A deep dive into East Africa's digital burgeoning tech hub

Despite the global funding winter, Kenyan startup ecosystem witnessed 7% funding growth in Q2 2023 compared to Q1 2023. East Africa is quickly becoming a centre of innovation and promise, with Kenya blazing the trail in the region's startup landscape.

Raw Ventures, an investment firm that mainly focuses on making pre-seed through to mid-stage investments in companies and Dealroom.co data, have provided key observations of this evolving ecosystem.

Capturing the pulse of the digital revolution, Kenya's growth metrics are commendable. With 17.8M internet users in 2023, the country's digital penetration is unparalleled in the region.

Furthermore, the phenomenon where mobile connections surpass the national population signifies the ingrained tech culture and has paved the way for mobile-first startups such as Snark Health and Kiotapay (Real estate) to flourish.

Startups like these mean that despite VC activity slowing down globally last year, Kenya defied odds to record the strongest growth in funding raised in Africa.

Renat Lokomet, Venture Partner at Raw Ventures, offers a balanced perspective on Kenya’s resistance to the global investment slowdown. "After unsettling patterns observed in March and April, the Pan-African investment scene witnessed a commendable resurgence... The lion's share of May's investment, over half to be precise, was infused into Kenyan startups. Such milestones instil confidence in the Pan-African, and predominantly Kenyan, startup trajectory, regardless of prevailing challenges. Although the volume of transactions decreased in June compared to the previous year, Kenya's trend remains positive as it experienced a smaller decline than the rest."

Diving Deeper: A Sectoral Analysis by Raw Ventures

Studies show that the number of startups, incubators, innovation hubs, and accelerator programs is rising globally. The industry in Kenya appears to be expanding as more and more startups are popping up in a number of economic sectors. Google and Microsoft are two examples of the many multinational giants that have established innovation hubs or accelerators in Kenya to look into different technological solutions in the country.

Despite the fact that the majority of significant funding rounds are made by foreign investors, Kenya's innovation isn't solely propelled by foreign investment. Indeed, its domestic landscape is burgeoning, underlining a sustainable trajectory of Kenya's innovative growth.

Alexey Skobelkin, the Head of Tech and Product at Raw Ventures, said, "the Kenyan startup infrastructure is experiencing an overhaul. Over 85% of accelerators and hubs are indigenous, a testament to the nation's self-reliant growth. At the same time, the active involvement of international funds and accelerators, like Startup Wise Guys, Antler, among others, in shaping Kenya's startup ecosystem, highlights the region's significant potential and promise. Moreover, the decentralisation from Nairobi to other regions showcases a democratised entrepreneurial spirit."

Emerging technologies are playing a crucial role in shaping the future of countries worldwide, and Kenya is no exception. As a rapidly developing nation, Kenya is embracing new technologies to drive innovation, improve the quality of life, and foster economic growth.

Emerging tech trends like AI, machine learning, and Blockchain/Web3 are becoming the new normal in Kenya. With 10% of assessed startups integrating these innovations, the country is positioning itself as a tech trendsetter in Africa.

Skobelkin further elaborates on the synergistic developments, "Sector-specific accelerators are becoming more prevalent. This tailored approach amplifies startups' potential by providing bespoke mentorship and resources."

Government and youth: synergies and opportunities

The nexus of Kenya's startup vigour can be attributed to its youthful demographic. A considerable segment, aged between 15 and 34, is both the consumer base and the driving force behind many startups.

The government, with this potential, has rolled out initiatives like the Kenyan Investment Authority and Youth Enterprise Development Fund, solidifying its commitment to fostering entrepreneurial success.

Though employment in the startup sector is on the rise year by year, it currently represents a mere 0.021% of the country's 57 million population. The 12,000 individuals working in startups present a significant challenge for the government and the entire ecosystem.

Challenges amidst growth: Raw Ventures' insight

While the narrative largely shines bright, there are undeniably dark patches. Renat Lokomet highlights the overarching scenario, stating, "The global funding winter left its mark." Startups like Kune, a cloud-kitchen based in Kenya, and WeFarm, a peer-to-peer farmer network, unfortunately shuttered amidst fundraising challenges.

However, tenacious enterprises like FarmWorks in ag-tech and Peach Cars in logistics weathered these challenges, and did secure funding rounds, embody the trend of Kenya’s startup resilience.

“Despite the global funding winter, in Q2 2023, Pan-African startup ecosystem witnessed 7% finding growth compared to Q1 2023. This gives us hope that the Pan-African, and especially Kenyan, startup ecosystem will continue to develop despite the difficulties” remarks Renat Lokomet. Through the ebb and flow, Raw Ventures’ conviction in the Kenyan, and by extension, the Pan-African market remains unwavering.

Kenya is more than just a startup hub; it's the future of East African innovation. Kenya’s position as one of the key players in the African startup landscape is solidified by the focus on innovative technologies and the rise of local investment funds.

With supportive demographics and government measures, Kenya is fully equipped to develop its dynamic startup ecosystem further. Raw Ventures, using proprietary and Dealroom.co data, has curated a nuanced, multi-dimensional analysis of this ecosystem.

Raw Ventures continues to operate in the Kenyan startup market and is open to partnerships with foundations and accelerators.