WHITE PAPER
Written and compiled by Meyeneabasi Ekefre
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.
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
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.
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.
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.
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:
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.
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 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:
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
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:
➡ 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.”
