Start-up Success in Rwanda Whitepaper

2023 START-UP SUCCESS IN RWANDA WHITE PAPER

Written and compiled by Meyeneabasi Ekefre

2023 | START-UP SUCCESS IN RWANDA.

2023 | START-UP SUCCESS IN RWANDA.

Research Goal To investigate the various factors that impact the success or failure rate of start-ups in Rwanda.

Research Objectives ➡ Identify the major factors that contribute to the success or failure of start-ups in Rwanda, such as access to capital, market size, regulatory environment, or availability of skilled labor.

➡ Analyze the impact of government policies and

initiatives on the growth of start- ups in Rwanda, such as tax incentives, business registration procedures, and funding programs.

➡ Explore the role of incubators, accelerators, and

other support organizations in fostering the development of start-ups in Rwanda, and assess the effectiveness of their services.

➡ Examine the influence of cultural and social

factors on the attitudes and behaviors of entrepreneurs in Rwanda, and how these factors may shape their approach to business.

➡ Compare the experiences of successful and failed start-ups in Rwanda, and draw lessons from their strategies, decisions, and outcomes.

2023 | START-UP SUCCESS IN RWANDA.

Start-Ups

Government Policies

Funding

Start-Ups For the purpose of this study, a start-up is defined as a company in its first stages/years of operations seeking to successfully gain funding and sell its products/services to a targeted market. These companies are typically founded by one or more entrepreneurs who want to develop a product or service which they believe is in high demand.

Start-ups in Consideration: For this study, both non-tech and tech start-ups would be considered. These start-ups considered would be start-ups three years and older.

Stages Of Start-Ups Being Considered

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

Factors That Make a Successful Start-Up Access to capital: Lack of funding is a significant challenge for many start-ups in Rwanda, especially those operating in sectors that are considered high-risk or less profitable.

Market size: While Rwanda is a relatively small market, it has a young and growing population, which presents opportunities for businesses that can cater to local needs Regulatory environment: The regulatory environment in Rwanda has improved significantly in recent years, with reforms aimed at reducing barriers to starting and running a business.

Availability of skilled labor: The availability of skilled labor is a crucial factor for the success of start-ups in Rwanda, particularly those in knowledge-intensive sectors such as ICT and healthcare.

Early stage Start-up

Venture funded stage

Late stage start-up

Infrastructure: While significant improvements have been made in recent years, infrastructure gaps still exist, which can limit the growth and competitiveness of start-ups.

Technology adoption: Rwanda has made significant progress in promoting digital transformation and innovation, but there is still room for improvement in terms of technology adoption and utilization.

2023 | START-UP SUCCESS IN RWANDA.

Start-Ups

Government Policies

Funding

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

Impact Of Government Policies.

Tax incentives: The Rwandan government offers tax incentives to start-ups, including a reduced corporate income tax rate of 15%, compared to the standard rate of 30%.

Business registration procedures: The Rwanda Development Board (RDB) provides a one-stop-shop for business registration and licensing, which significantly reduces the time and cost of starting a business.

Incubation and acceleration programs: The Kigali Innovation City is a flagship project that aims to create an ecosystem for innovation by providing world-class infrastructure to start-ups .

Funding programs: The Rwandan government has established several funding programs to support start-ups and small and medium-sized enterprises e.g the BIT fund and the RIF. Intellectual property protection: The Rwandan government has strengthened its legal and regulatory framework for intellectual property (IP) protection, which provides entrepreneurs with greater security and incentives to invest in innovation and R&D. The Rwanda Development Board (RDB) offers IP registration and protection services to help start-ups and entrepreneurs safeguard their ideas and products.

These policies and initiatives have contributed to the growth and development of the Rwandan start-up ecosystem, by creating a more supportive and conducive environment for entrepreneurship. According to a Jane Doe “Tax incentives were very helpful in protecting start- ups in their early stages. It helped save a lot of money to help bring in new team members and maintain updates.”

However, there are still challenges that need to be addressed, such as the limited access to funding and the skills gap in certain areas. Further research could investigate the effectiveness of these policies and programs and identify areas for improvement.

98.4%

According to the world bank the ease of starting a business in Rwanda is at 94,8%, meaning that when applied for a business can be registered in lass then a week.

Research shows that bootstrapping. crowd funding, venture capitalism and angel funding are the most common types of fund generation for start-ups. Although the effectiveness of some of these funding types vary on the type of start-ups.

2023 | START-UP SUCCESS IN RWANDA.

Start-Ups

Government Policies

Funding

Funding Access to funding is one of the major challenges faced by startups in Rwanda. Despite the recent growth of the entrepreneurship ecosystem in the country, the availability of funding remains limited, especially for early-stage startups.

Popular funding methods in Rwanda

➡ Venture capital firms. ➡ RDB’s Rwanda innovation fund. ➡ Crowd funding (Gofundme & Global giving ➡ Angel Investors.)

Furthermore, the Rwandan economy keeps adapting to the rapidly rising number of start-ups it attracts. Although, research shows that start-ups in their late-stage have more access to funding and investment opportunities from the government and the private sector.

Moreover, these investments habits haven’t been very successful as most start-ups don’t make it past their 5th year.

Stages Of Funding Historically most start-ups lack access to early-stage financing from investors. Research shows that 83% of entrepreneurs don’t have access to the capital needed to start or maintain their businesses. Therefore before funding is commenced a start-up has to hire analysts to conduct the valuation. After valuation the following stages of funding come next: 2023 | START-UP SUCCESS IN RWANDA.

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

Pre-Seed Funding: This is the initial stage of funding for a startup when the company is just starting operations.

This usually comes from the founders themselves often bootstrapped as investors at this stage are unlikely to invest in exchange for equity.

Seed: It is the first money that a business raises. Seed funding helps grow the business when combined with enough revenue, a successful business strategy, and the perseverance and dedication of investors.

Series A Funding: Series A funding is typically the first significant round of investment in a startup, used to scale the business.

Stages Of Funding(CTD) Series B Funding: This is the second round of financing that a startup may receive from investors, typically used to expand operations and grow the business. This round usually takes place after a successful Series A round and is intended to help the company achieve specific milestones, such as developing new products or expanding into new markets.

Series C Funding: Series C funding is usually the last stage of VC financing. Businesses in this funding stage are doing well and require additional funding to help develop new products, expand into new markets, or even acquire other companies. However, some companies may conduct more funding rounds, Series D or E.

Start-Ups

Government Policies

Initial Public Offering: An Initial Public Offering (IPO) is the stage where a stable private company offers its shares to the public in order to raise funds from investors, providing a payday for founders and investors. Companies with a solid track record and in a hyped industry are best suited for this stage.

Access to funding Private companies such as Norrsken play a big role in providing access to funding for start-ups in Rwanda. The organization created an East African hub in Rwanda that currently houses over 120 companies, many of which are start-ups. They also help with spotlighting these companies using their various accelerator programs and venture capitalist operations. This programs assists the Rwandan development board in picking Suitable start-ups for investments. Although these start-ups generally fall in the venture- stage and later-stage leaving the early-stage start-ups out of consideration.

Funding

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

Funding instruments to explore in Rwanda.

The GreenTech Africa Foundation’s report, “The Better Africa: Tracing the Success and Failure of African Startups,” states that over 50% of failed African startups did not receive any external funding. Furthermore most start-ups can’t scale their markets because of the scarcity in funding opportunities.

➡ Get a debt funding and pay later ➡ Attract more owners through equity financing ➡ Security Grant ➡ Explore hybrid methods such as mezzanine funding and SAFEs

➡ Share your revenues with the funders via loyaltybased financing

Role Of Incubators Incubators, accelerators, and other support organizations play a vital role in fostering the development of start-ups in Rwanda. These organizations provide a range of services and resources to help entrepreneurs and start-ups overcome the challenges of starting and growing a business. Here are some key roles that these organizations play in supporting the development of start-ups in Rwanda:

2023 | START-UP SUCCESS IN RWANDA.

Start-Ups

Government Policies

Funding

Access to finance: Incubators and accelerators often provide access to funding and investment opportunities for start-ups. For example, the Rwandan government’s Business Development Fund (BDF) partners with incubators and accelerators to provide funding and other support services to start-ups.

Mentorship and training: Incubators and accelerators provide mentorship, training, and business development services to help entrepreneurs develop the skills and knowledge they need to start and grow a successful business. Many of these organizations also provide networking opportunities, access to industry experts, and other resources that can help start-ups succeed.

Access to resources: Incubators and accelerators provide access to office space, equipment, and other resources that start-ups need to operate and grow. Many of these organizations also provide access to legal and regulatory expertise, marketing and branding support, and other services that can be critical to the success of a start-up.

Effectiveness of Service of Support Organizations.

Rwanda has made significant progress in promoting entrepreneurship through incubators, accelerators, and other support programs. The government, in partnership with international organizations, has set up various incubators and accelerators to support startups in different sectors such as technology, agriculture, and energy. One of the most 2023 | START-UP SUCCESS IN RWANDA.

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

successful incubators in Rwanda is kLab, which provides a co-working space, mentorship, and networking opportunities for tech startups. Another accelerator program is the AECF Rwanda, which supports businesses in renewable energy and agriculture. The program provides seed funding, technical assistance, and networking opportunities to startups.

The Rwanda Development Board (RDB) has also introduced several initiatives to support entrepreneurship, such as the Business Development Fund, which provides affordable loans to entrepreneurs, and the YouthConnekt program, which aims to promote entrepreneurship among young people.

However, despite these efforts, some challenges still hinder the effectiveness of these programs, such as limited access to capital, lack of skilled human resources, and limited access to markets. Further more according to Dixon Moje “Start-ups may struggle even after completing incubation programs because support isn’t provided to most start-ups after the program”.

Influence On Entrepreneurs Cultural and social factors have a significant influence on the attitudes and behaviors of entrepreneurs in Rwanda.

Here are some examples:

Start-Ups

Government Policies

➡ Education and training ➡ Gender roles ➡ Perceptions of risk and failure ➡ Social networks and relationships These factors may vary depending on the specific socioeconomic factor each founder or entrepreneur is familiar with. For example; according to Stephen Ogweno “in Rwanda the job- market is evenly spread out across all genders. In terms of social networks and relationships, founders may struggle penetrating certain audiences they are not familiar with.”

Start-Up Failure Empirical evidence from various global studies indicates that a limited number of start-up companies are able to sustain their operations beyond the initial five-year mark. The case is not different in Rwanda, where a significant proportion of start-ups fail to survive past this period. During an interview with Stephen Ogweno, the founder of Lifesten Health Rwanda, he states that “a predominant challenge in the Rwandan start-up ecosystem to be the presence of a poor product/market fit.” The primary factors contributing to a poor product/market fit include: Poor market research. When a problem is identified, a lot of founders fail to do the proper research needed to make sure the solution (start-up) they create is essential.

Funding

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

Inadequate market research is a key contributor to poor product/market fit. Founders often fail to conduct comprehensive research to ensure their proposed solutions align with market needs.

According to Stephen “inadequate product testing before launch is a significant contributor to the failure of startups. Testing is crucial to identify and address product weaknesses before launch and ensure optimal product/ market fit.”

Start-Up Failure Moreover, numerous sources indicate that incubator programs may contribute to the failure of start-ups. Startups often rely on incubators for guidance during their initial months or years of operation. However, after this period, many start-ups struggle to sustain their business without the support of the incubation program. As a result, many start-ups fail and cease operations during this critical phase.

While this outcome is partly attributable to the incubator program, the start-ups also share responsibility for the failure.Alex Kalanda, an entrepreneur with nearly 15 years of experience in East Africa, has identified several factors that can lead to startup failure.

Limited duration of support: Incubator programs offer shortterm support, but start-ups may struggle without continued guidance after a few months or years. Although Alex mentions “it is also necessary to keep in mind that incubator programs have their own business models to follow”.

2023 | START-UP SUCCESS IN RWANDA.

Start-Ups

Government Policies

Funding

Restrictive policies: Incubator programs may have strict policies and requirements that limit the flexibility and creativity of start-ups. This can hinder the development of innovative solutions and limit the potential for success.

Lack of tailored support: Alex goes on to mention that “Incubator programs often provide a one-size-fits-all approach to supporting start-ups, which may not be tailored to the specific needs of each business.”

According to a Jane Doe who has accumulated several years of experience, has expressed that one of the reasons why start-up companies fail is by not utilizing every available human resource, which includes individuals with disabilities.

She says “people with mental and physical disability should be accounted for and diversity should be pushed in every work setting, company and organization.” Fellow founders Alex Kalanda and Stephen Ogwene agree with this perspective. During the interview with Alex he mentions that “ to grow as a business you need the addition of several people from marginalized groups to be spread evenly across all departments”. This is backed up by various research that shows how quickly company’s grow when diversity and inclusivity is encouraged.

Research indicates that by utilizing specific human resources, such as individuals with disabilities, companies may have a greater chance of acquiring and retaining high-quality staff and talents.

2023 | START-UP SUCCESS IN RWANDA.

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

In an interview with Dixon Moje, a seasoned professional with almost a decade of experience in the start-up space, he highlighted that many start-ups in Rwanda are failing due to the challenges present in the ecosystem. According to Moje, the ecosystem in Rwanda is not conducive to the growth and success of start-ups.

This could be attributed to various factors, such as limited access to funding, a shortage of skilled human resources, inadequate infrastructure, and limited support from the government and private sectors. “the ecosystem of funders and founders are within people that are actually rich or people with money this neglects people who don’t have access to certain audiences, people who are also looking for survival.”

Moje further elaborated that the lack of a supportive ecosystem makes it difficult for startups to survive and scale. Without access to funding, it becomes challenging for start-ups to invest in technology, marketing, and other key areas that are necessary for their growth. Overall, Moje’s insights suggest that the success of startups in Rwanda is closely tied to the ecosystem they operate in. In order to foster a more supportive ecosystem for start-ups, there needs to be increased investment in funding.

Start-Ups

Government Policies

Funding

Support Programs

Socio-Cultural Factors

Start-Up Failure

Data Sources

References

This white paper is the culmination of insights from various sources, including interviews with two health tech entrepreneurs, one climate change technology entrepreneur, and a staff member from an upcoming financial technology company. These experts provided valuable firsthand knowledge and experiences on the challenges and opportunities of starting and growing a business in their respective fields.

Adhanan, Ella Tamar. “What Are the Three Stages of a Startup? | Silicon Valley Bank.” Www.svb.com, 2022, www.svb.com/ startup-insights/startup-growth/what-are-the- three-stages-of-astartup#:~:text=There%20are%20three%20startup%20stages.

Grant, Mitchell. “What a Startup Is and What’s Involved in Getting One off the Ground.” Investopedia, 18 June 2022, www. investopedia.com/terms/s/startup.asp#:~:text=Investopedia%20 %2F%20Laura%20Po rter-.

Habumugisha, Olivier. “Funding Your Startup: 5 Instruments You Could Explore in Rwanda.” Digital Transformation Center Rwanda, 18 Aug. 2021, digicenter.rw/funding-your-startup- 5-instrumentsyou-could-explore-in-rwanda/. Accessed 14 Feb. 2023.

Ndagijimana, Joseph, et al. An Econometric Analysis of Business Start- Ups in Rwanda: Effects of Interest Rate Spread, Inflation, Exchange Rate and Taxation. 2016, ju.se/download/18.b50f808 1553242769960d6/1520578337223/EARP-EF%202016- 04%20 Ndagijmana.pdf. Accessed 11 Feb. 2023.

Norrsken. “Healthtech Hub Africa.” Www.norrsken.org, 2023, www. norrsken.org/hthubafrica#:~:text=The%20hub%2C%20located%20 at%20the. Accessed 12 Feb. 2023.

Razorpay. “All about Startup Funding: Types, Stages and Resources.”

Razorpay.com, 2022, razorpay.com/blog/business-banking/allabout-startup- funding/#:~:text=The%20popular%20sources%20 of%20startup. Accessed 12 Feb. 2023. Sevilla-Bernardo, Javier, et al. “Success Factors of Startups in Research Literature within the Entrepreneurial Ecosystem.” Administrative Sciences, vol. 12, no. 3, Aug. 2022, p. 102, https://doi.org/10.3390/admsci12030102.

Singh, Mona. “From Seed to Late: Startup Funding Stages Explained.”

Inc42 Media, 17 July 2022, inc42.com/resources/from-seed-to-latestartup-funding-stages-explained/. Accessed 13 Feb. 2023.

Tateossian, Terry. “Council Post: 4 Factors That Can Affect Startup Success.” Forbes, 11 Nov. 2022, www.forbes.com/sites/ forbesagencycouncil/2022/11/11/4-factors-that-can-affect- startupsuccess/?sh=59c3bbaf6e48. Accessed 11 Feb. 2023.

VaziLegal. “6 Stages in Startup Financing and Fundraising - Vazi Legal.” Vazilegal.com, 5 July 2022, vazilegal.com/stages-in-startupfinancing/.

In addition to the primary sources, secondary information was also gathered from existing bodies of work in the same sectors. This includes academic research, industry reports, and news articles that provide a broader perspective on the current trends and issues facing these industries. By combining primary and secondary sources, this paper aims to provide a comprehensive overview of the challenges and opportunities facing entrepreneurs in health tech, climate change technology, and financial technology. The information gathered from these sources can be used to inform the development of effective strategies for startups in these fields and provide insights for policymakers, investors, and other stakeholders.

Data Sources

2023 | START-UP SUCCESS IN RWANDA.

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