88mph

This investment fund cuts through Kenya’s tech hype with “bloodthirsty capitalism”

November 17, 2013
November 17, 2013

NAIROBI, Kenya—Investing in Kenya can often be triggered by a desire to offer aid or social benefit. 

But there is another way, exemplified by angel investment fund 88mph.

“This,” program manager 28-year-old Nikolai Barnwell says wryly, smiling at the huddled groups of entrepreneurs, deep in animated conversation in a sun-drenched office resembling a warehouse, “is bloodthirsty capitalism. …We have investors and we invest money, and we bloody well hope to get money out of it.”

Using the “accelerator” model of investing, 88mph is at the vanguard of a shift in the way investors are approaching the technology sector in Africa. By offering entrepreneurs an alternative to handouts from NGOs or bank loans, 88mph provides seed investment, support, networks, and mentorship to promising tech startups. In return, it takes an equity stake in the companies it funds.

Barnwell notes that there are few other people on a continent of one billion people who are willing to put up up to $100,000 into early-stage startups, despite a mobile web sector that he says is “completely exploding” in Africa. As a show of faith in this growing market, 88mph set up a second accelerator in Cape Town in February, and has plans for a third in Lagos next year. It is scouting for locations for a fourth hub, Barnwell said—possibly in Cairo, depending on the political climate.

“We want to cover the continent with our accelerators,” says Barnwell. “We want to earn the reputation across the continent that if you want a successful tech start up, then you should go through 88mph.”

Among its investments, 88mph has taken a punt on Ghafla, a celebrity entertainment site, and Movas Group, which provides emergency airtime credit. It has also backed Zapacab, the South African mobile phone taxi booking service, and Mdundo, the first company in Kenya to sell local music on scratch cards.

The company is hoping to tap the deep wells of the mobile web sector in Sub-Saharan Africa, which has clocked an average annual growth rate of 44% since 2000. According to GSMA, the association of mobile operators, Sub-Saharan Africa’s unique mobile subscriber base has grown by 18% annually over the last five years, making it the fastest growing region globally. And there’s plenty of room to grow, with unique subscriber penetration rates in Sub-Saharan Africa still less than 33%.

Dubbed the “Silicon Savannah,” Kenya appeals to technology entrepreneurs, both local and foreign, for its growth potential, as well as low barriers to entry. There is a large English-speaking population, and half the country is under the age of 18. Kenyan youth are internet-savvy, with the country boasting the second largest number of Twitter users on the continent, exceeded only by South Africa. But the industry and the economy are susceptible to political shocks and terrorism, with investor confidence taking a hit following September’s violent siege at the Westgate Mall.

Since setting up shop two years ago, 88mph has raised around $3 million in funds from friends and family, and taken equity stakes in 29 startups. It operates through a batch system, investing in eight to 12 startups per three-month investment cycle, then presenting the chosen startups to potential investors at a “Demo Day”—the next one is on Dec. 5. 88mph typically takes an 18% stake for $30,000, but its level of investment can fluctuate between 10% and 25%. This compares with the $14,000 for a 6% stake offered by Y Combinator, the US-based accelerator behind Reddit, Dropbox, and Airbnb.

88mph was founded in 2011 by Kresten Buch, a Danish entrepreneur who sold sports-data company Statman to Betgenius in 2006, at around the same time as he bought bold.dk and turned it into Denmark’s biggest football website. He started 88mph in Kenya while also investing in a tomato farm and a football league.

The name of the company comes from the 1985 film, Back to the Future, in which 88mph is the speed that the remodeled DeLorean time machine must hit for time travel to happen. References to the film dot the company’s Nairobi office, including a life-size replica of the iconic DeLorean.

The idea of hitting a critical mass resonates with the 88mph team. The company started relatively slowly; in the first year, Barnwell made only seven investments. As it picked up speed, 88mph partnered with Google and Microsoft, which provided mentoring, speaker programs, and workshops. Barnwell emphasizes business success as the key priority of 88mph, with social benefit as a welcome but secondary factor.

“We want to show that it’s perfectly possible to just do good business in Kenya, as it is in South Africa and in Nigeria,” he says.

For all the promise of growth, however, the challenge has been finding entrepreneurs who understand the fundamentals of building a business. In its latest investment round, 88mph backed just five start-ups—around half of its batch target—out of the 400 to 600 applications it received. Barnwell says the hype around the technology sector in Kenya threatens to obscure the reality that there is a dearth of projects with a demonstrated track record, business plan, and revenue stream.

“The reality is that there isn’t much serious stuff going on,” Barnwell said. “And there should be a lot more, because this is a big market and region.”

Ghafla, the mobile entertainment company, is an 88mph success story. In the initial batch of investments, the accelerator took a 25% stake for about €25,000, according to Chege Miati, the company’s internet marketing director. Ghafla started with a staff of four in the 88mph offices. Today, it has broken even, has 1 million unique readers per month, boasts a staff of 12, and has its own offices.

In terms of seeking exits, Barnwell says, 88mph has no definite timeframe. For now, he says, the fund is content to keep building its portfolio of sustainable companies, and to watch the region’s mobile sector grow. “Let us figure it out and see how it forms,” he says. “But let’s get in there and figure it out while it is forming.”

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