Business development programs such as Incubator or Accelerator programs are used to support startups and scale-ups with resources and mentorship. Entrepreneurs can take advantage of the training and financing options provided by incubators and accelerators who also facilitate opportunities for collaborations with public or private sector stakeholders. 

Business Incubators and Startup Accelerators

Business incubator programs support early-stage startups or brand-new companies to expedite profitability and success by providing valuable resources such as free office space, mentorship, a collaborative community, equipment and networking opportunities with potential funding sources such as angel investors and venture capitalists. 

Startup accelerator programs expedite growth of existing companies that have developed business models and validated products in the marketplace. They provide mentorship, free coworking spaces, legal services to help secure intellectual property, collaborative work ecosystem and access to industry influencers and potential investors. They also provide their ventures seed investment and take equity stakes in the companies.  

Both Incubators and accelerators can be divided into applicability for startups in their ‘ideation’, ‘launch’ or ‘growth’ stages ensuring that whichever stage a startup is in, they are able to find a program that suits them. 

a. Ideation stage startup incubators

These are ideal for aspiring entrepreneurs with a business idea and seeking cofounders or early startups with a team. They assist founders in navigating the foundations of entrepreneurship and commercializing their ideas. They also offer programs for startups involving world-class training and coaching, accountability and discipleship and financial access for a startup journey. In Kenya, MBM Africa and Sinapsis are ideation stage startup incubators for flexible and adaptable founders willing to venture into various sectors. 

b. Launch stage startup incubators and accelerators 

Antler Kenya, Villgro Africa, The Land Accelerator, Nailab, MEST, @iBizAfrica, Catalyst Fund, Pangea Accelerator and The Baobab Network are some of the launch phase incubators and accelerators in Kenya with each focusing on different sectors and having different programs and strategies for growing businesses. Generally, they enable founders validate their business models, determine a go-to-market strategy, build brand recognition and acquiring customers and preparing for seed or next-round investment. They help entrepreneurs become investment-ready and prepare a presentation deck and proposals that will entice investors, consumers and potential partners. 

c. Growth stage accelerators in Kenya 

They provide startups with entrepreneurial skills, access to resources and a network of global investors that will allow them to expand their businesses. They may be sector agnostic where they assist startups expand by helping them develop a deeper understanding of their own businesses, articulate growth challenges and identify and craft a growth strategy. Some of growth stage startup accelerators in Kenya include Multichoice Africa Accelerator by C3, iHub and GrowthAfrica Accelerator.  

Incubator and accelerator programs are highly selective and the application pool is competitive. Entrepreneurs must meet an incubator’s specific criteria and submit a viable business plan as part of the application process. They also require evidence that one’s business has high potential to scale up at an exceptionally fast pace. 

Differences between Business Incubators and Startup Accelerators 

They both offer early-stage companies support and mentoring. The following are the key differences between these business development models: 

a. Stage of the venture 

Incubators focus on early-phase startups that are in the product-development phase yet to have a developed business model. They focus on speeding up growth of existing companies that already have a minimum viable product in the hands of early adopters with an established product-market fit. 

b. Seed funding 

Incubators do not typically invest capital into ventures but may ask for an equity stake in exchange for the valuable resources they provide. It is standard practice for accelerators to provide ventures with a seed investment in exchange for an equity stake in the company. 

c. Program timeline 

Incubators take a slower timeline taking one to two years to develop their ventures with the goal to incubate a business idea long enough to build a successful company. Conversely, accelerators run like a startup bootcamp and tend to have a set time frame of only three to six months. 

Should you use an accelerator or an incubator 

Specific needs of the company have to be accessed to help in deciding which business development program is best by identifying whether one is an early or late-phase startup. One needs to: 

a. Identify funding needs 

Incubators are an ideal choice for businesses undergoing setting up and building up their business models while accelerators support businesses looking for seed investment to help them scale up. 

b. Assess the sate of their business’s product 

Incubators are ideal for new businesses with no established viable business model that are still developing a product idea. Accelerators tend to be ideal for early-stage existing companies that already have a minimum viable product.  

c. Determine the timeline of your business 

Incubators help to support businesses over a longer period of time while accelerators work with businesses to scale up rapidly within a matter of months. 

Conclusion

Kenya’s well-established reputation as a pioneer in Africa’s innovation industry presents great future prospects for startups. At Netsheria International LLP, we are excited to see the Kenyan startup ecosystem improving and expanding further via knowledge-sharing and collaboration between local and foreign firms, government bodies, institutions, and startups through these accelerator and incubator programs in Kenya.  

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Introduction

Netsheria International LLP, a Kenyan provider of strategic legal expertise and analytical capabilities for startups and SMEs, was recently involved in a funding masterclass held by Antler East Africa, a business incubator and startup accelerator on the funding of start ups in Kenya. The event was attended by young entrepreneurs where they underwent rigorous training on the concepts and the general process of funding for start-ups from launch stage all the way to expansion phase. 

Concept of funding

Funding of a business generally involves pitching of the business idea to potential investors with the hope of sustaining a funding growth curve as the business steadily grows. It involves development of the business concept normally done by the founders towards opportunities for funding. Once the concept is developed, funding opportunities are then sought where the founder seeks to gain traction toward the first commercial phase of the business. The founders seek to have traction of their business model or concept with a potential investor by ideally helping the investor to “dream” with them. The risks involved arise out of having either too low or too high valuation concepts which may mar the fully commercial phase of a start up toward expansion.  

Process of funding

Initial funding of a start-up can be a daunting task especially for founders seeking entry to and development of a relatively new business idea that has never been ventured into. The following steps outline the general process of a funding round for initial funding of a business concept: 

1.Setting targets for the raise 

The founders assess the needs for the business by benchmarking similar needs, undertaking valuation during start in comparison to expected first generation of revenues. This is done by benchmarking similar needs and market reactions to start-ups in the similar field. 

2. Equity stakes to investors 

Entrepreneurs are advised to have a safe cap for equity investors to protect their interest in the business as founders. This is done for initial equity funding and during each funding round involving first commercial phase, fully commercial phase and expansion phases of the business. Founders are encouraged to strike a balance between giving out equity and having a healthy balance to ensure they maintain their financial interest in the business. 

3. Looking for investors 

This is best done through networking and ensuring exposure of the business brand name. Founders are encouraged to look for ‘funding angels’ with interest in the business concept and have adequate funds to support them. Investors who share the same vision with the founders and have sector experience are considered the best as they are relatively familiar with the prospective business model.  

4. Have a data room ready 

A data room involves a summary of all the relevant data directly influencing the start of the business and its growth to becoming fully commercial and toward expansion of operations. Legally this may involve obtaining of licenses and regulatory approvals, shareholder agreements, development of Impact and Environmental and Social Governance practices as well as development of compliance manuals. Product development as well as Market trend data should also be sought and aligned with the business needs to ensure consistency of the business and enhancement of investor confidence. 

5. Tailor fundraising material 

This stage involves the ‘pitch deck’ which is the provided platform upon which a founder expresses their business idea and desire for funding to the potential investor. A good rule of thumb is for the founders to be brief in their presentation. A good pitch deck presentation by the founder entails: an introduction of the founder, identification of the problems their product will tackle, presentation of a clear and concise solution that investors can easily follow, market size and opportunity in measurable numbers, showing off the actual product or service the business is selling, growth, goals and steps of the business, introduction of the core team, defining competition and explanation why their concept is different, financial knowledge to reach their goals and an explanation on what they need from the investor. 

6. Getting the investor meeting 

Investors can be sought through person introductions, fund partners or cold-calling. In-person or peer introductions feature the best as they set the tone of a potential meeting given the familiarity of persons with the investor during introduction of the founder seeking funding. 

7. Preparing ahead of the investor meeting 

The founders need to own their business idea and data intended to be shared with the potential investor. This serves to bolster investor confidence in the product and the founder’s team whilst ensuring data gaps and loopholes are covered before the actual meeting with the investor. 

8. After the meeting follow-up 

After meeting the investor and pitching the business idea, founders are encouraged to follow up with the investor themselves or provided contacts. Since business dynamics tend to change, keeping tabs with investors post the pitch meeting serves to ensure the investor is up to date on any developments and provides for further exchange of information and sets the tone for the final stage. 

9. Final negotiations 

Founders need to be aware of pitfalls such as being rigid on offers made by investors as well as having the right mindset to avoid disappointments. Flexibility is important for any founder as the decision to invest lies with the investor. Once the above processes have been aligned the founder should enter the negotiation phase with an open mind. 

Conclusion 

By understanding the funding concepts and general process of funding, founders can better prepare for the journey ahead, striving to survive and thrive in an ever-evolving business world. While startups may face financial challenges, their founders must remember that setbacks can be stepping-stones to success.  

To learn more about how Netsheria can help you grow your business, visit our website or contact us today.  

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