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Tech hubs face cash crunch as pandemic drains donor funds

By John Otini
Wednesday, November 25th, 2020
Tech hubs face cash crunch as pandemic drains donor funds.
In summary

SURVEY: Technology hubs in Kenya are having difficulties monetising themselves and are struggling to survive due to lack of funding and high fixed costs, a new survey shows.

High fixed costs such as rent, high cost of talent and a drop in donor funding has seen many incubation facilities struggle to stay afloat.

“Tech hubs and innovations spaces are at the centre of startup revolutions but they face serious difficulties of monetising and becoming stable,” the survey found.

Most hubs in Nairobi are located in high-end estates such as Ngong Road, Kilimani, Westlands and Mombasa Road where rents are high.

A report by the International Trade Center titled Tech Hubs in Africa Supporting Startups shows that lack of government support, lack of grants and low number of successful exits by African startups has left the hubs in dire streets.

The Coronavirus pandemic has disrupted their business models that are normally based on social interaction and many of them are currently closed.

“Lack of external funding to early stage startups is forcing tech hubs to choose mature and more stable startups because they provide shorter return on capital,” said Victor Otieno, the MD of Viffa Consult that offers SME consultancy and advocacy.

Many hubs have resorted to even asking startups to shoulder some of the costs of running tech hubs but this has been met by high poverty levels among founders.

“Their support to start-ups contributes to entrepreneurial ecosystems. But tech hubs struggle to earn revenue and become financially sustainable, especially since the breakout of the pandemic,” the report notes.

Kenya has 50 tech hubs out of the total 618 in Africa. Kenya is second only to South Africa, according to data from GSMA, an industry association for mobile operators.

Many tech hubs usually provide services to startups in exchange for equity but low access to capital and rare successful exits by African startups has left the hubs rethinking their business models.

Software design

Tech hubs get their funding from grants, funded programmes such as hackathons, co-working fees, events, equity, investments, government support and consulting.

For instance, iHub offers consulting in software design and user experience.

Hubs such as MEST which gets funding assistance from the Meltwater Foundation enables it to target entrepreneurs from across the continent, something that most hubs cannot due to limited funding.

Otieno said there needs to be more corporate involvement in funding of the ecosystem, adding that tech hubs should consider premises outside city centers where fixed costs are more affordable.

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