Five things you ne...

Five things you need to know about cleantech startups in Kenya

Learnings from the Kenya Climate Innovation Center
By Varun Bhandari 

Do you know that most clean-tech entrepreneurs in Kenya view mentorship just as important as financing? Check out our new blog highlighting 5 important facts about Kenyan clean-tech startups that we learned from the Kenya Climate Innovation Center

climate-tech-startups-kenya
 
1. GRANT FUNDING IS CRITICAL
 
A majority of the cleantech startups in Kenya is still reliant on grants for financing, reflecting the nascence of the enterprises, and the sector in general. There is a surprising diversity in the types of investors that have come in to meet the demand, from impact investors to development finance institutions, but they are finding it hard to make investments given the immaturity of the businesses.
 

2. ENTREPRENEURS NEED TO BE EDUCATED ABOUT FINANCE

While most entrepreneurs expressed a preference for equity over other forms of capital, from our conversations both directly with entrepreneurs and other investors, it appears as if their understanding of this instrument is limited. In general, most do not have experience with the various forms of capital raising, and need to be taught about the differences between the various options, and what it would be mean for their company.

3. WORKING CAPITAL - A POSSIBLE OPTION?

 An unexpected observation was demand for working capital financing. Traditionally startups grow using equity until they reach a scale and acquire the financial capability to service debt. Since many of the business models are cash flow generating with relatively short cash cycles, working capital could be provided to them. And since working capital loans usually have a much shorter tenor than an equity investment, these could be an attractive and less risky option for investors looking to enter the market. Some startups also wanted loans for capital expenditure (setting up a factory) to enable expansion, which would be riskier.

4. REVENUE CRITERIA FOR INVESTING DON'T (QUITE) WORK.

While most companies in the Kenya Climate Innovation Center's portfolio have got some revenue traction, it is through market trials and not significant enough to interest early stage VC investors. Proxies such as growth in volume sold, comparable company sales trajectory, and reverse engineering the size of market can (and should) be used creatively and widely to estimate future sales.

5. MENTORSHIP IS JUST AS IMPORTANT AS FINANCE

Most entrepreneurs (80% in the survey that we conducted of 43 cleantech startups) expressed an interest in some form of mentorship. Areas of support they needed help with were business strategy, financial management, talent development and retention, sales and distribution, marketing and fundraising.


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