News - Villgro Africa

With the growing interest in social impact enterprises and sustainable development goals, government departments, corporations, foundations, and trust funds, are backing startups that are doing business for good in the form of grants.

A grant is non-refundable funds given to individuals, organizations, educational institutions, and businesses to fund a specific project. They are usually competitive and proposals are submitted before one is selected.

While grants may be a perfect way to get funds to kick-start your start-up and gain valuable networks, if you are looking to make your business sustainable, you are advised to avoid total reliance on them.

Villgro Kenya Chief Innovation Officer, Wilfred Njagi gives his perspective on the limitations of grants to social enterprises. If you are a social enterprise that has it’s funding strategy reliant on grants, not to worry, he also offers alternative options to help you scale your enterprise sustainably.

What are the risks/limitations of a startup involved in ‘grant-preneurship’?

W: There are a number of risks associated with grants. The first one is donor-dependence syndrome. Overdependence removes the necessary pressure required to make a business sustainable. The danger is this approach is that when the donor withdraws the startup is basically dead in the water.

If you are not building a business, then you can go ahead and raise grants but if you start out as a social entrepreneur who wants to apply a market-based approach to address a social problem, then you can’t rely purely on grants. You have to move away from grants as soon as you can.

The other risk is donor fatigue. Normally after deploying so much money in a space or a sector and the impact numbers are not as compelling to warrant continued spending in that sector it reaches a point where the donors just get tired and withdraw from a sector.

Grants can also move your focus and energy from the core business. If you get many grants from different organizations you are obliged to report to them, each with different funding guidelines and reporting metrics, you may find yourself spending more time reporting instead of actually executing your business. This slows down operations during reporting seasons due to the limited bandwidth of time and team members.

If you are an entrepreneur who is serious about building a business, once you have used grants to de-risk, to do market research, R&D to validate a few assumptions, my advice would be to run away from grants as soon as possible. There is space for them but do not get caught up in ‘grant-preneurship’.

Villgro Kenya has previously employed grants and is moving more towards Venture Philanthropy can you speak to that

W: There is an emerging thinking around blended finance and in a much bigger context of venture philanthropy. Venture Philanthropy looks at to administer traditional philanthropy with the discipline and rigour of venture capitalists.

We have seen family offices, traditional donors like USAID & GCC move away from a blank writing a blank cheque to milestone-based financing. This phased investing approach ensures that the entrepreneur hits some set their targets before unlocking the next tranche.

Another innovative approach by donors is repayable grants. Once an enterprise has reached financial sustainability they are required to repay the grant which can then be re-deployed to another deserving case.

Venture Philanthropy leads to better leverage for both the startup and the donor. The entrepreneur ends up reaching the milestones faster, scaling up faster and hence a much wider impact as opposed to pure traditional grants where recipients just write reports.

Blended finance, on the other hand, looks at mixed instruments. For example, if you are a family office, incubator or a donor you typically would start off with a milestone-based in a phased manner and as they continue to hit the milestones it reaches a point where they are fully/semi de-risked to be considered for equity and other return-seeking instruments.

Villgro Kenya is going the direction of the broader venture philanthropy and more specifically blended finance. We are likely to blend grants and returnable instruments on a case by case basis. We are moving from traditional grants.

A startup could start off with a $20k-$40k grant and as they meet those milestones and prove their business models Villgro Kenya might consider them for additional funding of up to $50-$200K returnable capital (equity/quasi-equity).

As a health innovation incubator operating in East Africa, Villgro Kenya has borrowed heavily from Villgro India’s incubation model which majorly involves supporting local early-stage startups with funding, mentorship and providing access to relevant networks in the ecosystem. After over 5 years of operation in both countries, Paul Belknap gives his observations on the innovation evolution path of India vis a vis East Africa in an interview with Ordia Akelo.

Q; In terms of the stage of evolution, without necessarily following the similar path of India, what do you think about the EA ecosystem?

Paul : Kenya certainly is not as far along the journey as India is. I think it is moving faster but mainstream entrepreneurship in India is far ahead in terms of the number of exits and the size of the companies it has created.

Mentorship is key to increase the number of successful exits

We have not seen much of the willingness and ability of successful entrepreneurs to give back in terms of mentorship to startups is also lower. This can be due to the fact they are early into their entrepreneurial journey than most of the successful Indian entrepreneurs were when they were able to start giving back.

The fact that we have not been able to have as many successes yet means that there are less mentors.

The role of support Organizations

One of the positives is that there has been a lot of support organizations that have come in here relatively quickly and that is accelerating the pace of progress here. If I say India might be 15 years ahead I don’t know if that means 15 years, it might mean 7. Those organizations are effective they should be able to help East Africa catch up to India.

It’s really difficult to lump together East Africa, you can look at a few sectors like fin-tech & solar, they are certainly further ahead than India. The Healthcare sector has started to pick up in the last year or two.

Capacity Building within the Ecosystem

If you look at our pipeline numbers and loosely assign some quality ranking to the pipeline, quantity x quality has improved dramatically in the last 3-5 years that we have been active. It is much easier to find quality companies today than it was years ago. This can be attributed to more capacity building avenues like hackathons, workshops, and conferences within the ecosystem. These have been able to equip innovators with information on how to innovate for their end-users to ensure it is a product/service people actually need.

There are interesting differences between Kampala and Nairobi but if you were to try to average things up there is some room to catch up but it is on the right track.

What are some of the things that need to happen next at the ecosystem level – you mention support systems but as Kenyans what are some of the things we can do to accelerate our progress

Collaboration within the ecosystem

P: A lot of it boils down to collaboration, that is one thing that you saw a lot of in India and at least I haven’t seen quite as much of it here.

People’s openness to sharing things that have worked and things that haven’t with other entrepreneurs, this needs to happen more. On thinking about how to as much as possible to skip further ahead in the trajectory/evolution of BPO-CopyCat-Innovation.

It is in some ways an organic growth mechanism to go through that kind of evolution because the skills and ability to build innovative stuff, it’s hard to go straight there so you have to go through that journey to some extent but as entrepreneurs, people can try as much as possible to think innovatively.

A lot of the support organizations are already working in that space but more can be done to encourage that collaboration.

More Innovation Events bringing together key stakeholders in the ecosystem

There is an emerging interest in Medtech entrepreneurship in Kampala and they have had events that have convened most of the people interested in that space. There needs to be more. Some of the work we are trying to do around the Medtech Biotech ecosystem is critical to getting people talking.

Big Wins

Some of these companies need to grow. We need a few more big successes. That will help drive further success. If we can have a company from our portfolio listed on the Stock Exchange for example or acquired by Big Private Equity money they will have demonstrated the ability to go from small beginnings to show there is a path to commercial success that will drive more sophisticated investment.

Startups should learn to embrace private equity for a number of things as banking institutions rarely warm up to startups. To begin with creditworthiness; most of the time, startups do not have any historical financials, as a banker you run away from such kind of businesses. Most banks want financial history, your cash flows and whether you can service a loan. This makes banks very unattractive to startups.

Even if you can afford a loan it is not patient capital in nature, you have to keep meeting your obligations and they are not very flexible. Unfortunately in healthcare most of the clients tend to be government so if you are chasing a county contract that is going to take a few months to close and once you have it, they take another few months to pay and sometimes they default depending on whether the Senate approves county budgets or not. You are at the mercy of counties while the banks are chasing you to pay your loan thus it becomes very constraining.

Private Equity and Venture Capital tend to be more flexible, especially if it is an impact-focused because this means they are even more patient. For them, it is not just about making a quick buck but it’s also about the impact. They have a triple bottom line approach. While profits are important, Impact Investors emphasize that people’s livelihood and well being should be safeguarded at all times as well as the environment.

They also understand that the target customer segment doesn’t have lots of disposable income and are willing to be patient with the entrepreneur targeting the bottom of the pyramid to build the critical mass required to be sustainable. Most impact investors will stay up to 8 years before they exit. They are also willing to open up their networks and link you up with vendors, suppliers & customers. They typically don’t take a back seat after investing but rather want to be actively involved in portfolio management.

Writing the cheque is the easiest part. Portfolio management is the real work and any investor who has a heart for impact will have a very high touch portfolio management approach. In many ways, they are more advantageous compared to traditional banking.

Birth asphyxia, sometimes also referred to as perinatal or neonatal asphyxia, is a condition resulting from the failure to establish breathing at birth. Globally, it accounts for about 900 000 deaths each year while here in Kenya, it accounts for 31% of all neonatal hospital admissions and leads to 10,000 deaths annually. According to UNICEF, birth asphyxia is the leading cause of neonatal mortality in Kenya.

While not all infants succumb to asphyxia, those that survive develop high risk of lifelong complications such as autism and other neurodegenerative diseases, mental retardation and epilepsies. The economic, emotional and physical burden of caring for such a child usually spells disaster for families, more so for the poor.

The introduction of the Miracradle neonatal bed into Kenya late last year, offered a glimpse of hope for infants who have suffered asphyxia and their families. Invented in India through a frugal innovation approach, the Miracradle employs phase-change materials (PCM) to deliver therapeutic hypothermia (TH), a treatment method that has been shown to treat asphyxia.

The term frugal innovation is used to refer to a method of developing clever and often cheap solutions or products to solve tough problems yet employing limited resources. This as opposed to traditional product development approaches that involve huge R&D budgets and processes that strain scarce natural resources. The Miracradle perfectly fits this description. It’s can be up to 90% cheaper than comparable devices both in terms of acquisition and operation. It requires minimal power supply and can be used 500 times before replacement of PCM’s hence treatment costs can be as low as $10 per patient. In addition, it’s portable due to its light weight and can be easily transported. Comparable technologies require dedicated power and consumables for every treatment episode.

A study to test the Miracradle that concluded early this year at the Kenyatta National Hospital found that the device was able to reduce severity of asphyxia from severe or moderate to mild or normal in some cases.
These results which were presented at the recent Kenya Paediatric Association Annual Conference mean that infants who suffer from birth asphyxia now have an effective affordable treatment option that can save lives and deter the onset of debilitating conditions like autism.

Sist. Mollyne Otieno of the Miracradle for Kenya study team, amazed at the outcomes of the treatment said that babies who they expected to die, ‘’…were literally coming back to life.’’

On the user experience from the nurses end, Sister Josephine Bariu said, ” We were curious to learn, initially we were skeptical to put young babies in cool temperatures having been trained to keep babies warm as opposed to putting them on ice however we found it to be beneficial to the babies.”

Frugal innovations like the Miracradle are key in achieving SDG 3’s agenda to reduce neonatal mortality to at least as low as 12 per 1000 live births and end preventable deaths of newborns and children under 5 years of age by 2030. The study has shown that it can scale sustainably and is suitable for low resource settings.[/vc_column_text][vc_column_text]Birth asphyxia, sometimes also referred to as perinatal or neonatal asphyxia, is a condition resulting from the failure to establish breathing at birth. Globally, it accounts for about 900 000 deaths each year while here in Kenya, it accounts for 31% of all neonatal hospital admissions and leads to 10,000 deaths annually. According to UNICEF, birth asphyxia is the leading cause of neonatal mortality in Kenya.

Sist. Mollyne Otieno of the Miracradle for Kenya study team, amazed at the outcomes of the treatment said that babies who they expected to die, ‘’…were literally coming back to life.’’

[vc_row nav_skin=”light” consent_include=”include”][vc_column css_animation=””][vc_image_caption image=”175″ aspect_ratio=”4:3″ overlay_mobile=”yes” style=”style_1″ caption_appear=”caption_appear” skin=”light” radius=”0″ title=”Embracing micro health insurance and savings solutions to achieve UHC” description=”” preloader=”” css_animation=””][vc_column_text]The road to achieving Universal Health Coverage in Kenya and Sub-Saharan Africa has and will always be challenging unless there is a change in approach while addressing the ecosystem gaps in healthcare financing. For a long time, Traditional Insurance model has been perceived as the shortest route towards achieving Universal Health Coverage but odds have proven this assumption otherwise,based on insurance penetration being below 3% in Kenya and 13% in South Africa. Many governments in Africa do not allocate enough budgets to fully subsidize health care services and this results to the National Healthcare systems being propelled through grants which pauses a challenge of how much can be achieved on improving and sustaining sufficient health care penetration especially to the poor.

With the double disease burden in the East African Region, poor people will continue to suffer in the hands of our traditional approach, unless we build a support system for innovative ideas addressing healthcare financing. Villgro Kenya supports new solutions in this sector having Impact at the base of the pyramid.Currently,Villgro has 30% of the portfolio as micro-insurance in Kenya and Uganda and with a potential to replicate the solutions in other pan African countries. Recently, one of our micro-insurance companies, ClinicPesa was selected in a highly competitive program by MIT D-labs. Another portfolio company,IFA, clinched the second runners up prize at SANKALP AFRICA AWARDS. Sankalp isan inclusive global development dialogue with entrepreneurs, Impact investors, corporates and governments.

The effort by the Kenyan Government on the Big 4 Agenda, governments across the continent prioritizing Universal Health coverage and efforts by the private sector on implementing adoptable solutions on Healthcare financing is clear evidence that all hope is not lost. Great private sector solutions like ClinicPesaare providing access to healthcare financing through savings and micro-loans to uninsured low-income individuals in Uganda, by enabling its users to transfer small amounts of money to their accounts on mobile money and provide to top-up loans for medical bills and to cover the cost of Medication.Turaco is a simplified insurance and credit solutions distributed through mobile technology to uniquely solve the healthcare financing needs of emerging customers in Kenya and Uganda and Insurance for All (Afya Poa),an affordable product by combining savings,Insurance and loans for healthcare mainly focused to workers in the informal sector commonly referred as “Jua Kali” in Kenya.

We need entrepreneurs to be more deliberate on understanding the market by focusing on key areas:

Understanding their market niche by profiling customers’ economic activities and income levels.
Understand how they can leverage on bundling their products and the existence of other players in the ecosystem to offer more value for less money.

If we are deliberate in understanding the market need, economic ability of our customers and positioning our solutions strategically to thrive in the existing ecosystem,Villgro Kenya will get better solutions to support in healthcare financing and Universal Health Coverage will be achieved.

By Gibson Muriuki – Villgro Kenya Incubation Program Manager[/vc_column_text][/vc_column][/vc_row]