Building Villgro Kenya: From Academia To Business Incubator And Impact Investor In 5 Years (With Learnings To Dial Up For The Post Covid-19 World)
Over the last five years, it has been my great privilege to lead Villgro’s expansion effort in Kenya and East Africa. Villgro is one of the world’s leading business incubators, with 20 years of experience in supporting social entrepreneurs in India. Villgro’s definition of social entrepreneurship is a for-profit company that sustainably delivers value for the shareholders and social impact at the base of the economic pyramid through its products and/or value chain. A social enterprise should also be built for scaling up with venture capitalist (VC) backing. Prior to joining Villgro, I was a research scientist whose only claim to fame was a few initiatives that sought to commercialize research outputs. So, the terms “innovation, entrepreneurship, impact investment, VC” and other development-speak buzz words fueled my bold decision to go where no scientist had gone before (at least in my networks): to put these simple, common-sense concepts into practice in Kenya and East Africa.
Villgro Kenya opened its doors for business in April 2015. Armed with the Villgro incubation model (our “secret sauce”), a ready pipeline of Grand Challenges Canada-funded health innovations, key stakeholder partnerships, and backed by a young team that was full of energy and talent, we were ready to change the world!
The first lesson I learned working at Villgro was that “Plan A” never works. We set out as a business incubator to empower innovators through knowledge and business development services. We were met with veiled suspicion. We did not fit the “incubator” model. Villgro Kenya did not offer free space or wifi to innovators. Instead of “tech” or “youth”, the key buzz words that dominate Kenya’s innovation landscape, Villgro’s branding of “health”, “hardware” and “social entrepreneurship” seemed out-of-touch with the times and altogether not cool. Our target market, the entrepreneurs, did not mince words either. They wanted funding, not the rich menu of knowledge or incubation services that we offered.
The second lesson I learnt was grit and patience. This will be familiar to most entrepreneurs. It takes grit, perseverance and (in lieu of capital) partnerships to press on until the breakthrough! Slowly, the entrepreneurs started trickling in. It was not our impressive CVs or Villgro India’s enviable track record in supporting over 100 innovators to raise USD $25 million and create over 4,000 jobs. Rather, it was the introductions from friends and partners who vouched for us. We rolled up our sleeves and got to work. Our backers and partners, Villgro India and the Lemelson Foundation, were patient and accommodating as we struggled to find our feet. When we were hard on ourselves, they celebrated our little successes. More importantly, they reminded us that Rome was not built in a day. Through our partners, we were introduced to USAID’s Partnership to Accelerate Entrepreneurship (PACE) initiative that provided capacity building and grant seed capital to fund startups. With a stronger value proposition to entrepreneurs in place, we were finally in business, increasing the flow of quality startups applying for incubation!
My third lesson was about the importance of understanding the market. As we worked with startups, we learnt more about the health system and the market that it serves. In the health sector, need does not equate to demand. This is because Africa’s population lacks the purchasing power to reward private sector’s R&D investments with premium profits that drive the global pharmaceutical and medical device industry. Africa’s market – though not willing to bear the costs of “premium offerings” – is discerning and demands quality but cost-effective solutions. Imported solutions that are designed for the more affluent European and North American markets often fail due to high price points and expensive operational infrastructure requirements that further increase the costs of healthcare delivery. How can innovators employ frugal innovation in the design and development of solutions to achieve problem-solution fit? How can they employ social entrepreneurship business models in the production and delivery of health innovations to achieve product-market fit? We learnt quickly that the market is unforgiving, consisting of a donor-driven public health sector that lacks incentive for adopting innovations, as well as a private health sector that presents a fragmented market requiring considerable time and capital to gain traction.
The fourth and final lesson is that if “cash is king” it means the VC is the hidden customer! Realizing how much time and capital it takes to demonstrate a commercial proof of concept was humbling. The only way to reduce the time is to increase the capital. Enter the Argidius Foundation. They challenged us not to provide our services for free, but we didn’t want to charge cash-strapped entrepreneurs. Could we find a middle ground to make this partnership work? The short answer is yes, but we had to change our mindset from thinking like an entrepreneur (market focused) to thinking like an investor (ROI and investment cycle). We continued providing grant seed capital but also introduced equity investments as we de-risked the companies. We strengthened our due diligence and investment committee and noticed that our conversations with follow-on investors were beginning to yield fruit. Our incubation support also reflected a stronger commercial and investment mindset as we began to recalibrate our incubation goals to better align with the investors’ proof points. Before long, we were making our targets as our portfolio companies started to receive term sheets and successfully raise the necessary capital to start making significant inroads in the market.
Today, we celebrate five years of Villgro’s ongoing expansion in Kenya and the region. We are proud of the partnerships that have yielded the progress made so far. Villgro Kenya has proved that homegrown solutions and social enterprises in the health sector can rival the success of Fin Tech startups, if given a chance. Our portfolio companies have succeeded in generating more than USD 1 million in revenues and created 188 jobs in the formal economy, even as they sustainably delivered a health impact for the marginalized communities.
However, it is not all rosy. Clear disparities in the progress of African-founded startups still exist compared to expat-founded startups. The same disparity can be seen with startups offering services versus startups producing hardware or products, and academia or science-based startups versus tech or commercial-based startups. Moreover, even the hard-won gains now risk being wiped away by the COVID-19 pandemic as it threatens lives and upends the economy.
There is, therefore, a lot more work to do and even more at stake than before, which brings us to the fifth lesson: you can’t do it alone – it takes a village! This means looking beyond our own needs to building the ecosystem we operate in so as to create a more enabling environment for more innovators to succeed. “It takes a village” also means scaling Villgro’s replication across the continent by partnering with like-minded incubators and accelerators and sharing our “secret sauce”, the Villgro model of supporting and investing in social entrepreneurs across Africa.
Leading us into this new phase of growth is one of my co-founders, Wilfred Njagi, who will be taking over the helm as CEO as we begin the expansion of Villgro across Africa. Wilfred has been instrumental in the setting up of Villgro from the very start and graciously invited me to steer the boat in the early formative stages of our journey. Wilfred is a naturally gifted entrepreneur and leader, whose contributions to Villgro’s transformative story over the last six years cannot be gainsaid. I cannot think of a better person to lead the organization during this critical time in history as we address the COVID-19 threat. I am very thankful for the amazing friendship, partnership, and support that we have developed along the way and I invite you to join me in welcoming and supporting Wilfred in his new role as CEO as he drives us to greater heights. Thank you!
Sincerely,
Robert Karanja
Co-Founder & Director, Villgro Kenya
