Invitation to Entrepreneurship Bootcamp

Seed Capital Investment Ltd  has been established to offer support to young people, businesses and to entrepreneurs in Kenya. It's focus in Kenya is to offer an avenue where those who are in business or aspire to be in business can access information; advice and support that can assist them succeed. 

All projects and programs are facilitated by company directors who are entrepreneurs and managing their own businesses bringing in a wealth of practical experience in business startup and management.

As part of its objectives in supporting entrepreneurs in starting up and fine tuning their businesses, Seed Capital have organized a workshop to address the issue of acquiring funds and starting small and medium enterprises in Kenya under its Youth In Business Program. 

The workshop is on 5th and 6th May, 2010 at the company offices off Ngong road, behind Coptic Hospital.

After the workshop, participants will document their ideas and present them live to a panel of prominent investors for possible funding after which they will receive ongoing business guidance and mentorship until they have formed successful companies which will create employment to other youth.

For further information, please contact:

Rhoda Mwihaki,
Coordinator,
Youth in Business Program,
Seed Capital Investment Ltd.
1 Kindaruma Lane, off Ngong Road,
P.O. Box 4720, 00200
Nairobi Kenya
Tel 020 807 1309, 0710 492836, 0731 535018

www.seedcapitalinvestment.com

When to say goodbye

Just this week, my mailing list service run by an American startup went literally belly up. There I was wondering why I couldn't send out my newsletter when I received an email saying that due to the financial meltdown the company (which incidentally went to great lengths to get my custom in the first place) had to close IMMEDIATELY.

Just like GTV there was absolutely no notice given.

I have also previously had the misfortune of having both my broker and bank also go the titanic way.

So is this what is to be expected as a normal occurrence?

Today's Business Daily in an article "Watch out for tell-tale signs that a company is going bust" writes that the right time to assess the business credibility and sustainability of who you deal with is now.

"The best time to be spotting the signs of mounting risk is before the juggernaut goes off the road." - Business Daily, Feb 24, 2009

Unfortunately, very often we witness rapid expansions of our banks, brokers and even supermarkets. However, there is also the excuse we tell ourselves, that if they run out of liquidity, they will be propped up, preety much in the same way the US government is propping up American industry. However, while Kenya is grappling with financial crisis of its own, I think we need to re-assess that supposition.

Read "Watch out for tell-tale signs that a company is going bust"

Postscript: Finally, it seems that Kenya's new Finance Minister Uhuru Kenyatta is hearing the cries of "UNGA" from Kenyans. Yesterday, while introducing a new budgeting mechanism, Mr. Kenyatta said that the days of large Kenyan delegations flying across the globe are over. More importantly he said that the government should in turn be more accountable to the people of Kenya. As the Daily Nation editorial says: "Uhuru is a new broom; let him sweep clean". We at Yipe couldn't agree more.

Kenya Youth Enterprise Fund: Show us the money - "tusiharibu wakati bure!"

Yesterday the youth fund management and leading banks were at State House launching their three year strategic plan and signing partnership agreements. This event has been covered in the media, however the story on the nation online carries a very interesting comment. A reader called “ronns” posts: “hey, is this for real? if anyone has received this funding please let us know tusiharibu wakati bure”.

And ronn’s comments belies the real controversy over the effectiveness of the youth (as well as the women’s enterprise) development funds. How many people have actually received this funding?

This is not the first time this issue is being raised. In an earlier blog, we actually wrote about the failings of both funds, in that they were not equipped to reach as many Kenyan youth and women entrepreneurs as possible. The blog “Youth Fund: It is not enough just to open the gates of opportunity” posted in October this year decried the fact that it seems that there is so much money available (yesterday the youth fund received another injection of Kshs. 1.75 billion shillings ($22 million) from the government) but the means of accessing it remain remote. So it is not surprising that people such as ronn are asking the fund managers to show them the money. It’s no use getting our hopes up and wasting valuable time.

Youth entrepreneurs have already managed to fight the odds. Still engaging in enterprise despite facing multitudes of negative stereotypical and patronising attitudes as well as a perceived lack of credibility, particularly from formal finance institutions. These young innovators have without recourse to bank loans managed to grow businesses on bootstraps. Relying on their wits and sheer fortitude, they have become adept at sharing and sub-letting even the smallest amounts of space, using innovative and cheap marketing techniques, outsourcing work for which they don’t have specific technical expertise, amongst other resourceful means of operating their businesses.

Of course they would appreciate the chance to borrow money to startup new ventures as well as expand existing ones; but the model of the youth fund distribution also acts as a deterrent to their accessing finance.

Firstly the number of intermediaries particularly in rural areas are few, though it was commendable to hear that First Community Bank has at least taken up the mantle to ensure that as many youth in Northern Kenya can get access to the youth fund.

However, the second issue that we have previously posed was that banks as intermediaries for the fund act as a disincentive. For youth entrepreneurs who may have previously been denied credit by these same institutions, there is a marked hesitancy to approach these banks again, despite the ongoing advertising campaign by the Ministry of Youth Affairs. Being denied a loan for your business is preety much on the same scale as being denied a visa to the US or Europe. An entrepreneur who has tied up all their own resources and financial future in their enterprise takes it as an affront to their business vision, and hence themselves. Trying to convince that same entrepreneur to go to a bank to access the youth funds is a bit like pulling teeth without forceps.

Thirdly, even if you can get the young entrepreneur to go to the bank to apply for the funds, they will find a banking culture that is based on assessing whether the loan can be repaid, not on the actual viability of the startup. As we wrote in our previous post, without any culture change in the banking fraternity, you can still expect the loan officer in the bank to be more focussed on when the youth entrepreneur will pay back the loan rather than on the business profitability.

Finally we suggest that the youth enterprise fund should place more emphasis on its social impact rather than the number of loan beneficiaries. Yes, it is good to hear that loan repayments are in the 90% range. However, what has been the actual impact of growth on the 55,000 funded youth enterprises, the livelihoods of the youth who received the loans and the wider community?

For instance regarding the over 200,000 new jobs which the youth fund say have been established over the last two years: What proportion of these are the founding entrepreneurs and specifically how many people have been employed to work in these ventures? If there is to have been a significant impact on society, how much money in salaries and wages do the employees in these youth owned ventures earn?

The first two can be measured almost immediately by the youth fund whilst we do agree the wider societal impact would take longer. However, these indicators are what will truly measure the success of the enterprise fund rather than how many youth groups repaid their loans.

During yesterday’s event, President Kibaki also said that the youth had proven that they could “be trusted with any amount of money”. Isn’t it time that the youth fund starts lending money to individual entrepreneurs rather than groups?

The Youth Fund’s three-year strategic plan seeks to boost the Fund to Sh7.2 billion by 2011. As it is youth entrepreneurs are busy enough, most being the sole operators of their businesses. They lose money when they have to close shop to go seeking these funds, only to come face to face with a system riddled with obstacles and negative attitudes towards youth business. So please Youth Enterprise Fund managers don’t waste their time, in ronn’s words, tusiharibu wakati bure!

Youth Fund: it is not enough just to open the gates of opportunity

“You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, ‘You are free to compete with all the others,’ and still justly believe that you have been completely fair… it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates. This is the next and more profound stage…” - President Lyndon Johnson.

Teething problems in both the youth and women enterprise development funds have emerged. This week, no less than the Planning Minister Wycliffe Oparanya was urging financial intermediaries to relax their requirements for youths seeking to cash in on the enterprise fund loans.

Recently, the minister for Gender and Children Affairs, Esther Murugi had also expressed concern that over Sh700 million meant for women projects had not been disbursed.

Water, water everywhere and not a drop to drink!

It seems that there is so much money available but the means of accessing it are dead ends. In common parlance: money, money everywhere, but no way to get it in the pocket.

As long as these funds rely on financial intermediaries, they will continue to have problems of their target populations being unable to access these funds.

After all these intermediaries are banks, and banks are in the business of giving loans whilst enforcing conditions and requirements that make it difficult for the person taking the loan to default. So, without any culture change in the banking fraternity, you can still expect the loan officer in the bank to ensure that the youth or woman entrepreneur has a viable business that will pay back the loan. This will happen regardless of whether the government wants to throw the money at these people. If that is how they will measure their performance in terms of beneficiaries of loans, then we suggest that they put a desk in front of the Kenyatta International Conference Centre (KICC) and give loans to any Tom, Ochieng or Wanjiku who happens to be strolling past them.

Both the youth and gender ministries should not feel toothless if they cannot reach their stipulated number of entrepreneurs. They also must remember that small business owners have a natural aversion to exposing their business to risk, and thus are hesitant to take out loans.

In seeking funds, small business owners tend to use what can be described as the ‘pecking order’ model. This suggests that entrepreneur’s attitude towards and use of financial sources are most positive towards first, internally generated equity (for instance injecting own savings into the enterprise), followed by debt financing from sources such as banks.

Small business entrepreneurs also prefer sources of finance associated with the least information asymmetry. It is easier to approach your brother for a startup loan than it is to wade through the rigorous formalities of a bank loan. For one, you need a fully developed business plan, something not many people in business have. This requirement is also asked for when seeking finance from the youth and women’s funds.

There is also the ‘theory of the discouraged borrowers’ (Kon and Storey, 2003) which posits that some existing small business owners believe they will not be successful in obtaining external finance and therefore do not apply.

Apart from a shyness in opening oneself to be asked confidential questions on one’s business, there is also the overriding need to maintain control of one’s business. Thus such firms prefer using retained profits and cash flow to fund their business development, rather than opening up themselves to losing control of their enterprise. This is why seeking capital from personal savings or other informal sources (such as family and friends) is the preferred option for entrepreneurs who seek to minimize intrusion into their businesses.

The emergence of the micro finance sector has somewhat filled in this gap as a particular type of informal finance that takes the form of a small loan to individuals. However, as can be seen from the rapid growth of Equity, Family and K-REP Banks, these institutions have now outgrown this approach and their operations are now more akin to commercial banks than the informal micro-finance.

So instead of forcing entrepreneurs to take their money, the two funds can actually reach more enterprises if they become innovative in assisting existing small business owners to expand their businesses.

Apart from solely financing entrepreneurs, the funds could have more impact if they were in a position to expand business opportunities by providing collateral support, mentorship and technical assistance, which are lacking or too expensive for many small enterprise owners.

Loan guarantees can assist entrepreneurs with the potential for success but lack the current capacity to qualify for conventional bank loans to access more funds than are currently available within the funds. This will enable such businesses to expand so they can achieve the economies of scale that are necessary to compete with larger businesses.

Both fund managers can also learn lessons from the US Small Business Administration (SBA). Innovatively this independent agency is mandated to enter into contracts with Federal (government) Agencies and then sublet these contracts to small firms, that is apart from assisting small businesses in obtaining government contracts.

The Small Business Act (1953) which created the SBA also has a small business subcontracting clause in all government contracts over $10,000, requiring Federal Agencies to publicize in the Commerce Business Daily (CBD) all procurements over the small purchase threshold and any others with subcontract potential.

In lieu of setting up that table outside KICC, this could be a more impactful solution to both funds, that is if their sole measure of performance is how many groups of entrepreneurs they finance.

No small business owner would pass up the chance to grow their business by receiving technical expertise or collateral to access higher value loans. Neither would they refuse to competitively take part in the profitable public procurement market sector.