions are presented as follows:

1. The ecosystem has a wide array of players, including: Private equity, corporate bodies, government institutions, incubators and accelerators, professional services and development organisations, venture and impact venture capital-ists, technical support organisations, training and reseatch institutions. The ecoystem also has hubs, networks, events and community spaces. Access to capital, lack of skilled mentors and low customer acquisition are the main challenges within the ecosystem. However, against a backdrop of low angel investment, the ecosystem has potential of attracting impact investment cap-ital. The poor state of infrastructure outiside Nairobi is a major hindrance to rolling-out of ICT incubation services.

2. The adopted project model was relevant and consistent with government strat-egies. The developed training curriculum addressed the start-ups training needs and was very useful in standardising the incubation content. The pro-gramme design was well thought out, however, it lacked a clear risk manage-ment plan to give an early warning system to technical, financial and opera-tional risks. Additionally, a sensitivity analysis of the adopted design, on failure of critical assumptions, was not done.

3. Substantial implementation progress on the achievement of milestones has been achieved. The overall implementation process was well conceived and ef-ficiently conducted following awareness creation, call for applications, screen-ing; shortlisted, interview (pitching), admission and a 6-months incubation programme. Tools used for training included Scrum, Javelin Board, Customer Journey, Value Proposition, Design Thinking, Product Development, User De-sign and Experience and Mentorship. This was in addition to demo events for product launch and networking. Several partners from the public and private sector including; Accenture, Afrilabs, Delloitte, Microsoft BizSpark, 1% Club, Rafiki Bank, Seacom, Trinc Media, JKUAT and Nation Media Group particpated in the implementation process.

4. The incubation programme was relevant and appropriate following its aligh-ment with the need to create a national framework for business incubation to support the growth of new start-ups. A total 24 start-ups were admitted into the programme and succeffuly successfully graduated. Very little progress has been made on virtual incubation due to inadequate infrastructure; unreliable internet services; shortage of committed mentors; lack of exposure of men-

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tors outside Nairobi; low level of technical skills; unwillingness of strategic partners to adopt the franchising model. Successful graduate start-ups show showed growth in size, expanded client base, ability to attract investment, an expanded network, collaborative (pivoting) schemes and growth in revenue. Reported start-up challenges included lack of capital, lack of skilled human resource and customer scepticism. Programme impacts include employment and wealth creation; capacity (skills) development; social inclusivity, gender mainstreaming, establishment of seed fund, and development of viable busi-ness ventures, collaborative networks and expanded publicity. Good ground-work towards becaoming a national centre for business incubation. However, achieving total self-sustainability within three years was untenable. Incubators require about seven years to bloom (mature). Studies elsewhere show that real growth takes place between four and seven years of operation.

5. The programme has a good potential for replication with slight modifications of the design.

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7.3 RecommendationsBased on the lessons learned and the conclusions reached, the evaluation makes the following recommendations:

1. Since the implementation of the incubation programme is to be scaled-up to all the counties in the country, greater effort must be expended to ensure adequate infrastructural structures (premises and internet access) and high skilled human resource capacity (mentors) to meet the requirements of an effective incubation programme.

2. Consideration should be given to developing a second phase of the programme to pick up on those activities, such a virtual incubation, which were dropped as well as strengthening the realised achievements (gains). This should be initiated within the shortest time possible to try and avoid the loss of momen-tum should there be a hiatus between the pilot phase and the next. The sec-ond phase should target the already enthusiastic technology communities in Mombasa and Kisumu, with Nailab as the centre. The second phase pro-gramme duration to be designed as four years.

3. The design of future programmes/project should be based on a project design document with clear logical framework for stated objectives as opposed to a business plan. Such design document should include clear and structured communication strategy, risk managemant plan, key assumptions, sensitivity analysis and a clear procedure for re-allocation of funds

4. Consideration should be given to the establishment of seed capital investmnet fund. Such a fund would assist in rapid replication of prototypes to capture the market. The Nailab seed fund should therefore be strengthened as a starting point.

5. Continue the human capacity development efforts to create a pool mentors to overcome gaps in practical business and management skills. Consistent intervention in human capacity development would lead to an accumulation of knowledge that would ultimately attract angel investment and boost the confi-dence of the lenders on the budding start-ups.

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8.0 REFERENCES

1. GSMA (2014), Digital Entrepreneurship in Kenya

2. Intellecap (2015), Closing the Gap Kenya: Update on Key Challenges for the “Missing Middle” in Kenya

3. Argidus (2015), the Entrepreneurship Growth Landscape

No. Name Organization Contact

1 Samuel Gichuru CEO, Nailab [email protected]

2 Josephine Mwangi C&M, Nailab [email protected]

3 Anne Lawi Incu.M, Nailab [email protected]

4 Kwame Shiroya PM, ICT Authority [email protected]

5 Josiah Mugambi MD, iHub [email protected]

6 Sheila Birgen CEO, m:lab [email protected]

7 Joseph Njeru Min of Industrialization [email protected]

8 Kennedy Nyaga Mobu/Startup [email protected]

9 Leila Khalif Taskwetu/ Startup [email protected]

10 Charles Karanja CladLight/ Startup [email protected]

11 George Ndeeri Lipaplus/ Startup [email protected]

12 Steve Kisinga CipherTech/ Startup [email protected]

13 Derrick Muturi RabbitIQ/ Startup [email protected]

14 Kinyanjui Njonde Gigwapi/ Startup [email protected]

Annexure 1: List of People Consulted

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Funded by:

ICT AuthorityTelposta Towers, 12th Floor, Kenyatta AvenueP.O Box 27150-00100, Nairobi, KenyaTel: +254 202 211 960/61Email: [email protected]

Report submitted by:

The Nairobi Incubation LabBishop Magua, Ngong RoadP.O. Box 23800 - 00100Nairobi, Kenya