VCs, African startups meet to discuss funding issues

Venture capitalists, government officials, and tech startups interested in pursuing funding opportunities met in Nairobi Monday to discuss expectations and conditions that typically accompany investments.

Five venture capital funds listened to pitches from eight local startups, posing questions that are usually asked in boardrooms, while other techies got a chance to ask questions.

The forum was organized by the Kenya ICT Board as followup to the US$3 million in content grants funded by the World Bank, where the majority of the ideas did not get a share of the money.

"This forum will allow startups that did not get the content grant to access financing and get a feel of what venture capitalists are looking for; the discussions will allow the techies to factor in the questions before seeking funding," said Paul Kukubo, the CEO of the Kenya ICT Board.

The VCs on the panel were; eVA Fund; Fanisi Venture Capital Fund; Africa Media Venture Fund; Grofin; and Open Capital Fund. The startups that pitched were: Gotissuez, a consumer powered online suggestion box; Eatout.co.ke; BrighterMonday, a recruitment portal; Pewahewa.com, a music portal; Paysure, a local payment gateway; M-Trader, creator of a mobile stock trading software and a public pay phone that allows SIM card owners to plug in and make calls at affordable rates.

"I now know what VCs want, the kind of questions they ask and the kind of funding I will be looking for," said Mark Kaigwa, who pitched Got Issuez.

During the discussions, it was clear that the role of VCs is yet to be understood. Some thought VC companies were banks, charging interest, while others thought they would not have to give up a share of the company. The VC panelists also seemed to have a notion that there were no new tech ideas, or that innovation is lacking.

"A VC who says there are no ideas clearly doesn't understand the tech space and what is available in the market; techies have great ideas but how do you pair them up with a VC that will not exploit them?" asked Mbugua Njihia, CEO of Symbiotic Media, one of the successful Kenyan startups.

While VCs have claimed that the African market is yet to fully mature outside South Africa, techies have also complained about "briefcase VCs," who exploit them and make excessive demands that lead to collapse of startups and generate fear in prospective tech entrepreneurs.

"Some VCs have no money to invest, some have worked for international organizations and are frustrated with the slow development while others promise to give money and do not deliver; the best VCs are those ran by people who started startups too because they understand," said Liko Agosta, founder of PesaPal, one of the companies funded by eVA Fund.

"One VC approached me, offered $10,000 for 60 percent of the company and an exit in three years; that money can not buy full page adverts in the local papers for two days," added Symbiotic's Njihia.

The issue of capital and the amount that startups should ask for seems to be a major bone of contention. Some funds claim they can only fund a minimum of $1 million while some companies may be interested in $200,000.

"There needs to be understanding that big money doesn't always help," Agosta said. "Maybe what we require is smaller amounts of money and the business will grow; some of the funds are not realistic, they claim to fund SMEs but the kind of money touted can start a manufacturing plant in Kenya."

The overall verdict from the VCs was that they were interested in local solutions, that are not copied from the west and are capable of being replicated in other African countries. The ICT Board expects to hold the open forums every quarter in order to expose the techies to VCs entering the market.