By Rading Biko,
NAIROBI, Kenya- Startups in Kenya, much like in many other emerging markets, face a unique set of challenges that contribute to their closure or downsizing.
Despite the country’s reputation as a tech hub in Africa and its vibrant entrepreneurial spirit, various factors converge to make the sustainability of startups difficult.
Over the last two years, the East Africa’s economic giant has seen over 10 startups close down due to an unfavourable business environment.
Among the most promising Kenya-based startups that have since closed shops in the country are; Sendy, Kuni Foods, Notify Logistics, Sky-garden, Zumi, Wasoko among others.
All these startups cited unfriendly business environments and cash flow issues.
In an interview with this reporter, Churchill Ogutu, an independent economist based in Nairobi terms the startup space as both risky but profitable.
“Many Kenyan startups struggle to secure sufficient funding, whether from local investors, venture capital, or banks. The financial infrastructure in Kenya is still developing, and risk-averse financial institutions often require substantial collateral, which many startups cannot provide,” said Ogutu.
He pointed out that the majority of these startups find it difficult to scale and sustain operations, leading to premature closure.
Partech Africa in its 2023 Africa Tech Venture Capital report African technology startups revealed that there was a decrease by 46 percent in venture funding for startups in the continent.
In 2023 African tech startups only secured $3.5 billion of venture capital in total.
It further stated that the African tech ecosystem saw a massive 50 percent decrease in active investors.
Simon Kisolo, chief executive, Kenya National Chambers of Commerce and Industry-Kajiado chapter opines that “Kenyan startups often face intense competition from established players and international companies entering the market.”
“Local consumers may prefer established brands, making it difficult for new entrants to gain traction.”
Kisolo noted that the purchasing power of a significant portion of the population remains low, limiting the market size and potential revenue for startups.
He further stated that the regulatory environment in Kenya can be cumbersome for startups.
“We should get rid of these red tapes that drain resources and distract startup founders from the core business activities. Additionally, inconsistent enforcement of regulations creates uncertainty, further discouraging entrepreneurial ventures from investing in local startups,” he said.
Moreover, established companies with better resources can easily outcompete startups, leading to a higher failure rate among newer, less financially stable businesses.
The other factor that hinders the growth of startups in Kenya is the lack of skilled workforce in certain fields.
“There’s no doubt that the talent pool in Kenya, especially in specialized fields such as technology and finance, is relatively shallow,” he said.
“This scarcity means that startups often struggle to find and retain skilled professionals. High competition for skilled workers also drives up salaries, making it expensive for startups to build a competent team.”
He added that there is often a gap between the skills provided by the educational system and those required by the job market, leading to a mismatch that further exacerbates the talent shortage.
The other factor that most startups face is a lack of access to experienced mentors and robust support networks.
Mentorship is crucial for navigating the complex startup ecosystem.
Kisolo says “these resources are critical for business development, providing guidance, support, and connections that can help startups navigate challenges and seize opportunities. Without strong networks, startups may struggle with strategic planning, market-entry, and scaling.”
While Kenya offers numerous opportunities for startups, the challenges of financial constraints, market saturation, regulatory hurdles, infrastructure deficiencies, talent shortages, economic instability, and lack of mentorship significantly impact their survival and growth.
However, these challenges can be addressed through supportive policies, improved infrastructure, and greater access to funding and mentorship could help create a more conducive environment for startups to thrive.
