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 hugeĀ downside on that.Ā To build a successful tech ecosystem, there is always a need for the local capital to support theĀ developers .Ā Ā Mark SusterĀ of Techcrunch made a great explanation on why the local capital is important
I do believe that youāll struggle to get a community started without some local capital. And in many communities new to building tech startups Iāve 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. Iāve had this conversation with several communities such as in San Diego where I believe there are way more qualified and talented engineers thanĀ 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 someĀ founders at 88mph,Ā inside employees and one entrepreneur in residence indicate that the going there is not as smooth as we all thought.Ā In the past 3 weeks, IPO48 winners Tusqee Systems, have moved out of the fundās co-working space,Ā hivisasa.comĀ 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 88mphĀ 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 timeĀ 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 commentĀ but there is indication that heĀ 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 soĀ 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.Ā 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.
Breaks my heart.
Makes me sombre.
I subscribe to the thought that KE tech-scene should take chill-pill BECAUSE it is too early.
This is very unfortunate.
Wow! Truly Sad. Why would they do this at such an infant stage…….!? So what has become of Tusqee Systems?
Greed has no limit. Or shame. or @e63331f6fd35e801a1a1e41791554132:disqus
This is just the beginning. As long as we are blind and depend on these “wazungu” for financial empowerment, we will always succumb. @twitter-68101072:disqus
Kind of sad to hear this. Normally, investors do not take so much equity because they want to the founders to feel that they own the company and are not working for the investors.
I also wanted to shed light on the 5% share that is not part of the initial deal. It’s quite common for investors to request the company to have employee option pool that’s most of the times created before the investors inject any money.
If you are an entrepreneur, http://venturehacks.com/articles/option-pool-shuffle is a good link on how to determine the size of your option pool.
Hi KachWanya.
Thanks for you blog post about 88mph. Not very well research and maybe next time you could give us a change to comment on your postulates before you write them.
1) 88mph have invested in 15 start ups not 8. and the money for the last 8 is 70% local investors that have put money into the fund. So the original fund that invested in 2011 with was my own money + money in my network have been a catalyst for local money being put into 88mph.
2) The accelerator Idea is to build local angle investors by giving them option to invest in vetted companies. we have more then 200 interested professional signed up for demo day. So again it’s key for us to get local investors involved and we are working hard on that everyday.
In regards to the burning house headline. Then yes things are cooking and it’s messy, and things fail. The 88mph startup have created close to 150 jobs in 18 month. we have given a number of entrepreneurs the change to test their idea in the market. But trying the new is hard so off-course many will fail. if one can’t handle that then they should go work for a corporate.
88mph take big risk and the 3 month is a vetting process. when we invest in 10. we know most will fail or go sideways, but we are betting 2 will make it and will generate a return on investment that pay for the ones that fail or go sideways.
On ownership. We invest in start ups and we have taken max 25% of the entrepreneurs company, the average is closer to 15%. so your 40/60 is wrong.
Now there is 3 sites where we made different arrangement. Hivisasa is join venture with Pierre Vendelboe and the fund, so the fund have a big share here. and Pesatalk with was started by the fund and where we hired in a CEO to run it on salary and stock option. in the new batch Mdundo is also a brainchild of the fund so the structure is different there to.
So if entrepreneurs come with their startups to us then 15% have been our average in the 12 startup we have funded.
In regards to the 5% we take for finding people for the start up, then again you are misinformed.
First these things are all agreed upfront in the investment agreement. as a minority shareholder you off-course can’t just take shares from the majority shareholder (the entrepreneur).
I think we in 2 cases have made the % related to a milestone or two. One milestone was follow funding another was finding a co founders. and again we even with these % milestone we will not get over 25% in the respective startups.
Anyway I am quite transparent about what we do at 88mph. so I would like to invite you to our office and I am happy to show you all out contract and you can verify all information instead of spending false information.
So let me know what you will coming by.
Best
Kresten Buch
MD 88mph
You should not trust all you read. check my responce
HI Maruaye, you should check my response to the post
Greed? Shame?
Hi Iddsalim, I don’t understand. The more money there is for kenyan startup the better it is to be a startup in Kenya or did i miss something. So you are arguing from that only local money should be put into local startups? the big looser here will be local entrepreneurs becourse competition will be low and therefore worse deals for local startups.
I would not call it falsehood unless you are calling the 88mph insiders whom I talked to as liars. But I Agree you have the right to reply. For that I will pass by your office on Wednesday to get your side of the story. Plus thanks for clarifying on how the fund is structured and the investments you have made. I also like the fact that you are working to bring in the local investors.
Thanks Jamila. I think the valuation issue is a big problem here. I think most people don’t understand how to go about it . Doing an extensive research so that I can do a post and this link is awesome. On the 5%, I think as long as it is part of the original deal, then it is fine. But I have an issue where it is not part of the initial negotiations.
They moved out of the 88mph working space. I am still trying to find out where they are at the moment
I would say the best model is a mix of the two. Personally I am not advocating for only local capital but I feel the locals should get involved. Leaving them out means the ecosystem could collapse anytime. I have seen the foreign investors move out or close shops when there is a slight sign of problem around. The best thing with the involvement of the locals is that they are here to stay and would do all they can to ensure the success
The statements are true. Now, whether or not 88Mph are greedy or shameless is another matter.
88mph insiders? only 2 persons have access to Investment contract we don’t hang them on the walls. Anyway drop me a mail an we can find a time on Wednesday.
Kachwanya. if you are a minority investor as 88mph you can’t get more % in a company unless it’s agreed from the start. It’s just imposible.
you will just get voted down by the founder as he have the voting majority.
Totally agree that valuation is a big deal but it’s also good to remember that it’s sometimes hard to put a price to an idea that hasn’t generated any revenue or traction and it’s even harder to understand the concept when you are a first time entrepreneur.
Ping me once you are done with your research. Am I curious to see what you come up with.
What happened to Tusqee Systems ? Kresten
Chill-pill wewe apana mashinda nazo :) we have to put food on the table Waiting will do more bad than Good
I don’t even know what to write here. I am still recovering from September…
The 88mph space only give free rent for initial 3 month of our new program. So if companies can find better deals then they just move out. again we are minority investors, We don’t decide where people should sit after the first 3 month. The same apply for Ghafla.com they also don’t sit in the space.
Please go ahead, start from the very beginning
That is a good sign then this story is then blow out of proposition
Kachwanya. As a founder of http://www.drugs.co.ke / Haltons pharmacy of which 88 mph is an investor, this article is far from the truth. 88mph fully supports the start ups and declare from the beginning that they want the founders to be the majority shareholder so as to have them fully interested and giving their best, which otherwise wouldn’t happen if they are squeezed out. Don’t think this article is well researched
Problem is that, at the moment all the locals that have a cent to spare are busy inflating the real estate bubble as they stash their loot in the safe bets that is Real Estate market….few of them would give an ear to a start up esp in tech.
I agree that we need to increase their appetite for risk, but I doubt spreading falsehoods about those like 88mph who are entering into agreements with start ups to grow them or even test the viability of their ideas/products is the way to go. I actually know that 88mph is working with local investors to wet their appetite through various initiatives, specifics for which I believe Kresten or Nikolai can shed light into.
I would advice that the facts in this piece be verified, and if found wanting maybe even if you have it in you apologise or clarify for the misinformation that I believe has been made to your readers..
To start with, maybe empowering the techies and budding entreprenuers with basics on legal & negotiating skills can help settle your fears would be a way to start…something that the writer can even start…
Hi Mr. Kachuwanya, Am the Founder @ Gamsole, one of the Startups at 88mph and after reading your article, I can testify that the accusations in your publication are not true. I suspect that you must have been innocently misinformed. 88mph is an awesome program and the opportunities presented by the program are quite unique, purposeful and revolutionary, the very kind of revolution that is needed for a complete transformation of Africa.
Out of the Many start up you have invested in only one came to your rescue (a week later). My assumption you bind the founders to contract that make them unhappy but they don’t have option of even expressing your self.
I did a Company search of 88mph and no business is registered under this name are you guys operating withing kenyan rules not even a NGO is registered under this Name.
To which I ask Do you pay taxes??
The title of this article itself lives me tickled to the bone. Before reading it, I already knew there was going to be a lot of hearsay and not very well researched information. I am a co-founder of Closet49, one of the startups funded by 88 and this is my very valid reaction to this article:
First and foremost, the process of applying to the fund is very simple and transparent. You have the opportunity to review all documents with your preferred legal counsel before signing any dotted lines. We sat down with them and amended clauses that didn’t fit. Additionally, Closet49 is definitely not “most of the 8 start-ups (that) gave them between 40 to 60 ownership”
Secondly, I love that you have focussed on not very well researched negative aspects of being a part of 88 and forgotten about the 90% + positive elements.
In two months Closet49 has managed to test out several models of our business, gain more traction, and finally narrow down on a business model that is working. Something we would never have been able to do without this initial investment. Not forgetting all the wonderful, extremely smart mentors we have had the pleasure of picking their brains and who still continue to take the time out of their busy schedules to listen and answer all our silly questions. We would a) have never been able to afford them (still can’t) b) Never been able to build such a rapport so quickly. The best we could have done is probably have our email lost amongst hundreds of others addressed to [email protected]
The Kenyan market is very young, and not a lot of data exists, quoting from another great mentor (met through 88), investing in a Kenyan business is like shooting a target arrow in the dark. At the end of the day, it doesn’t matter if the person who is willing to take a chance in you and hope that your crazy idea will one day (in the very near future) be profitable, and consequently turn into a good ROI, is your mother, you sister, or some strange dude called Kresten. Don’t get me wrong, there are days that are really low, business wise and emotionally, but which business doesn’t have those days?
The greatest part here is a ripple effect in it too. Closet49 was until 2 months ago a part time gig for myself and my co-founder, but now, we are surviving full time running our business, AND have 2 full time employees and 2 interns, all Kenyan! If this is what is considered “being squeezed out at amazing rate” then so be it. Viva Closet49 and viva 88!
Abagi,
co-founder/CEO Closet49.com
As a side note, this part had us (C49 crew) rolling on the floor in laughter as we had the pleasure of being the last startup to work with your very reliable source a former Entreprenuer in Residence “For him, what he found there was not what he was expecting ” <— hardwork, respect, accountability? How dare they (88) expect this from anyone?
This just in Tusquee going global – http://www.ihub.co.ke/blog/2012/12/kenyan-startup-goes-global/
This just in Tusquee going global – http://www.ihub.co.ke/blog/2012/12/kenyan-startup-goes-global/
Hi KachWanya,
Hope you are fine. We had met at 88Mph sometime back, I saw you as a person of Good farewell to Kenyans and more to Kenya start ups.
My mother always told me āDo whatever you do as if God is looking over your shoulder by so doing your inner self will be at peaceā
The Presence of this article is affecting our business on follow up funding. I understand that you spoke to Nikolai on this so kindly update this blog with the correct info or bring it down.
If I found you building a house and you are at the fourth course I will not in any way kick out the
courses built if I know I will not help you build to course five.
Big and Very Big Local investors are calling it quit without a second chance after viewing this post they assume you spoke to 88mph before posting.
Many the Good God
grant you the inner peace
Stepen.Ngāethe Co-founder ManyattaRent ( a start up transparently
invested by 88mph )
It never too early to do the good things
Well said
Wish i had read this earlier