Kenya’s Startup Stars

Correction appended: July 28, 2015

When Barack Obama visits Kenya in late July for the first time as U.S. President, he will be returning to a markedly different country from the one he last traveled to as a Senator.

Nine years ago, Kenya lacked the infrastructure for high-speed Internet. But in 2009 the country hooked into the global network of under­sea fiber-optic cables, bringing in some of the fastest and cheapest data transmission on the African continent. With unemployment then at 40%, many griped that what Kenya needed was jobs, not technology. But the impact proved to be transformative. Almost overnight, millions more Kenyans had access to the Internet, leading to a boom in innovation that firmly established the country as East Africa’s technology hub. “High unemployment plus fast Internet equals entrepreneurship,” says 31-year-old Nairobi resident Nivi Mukherjee. So confident was she in Kenya’s technological promise, she turned down an offer from Stanford Business School four years ago to plow the money she had planned to spend on tuition into a technology startup of her own, a digital education platform called eLimu, a riff on the Swahili word for learning.

Mukherjee got her start at iHub, a tech incubator founded in 2010 by Erik Hersman, an American entrepreneur who grew up in Kenya. Located on the top floor of an office building near downtown Nairobi, iHub is a gathering space for technology geeks, tinkerers, hackers and would-be entrepreneurs. Access is by subscription, based on a sliding scale—free for those willing to work when space is available, a set fee for others who want a permanent spot on one of the long tables that fill the room. iHub offers training seminars focused on developing business plans and courting investors, but the real draw is the creative crucible that comes from bringing together talented, driven Kenyans with ideas to develop. Mukherjee met her co-founder, Marie Githinji, while playing foosball on the table iHub installed in the space. The director of operations for iHub, Nekesa J. Were, estimates that in the five years since the incubator opened, some 120 companies, from solar-­electricity providers to e-health software developers, have gotten their start there. U.N. Secretary-­General Ban Ki-moon, Google’s Eric Schmidt and Yahoo’s Marissa Mayer have all visited what many call the unofficial headquarters of Kenya’s tech movement. Obama, whose father was Kenyan, has timed his visit to Nairobi in order to attend the annual Global Entrepreneurship Summit, a forum he helped launch in 2009 to bring together business owners, educators, policymakers and investors to support new businesses in developing regions. This will be the first time the summit takes place in sub-Saharan Africa, where some countries are seeing their economies boom.

A combination of factors, from a culture of entrepreneurial hustle to a relatively well-­educated, English-speaking population and Kenya’s position as the center of East Africa’s banking, medical and trading industries has turned Nairobi into one of sub-Saharan Africa’s premier startup hot spots, second only to South Africa in terms of investment. “It’s a bit of a gold rush in Kenya right now,” says Were. “There are a lot of untapped opportunities here, opportunities for people who want to start a business and for people that want to back one.” Infrastructure remains a problem, but with a 76% mobile-phone penetration rate, a growing middle class and a tech-savvy population, technology investors see Kenya as a promising investment. IBM, Google, Nokia and Huawei were all early adopters, basing their regional headquarters in Nairobi, which has become known as Silicon Savannah.

Open Capital Advisors, a Nairobi-based startup consulting firm, estimates that Kenyan startups have raised some $650 million in venture capital over the past five years—a drop in the ocean compared with the billions that circulate in Silicon Valley, but substantial in a region that is only just getting going. In Kenya, the measure of a successful startup is not the multibillion­dollar IPO, says Were. “My definition? A startup that not only provides local solutions for local problems, but one that can scale up to compete globally.” Here are some of the most innovative companies to emerge from this vibrant tech hub.

GreenChar produces environmentally friendly charcoal that also emits less harmful cooking smoke.

Tom Osborn grew up in a small village 350 km from Nairobi, the son of a sugar­cane farmer and a mother who stayed at home to look after her children. It was that rural upbringing that gave him the idea for GreenChar, an environmentally friendly and healthy alternative to charcoal cooking briquettes. Osborn’s mother prepared the family’s daily meals on scavenged wood, dried animal dung and locally produced charcoal. Those fuels take a toll on the environment and they are also a health hazard; long-term exposure to cooking smoke is one of the leading causes of death in the developing world. Sixty-eight percent of the ­Kenyan population­—and 57% of Africans continent­-wide—relies on the same fuels because cooking gas and electricity are either unavailable or too expensive. In 2011 a doctor diagnosed Osborn’s mother with a serious respiratory-tract infection. He attributed it in part to her lifelong exposure to kitchen smoke. Osborn, 15 at the time, was devastated. “I felt really guilty. I felt like I was part of the problem because she had been cooking for me, and it was poisoning her,” he says. He also realized that she was not alone—millions of other Kenyans were suffering from the same problem. So he decided to do something about it.

Osborn drafted two high school friends to help him craft a kiln out of old oil drums that could turn sugarcane husks into charcoal, a process based on a research project conducted by a graduate student at MIT that Osborn found on the web. The friends entered their invention in a school science fair in 2013. They came first and spent the $1,000 prize on refining their product. For weeks, says Osborn, “we were covered head to toe in black dust, but it was worth it.” Not only did their charcoal emit 90% less smoke than charcoal derived from wood, but it was also 60% more efficient. Osborn, 20, Ian Oluoch, 19, and Brian Kirotich, 20, called their product GreenChar and started selling the briquettes in Osborn’s hometown of Awendo.

Although Osborn, now GreenChar’s CEO, set out to make a healthier fuel alternative, he soon realized that consumers didn’t care about the environmental or health aspects as much as price. So he sells the briquettes for less than the cost of traditional charcoal, something he can afford to do since his raw materials are essentially a waste product that sells for pennies per ton. As a result, demand is growing. GreenChar’s biggest obstacle now is meeting it. (Osborn expects the company to start turning a profit by the end of July.)

Echoing Green, a foundation established by the General Atlantic equity firm 28 years ago to build a new generation of environmentally responsible social entrepreneurs, offered Osborn a four-year, $80,000 fellowship to develop his idea further. He used part of the money to purchase land and built a kiln that can produce 1.2 tons an hour, enough briquettes to keep one family cooking for 600 days. For the moment, his factory is working at half capacity; distribution is his biggest challenge, and he is now focusing on how to get his product to consumers in remote areas, the ones who are most likely to need it.

SteamaCo provides electricity via micro-grids to communities that do not have access to Kenya’s national power supply.

To identify SteamaCo’s ideal client base, follow the power lines from any Kenyan city until they peter out, then keep going for a couple dozen kilometers. That’s where you’ll find communities like the southern Kenyan village of Entasopia, where the only source of electricity used to be a couple of noisy generators guzzling diesel that had to be hauled in by motorcycle. The generators are now silent. On a recent evening, even though the sun has set, the shops in the village market are brightly lit. Bars serve up chilled beer from humming refrigerators, and a makeshift movie theater does a brisk business selling seats for the nightly national newscast brought in via satellite. None of this was possible a year ago. “For the community, electricity is key. There was so much we couldn’t do without power,” says James Samayian, the owner of a makeshift library that sells Internet access and remains open at night. “Our children couldn’t even study.”

That all changed last year when Access: Energy, now known as SteamaCo, brought in two billboard-size solar panels, a bank of batteries and enough underground cabling to build a micro-grid for this village of 100 households. The panels generate 5.6 kilowatts per hour and 64 customers, many of them businesses, have 24-hour access to energy at a fraction of the cost of running a generator. SteamaCo’s power is twice the price of mains power in an on-the-grid city like Nairobi, notes Samayian, but at an average cost of $23,000 per kilometer to extend an electrical line in sub-Saharan Africa, “it’s not likely that the government will ever bring the grid to Entasopia.”

SteamaCo has 23 similar sites across Tanzania, Uganda and Kenya. The five-year-old company, co-founded in Nairobi by Britons Sam Duby and Harrison Leaf, is registered in the U.K. but headquartered in Kenya. Energy experts have long touted the idea of using micro-grids to help the 1.3 billion people in the world who don’t have access to energy, but what sets SteamaCo apart is the distribution, metering and payment technology. The hubs can be monitored remotely using SteamaCo’s proprietary “bitHarvester,” an iPod-size computer hooked into the hubs that tracks distribution, billing and power failures, and transmits the information to company headquarters via the mobile-phone data network. Customers sign up using their mobile phones; once a SteamaCo technician connects them physically to the grid, they prepay their usage via Kenya’s mobile-banking system, M-Pesa. Indeed, this is where the startup wants to go next. Field manager Joseph Nyagilo estimates that it will take 10 years to recoup SteamaCo’s $16,000 investment in the Entasopia hub at current usage rates, so the company wants to get out of the expensive power-­generation sector to focus on developing distribution software. The bitHarvester works for any kind of off-grid power generation, from remote mining operations that rely on diesel generators to helping hospitals in rural areas offset costs by selling excess power locally.

The company intends to raise $1 million in equity investment to expand across Africa. On a continent where 622 million people have no access to power, but 930 million are expected to have mobile phones by the end of the decade, SteamaCo is “all about bringing power to the people,” says Nyagilo.

JamboPay enables individuals and businesses to make payments online.

Kenya’s reputation for tech innovation predates even the country’s hookup in 2009 to the undersea high-speed Internet network. Two years earlier, ­mobile-phone operator Safaricom rolled out M-Pesa, the world’s first mobile-phone-based banking service. It enabled 7.4 million users to spend and save money without relying on banks, checking accounts or credit cards. But for young entrepreneur Danson Muchemi, 31, M-Pesa didn’t go far enough. He wanted to be able to pay his property taxes, his rent and his traffic fines on his phone. When he couldn’t even launch an e-commerce site because there was no way to process online payments in Kenya, he saw an ­opportunity. “It shouldn’t be painful to pay,” he says from his 12th-floor office in downtown Nairobi. He has just realized that unless he feeds the meter at his parking space two blocks away, he is likely to get a ticket. But instead of bolting out of his office and fumbling for the right change for the meter, he picks up his smartphone, gives it a few taps and waits for a chime. Using technology developed by his own company, JamboPay, he has just bought himself three more hours of parking.

Muchemi founded JamboPay six years ago with the intention of providing payment­-processing services for the country’s booming e-commerce industry. In doing so he has become the country’s leading online-payment gateway. Everything JamboPay makes—some $5 million in revenue a year—is plowed right back into the company, a strategy that means that JamboPay doesn’t need to look for outside investors until it wants. The company makes money in part by levying a fee, from 2% to 2.5%, on the more than $60 million in payments it processes every year from 1,500 corporate clients. The Nairobi municipal government also uses JamboPay. Business owners can log into the JamboPay system to see, and pay, bills for everything from license renewals to health permits.

JamboPay is already in Tanzania and has just launched in Uganda, and Muchemi says the company will be operating in 12 more African countries by the end of 2016. But he has his eyes set even farther afield: “There is no reason why we shouldn’t go to any other continent just because we started in Africa.”

Sanergy sells toilets that collect waste, which is then composted into fertilizer.

For the more than 2.4 million Kenyans living in slums with no sanitation services, sometimes their only bathroom option is what is locally known as the flying toilet. In other words, plastic bags that are used once, knotted up and thrown into ditches. The flying toilet is, obviously, a health hazard. But it is also, according to the Nairobi-based sanitation startup Sanergy, a missed economic opportunity. Humans produce about 300 g of waste per day, and that waste, if treated ­correctly, can be composted into ­fertilizer and sold at a profit.

Enter Sanergy’s Fresh Life toilet system, a bright blue, self-contained toilet pod that is designed to be deployed in areas with no access to sewage systems or running water. The pods, which look like molded concrete versions of PortaPottys, separate solid from liquid waste. The solid waste is stored in cartridges that can be easily changed when full. Instead of flushing, customers throw down a layer of sawdust to minimize odors and jumpstart the composting process. Operators keep the toilets clean and provide toilet paper, sawdust, soap and hand-washing facilities. Every day, Fresh Life staff collect the cartridges and transport them to a processing site on the outskirts of Nairobi where the waste is composted, over six months, into organic fertilizer. “Most sanitation solutions for the developing world are piecemeal. They provide toilets but don’t think about waste, or they do collection but don’t worry about treatment,” says Sanergy co-founder David Auerbach. “By taking a fully integrated approach, we can insure that the system solves the problem of sanitation in informal settlements from beginning to end.”

Auerbach, an American studying for his MBA at MIT, co-founded Sanergy in 2011, along with four fellow American students who were all taking a course on development and social entrepreneurism. “We knew there was a need for a better way [to deal with sewage in areas where there is no sanitation system]. We knew we had to make it work,” says Auerbach, as he navigates the muddy paths of Nairobi’s Mukuru slum to check in on one of the Fresh Life toilets.

In 2011, Sanergy won MIT’s annual $100K Entrepreneurship Competition for students submitting “business plans for new ventures showing significant business potential.” They used the money to develop a prototype. Soon after graduating, all five teammates traveled to Kenya with the prototype, and by November 2011 they had installed their first toilet. Based on the success of their pilot program, team Sanergy raised $5 million in venture capital and in grants from the Bill & Melinda Gates Foundation, among other development organizations.

Sanergy’s Fresh Life toilets operate on a franchise system. Local residents buy the toilets for $600, a price that covers installation, training and daily servicing by a waste-collection team. The operators charge 4¢ to 6¢ per use and keep all revenues, which can reach $1,600 per year for a toilet in a good location. So far, about 30,000 people use the toilets every day. Auerbach estimates that within two to three years the company will recoup the costs of the $1 million processing facility they opened on the outskirts of Nairobi in late 2014 and will start turning a profit.

For the Fresh Life franchisees, profitability can come sooner. Hannah Muthoni, a former vegetable seller and 57-year-old grandmother of five, bought her first Fresh Life toilet in 2012. It was so successful that she was able to buy a second one a month later. Flying toilets might be free, she says, but her customers are more than willing to pay for a service that is safe, clean and dignified. “If I can find a good place, I will build another,” she says.

Miliki Afya builds low-cost private medical clinics for working-class Kenyans.

On Aug. 7, 1998, Dr. Ernest Mureithi was visiting his father in his office in a glass-walled building that stood next to the U.S. embassy when terrorists attacked the American diplomatic mission, killing 224 people. Mureithi was badly wounded by glass shards blown inward by the force of the blast. Bleeding profusely, he was able to make it to the nearby hospital with the help of friends. There, he languished alongside hundreds of other victims in a grimy waiting room as Kenya’s over­burdened and underfunded public-health system struggled to deal with the crisis. Until, that is, a former colleague recognized him and whisked him upstairs to the plush private wing, where those who can afford top-quality care go. His good fortune may have saved his life—he believes he might have died if he had had to wait for treatment in the public hospital. That experience, he says, “changed how I think about medical care. It made me determined to do something to make a difference in the health of my country.” As Mureithi, 43, recovered, he thought back to his days as a medical student in India, when the country introduced initiatives hoping to expand access to good-quality health care at affordable prices. “I thought, ‘There is no reason why we can’t do that in Kenya.’”

Mureithi, whose clean-shaven head is latticed with scars caused by the cuts he suffered during the attack, estimates that only 3 million out of Kenya’s 45 million­-strong population have health insurance. Public hospitals, while free, still charge for medicine, supplies and administration fees, and the quality is often substandard. Those who don’t have money for a private hospital or the patience to wait for care at a public facility rely on the country’s poorly regulated pharmacies, where clerks with minimal medical training dispense medications. The practice has led to an epidemic of mis­diagnoses and inappropriate prescriptions that can damage a patient’s health. To reach that underserved population, Mureithi has pioneered a chain of carefully sanitized outpatient clinics staffed with doctors and stocked with a full range of diagnostic machines, from X-rays to ultrasounds, hematology labs, electro­cardiograms and dental chairs. He opened his first clinic in 2013; there are now three in the capital.

A consultation at one of Mureithi’s clinics, called Miliki Afya, or “National Health,” costs about $1. Diagnostic tests, treatments and prescriptions are billed separately but are still comparatively affordable­—the total cost of a clinic visit averages $10 to $20, for complaints ranging from toothaches that require root canals to the diagnosis and treatment of diseases like tuberculosis, diabetes and malaria. Mureithi’s target clients come from Kenya’s impoverished working class: the farmer, housekeeper or taxi driver who makes less than $4 per day. More affluent customers have started coming in as well, drawn by the clean, efficient and professional services. “At Miliki Afya, it’s about dignity,” he says. “We wanted to give a sense that even if you are not paying much, you are still getting the same experience that someone at a high-end hospital would get.”

Each clinic costs about $200,000 to set up and run for a year. Mureithi estimates that the clinics begin to turn a profit after a year, assuming they receive 40 customers per day. He paid for his first clinic by selling his house and investing the proceeds in the business. Acumen, an early impact investor that’s put more than $30 million into East African startups, helped in 2014 with an additional $400,000 for a 17% stake in the next two clinics. The Netherlands’ Interchurch Organization for ­Development Cooperation, which invests in socially responsible businesses in Africa, has invested in a fourth clinic that is due to open in the next 12 to 18 months. Additional funding from other investors means four more clinics should open in the same period. Mureithi’s goal is to raise enough investment to build a total of 100 clinics, one for each of Kenya’s major towns and cities. At that point, he says, he can start purchasing equipment and drugs at scale, driving down prices and enabling him to expand beyond Kenya. “It’s a simple concept: affordable medical care that promises dignity,” he says. “Who wouldn’t want that?”

As a growing number of Africans rise out of the poverty that for so long held back the continent, many will look to Kenya. With its entrepreneurs leading the way, the country is already showing just how a new Africa might emerge from the old.

Correction: The original version of this story misstated the type of toilets sold by Sanergy. They are not portable. The story also misstated hte number of Kenyans living in slums with no sanitation services. It is more than 2.4 million.