VIKTORIA VENTURES’ OPINION ON THE KENYA STARTUP BILL, 2020

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The Startup Bill, 2020 is an Act of Parliament: to provide a framework to encourage growth and sustainable technological development and new entrepreneurship employment; to create a more favourable environment for innovation; to attract Kenyan talents and capital; and for connected purposes. This is a step in the right direction and comes at a time when economies all over the world are being transformed through entrepreneurship. In our opinion, the Bill has some gaps such as:

i. Definitions: It does not define a startup but defines the criteria that ‘startups’ must meet to join the incubation program. Literature defines startups as innovative businesses seeking to build highly scalable businesses, usually at a rapid pace, constantly iterating the business model in the early phases. Startups can take various forms such as:

a. High growth ventures – these have disruptive business models and tend to be scalable e.g. Branch, Twiga Foods, Sendy

b. Dynamic enterprises – these deploy existing products / proven business models e.g. early stages of businesses before growing to private equity stage such as Artcaffe, Naivas

c. Local entrepreneurs with a scalable and sustainable business model such as Tovuti, Marketforce360, Buymore It is important to consider the needs of the different forms of startups in the development of the Bill.

ii. Suitability for the different types of ‘startups’: Keeping the above in mind, the needs to the different startups will vary as follows: Dynamic businesses would not be expected to have high research and development expenses; hence the requirement to have “at least 15% of the entity’s expenses being attributable to research and development activities” would lock out these types of businesses from the program. The requirement for the “business to be a holder, depositary or licensee of a registered patent or the owner and author of a registered software” will also lock out startups in the ideation stage High growth ventures and local entrepreneurs would not be suited for credit guarantee financing in their initial years because they may not have the cashflows to service debt

It is important to make these considerations among others when developing the Bill.

iii. A significant focus on incubators which needs not be the case: The Bill has been developed to encourage growth and sustainable technological development and new entrepreneurship amongst other key objectives. In our view the Bill mostly focuses on Incubation and does not adequately address the other objectives set out in PART 1 – No. 3, making it sound like a ‘Startup Incubation Bill.’ This would hamper the effectiveness of the Bill in fostering entrepreneurship in Kenya. In our opinion, the Bill should also stipulate the framework for attaining the rest of the objectives

iv. Ambiguity in the type of Incubator it is seeking to regulate: In the Bill, an incubator means “a company, partnership, nongovernmental organization or limited liability partnership, whose principal object is the support the birth and development of startups, innovation, and related activities related to the transfer technological and research, development, and innovation processes, through the offer of dedicated physical spaces and services advice.” This definition encompasses private entities that the government does not fund, has no control over, and it would be challenging to impose and monitor how they should run their operations. However, the Bill alludes to the operations of government-funded incubators; this being the case, the Bill should refine its definition to only cover government-funded incubators. The Bill should also explore allowing virtual incubators as they have become popular during the COVID-19 pandemic and have been reasonably effective

v. Fiscal benefits have not yet been defined and have been limited in access: The Bill refers to fiscal and non-fiscal benefits that are yet to be determined but will accrue to the startups admitted into the incubation program. In our view, the benefits should accrue to all startups, whether they are in the program or not, because some startups become successful enterprises without ever going through an incubation program. Further, these incentives should be structured in a way that makes startup investment opportunities attractive to angel investors

Download the full feedback report here.

Written by Keziah Njeri, Adelaide Njoki , and Stephen Gugu

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