It is a Burning House at 88mph- Reason why Local Capital is urgently needed

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Kenyan tech space is a study in contradiction. There are those who believe that it is hyped and people should take a chill pill while there are those who believe that it is doing just fine considering the time factor. It has been two years and for me I think we are doing remarkably well. Despite my enthusiasm, there is a problem that need to be addressed urgently. The involvement of the local investors and the local capital.

With the locals shying away from investing in the space, foreign investors seems to be filling the vacuum. That might sound great but there is huge  downside on that.  To build a successful tech ecosystem, there is always a need for the local capital to support the  developers .   Mark Suster  of Techcrunch made a great explanation on why the local capital is important

I do believe that you’ll struggle to get a community started without some local capital. And in many communities new to building tech startups I’ve found that a lot of angel money is not very sophisticated at investing in startup companies. So you see long, drawn-out processes, non-commercial terms, investors who want to meddle too much and so on. I’ve had this conversation with several communities such as in San Diego where I believe there are way more qualified and talented engineers than  local capital available to support them.

Yes, that is already happening here. The going at 88mph is disturbing to say the least. My discussions with some  founders at 88mph,  inside employees and one entrepreneur in residence indicate that the going there is not as smooth as we all thought.  In the past 3 weeks, IPO48 winners Tusqee Systems, have moved out of the fund’s co-working space, hivisasa.com has been shut down. When people come to this space, they come with unrealistic expectations and one person hinted to me that that could have been the reason why hivisasa.com was shut down. Some insiders think that the only reason the other start-ups at 88mph  are still surviving is because the founders still have substantial ownership but they are being squeezed out at amazing rate.

Employees of hivisasa.com got the shocks of their lives when they received termination letters during the Google week at the Garage. At the time  employees were working out of temporary offices since Google had taken the whole space.

Reliable source indicated to me that the guy running pestalk.com has taken legal action against the fund. For this story he declined to comment  but there is indication that he  he has walked away from the arrangement

Then there is the story of Mr. Steve Gitau who was an Entrepreneur in residence at 88mph . Mr. Steve Gitau, resigned from the place a few days ago. For him, what he found there was not what he was expecting.

So what is the big deal here, you may be wondering. The 88mph have invested in 8 start-ups so  far and their idea is to get in and then squeeze the founders out by all means. The first step for them is to get stake or shareholding. The arrangement with most of the 8 start-ups gave them between 40 to 60 ownership. Once in, the trouble begins. They start by bringing in additional employees and each new employee especially on the management level they take 5%. So if they hire for the start up a marketing manager, they take additional five percent ownership. The 5% tactic is never part of the initial deal.  Some of the start-ups now have different CEOs, majority of whom are foreigners. As I have said, nothing is wrong with qualified foreigners but there is a problem when the new people don’t understand the local setting and just there for the fund to take more shares from the start-ups.

 

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Kennedy Kachwanya
Lead Blogger at Kachwanya.com
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Kennedy Kachwanya is a technology blogger interested in mobile phones both smart and dumb, mobile apps, mobile money, social media, startups ecosystem and digital Savannah. New media must not forget the strength of old tech.
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