Henri Nyakarundi is the founder of Rwanda-Headquartered ARED Group. ARED stands for African Renewable Energy Distributors. The company describes itself as a HaaS, a “Hard-tech as a Service”. It recently expanded to Uganda making it its second market.
Born in Kenya, Henri grew up in Burundi before moving to Atlanta, Georgia, in the U.S. in 1996. He graduated in 2007 with a computer science degree. But later moved back to Rwanda in 2013, as he says, “to develop a project that was really dear to me called ARED.”
ARED, a business in a box solar kiosk, "empowers mostly women and people with disabilities using a micro-franchise business model."
Both Henri and his company have attained many milestones in the recent past. From a CNN feature, winning energy innovation awards to raising funding.
I had a one-on-one with him and we discussed a couple of things. Ranging from scepticism surrounding grants to challenges facing innovators in Rwanda and Africa.
Challenges: Rwanda
There are many challenges affecting entrepreneurs across Africa. Yet, some are unique to a region or country. This is the case with Rwanda. “The problem in Rwanda is that access to funding is harder compared to Uganda & Kenya,” Henri pointed out
The Rwandan government has been very supportive of entrepreneurship in the recent past. But this hasn’t helped save the situation.
For example in May 2016, RDB, Rwanda Development Board announced the launch of its flagship project, Kigali Innovation City. It is also one of the key supporters of the country’s first Hub/Incubator, kLab.
Yet Henri thinks that “because we have a culture that is very government-driven” is the reason Rwanda is still lagging behind.
Government taking the lead implies the private sector has become “non-existent compared to other countries.”
The Rwandan government is doing what many across Africa have always wanted theirs to do. Yet, that seems not enough to spark investment and growth the startups.
When you look at countries like Kenya and Nigeria, it has been the efforts of the private sector. The governments have only played catch up.
Henri says the way things are doesn’t encourage companies moving on beyond the startup stage. “You find startups staying startups for years and years,” he says. “Because there is no way for them to grow like access to funding. The market is also a small one.”
Challenges: Africa
Technology and startups are a new concept in the African sphere. Which means a lot of catch-ups must be done to ensure those looking to reap from the area as their peers in the west did. But, this comes with a lot of challenges.
According to Henri, “we still have a big problem of valuation of companies.”
This is on two fronts; The first being automatic under-valuation by investors basing on your location.
“If you do a fintech in Africa and register in Africa while another person registers in the [United] States [of America], the valuation is different,” he says. “Even though you guys do the same thing.”
Second, the people starting up technology companies do not understand valuation.
“Even young companies do not know how to value themselves. So they lower their valuation to nothing because they do not understand how technology companies get valued. Technology companies don't get valued the same as a traditional business. But those things we don't know. More so the young guys,” Henri says.
Grants: Their role in African entrepreneurship
East Africa is a hotbed for impact investment capital in Africa, and Nairobi is the capital.
“In total, 186 impact capital vehicles are active across East Africa, managed by 107 fund managers and 28 other impact asset managers including foundations, family offices, banks, and angel networks,” according to a 2014 report by AVCA. The African Venture Capital and Private Equity Association. “ In addition, 20 DFIs are active in the region.”
The report also says that “since inception, DFI investors active in the region today have publicly recorded more than USD 7.8 billion across over 410 direct investments, while non-DFI impact investors have disbursed nearly USD 1.4 billion through more than 550 deals.
This has led “grantpreneurs”; Entrepreneurs who finance their businesses through grants.
Last year, while speaking at the Accelerating Africa 2.0, EchoVC founder Eghosa Omoigui said that “such founders excel at the art of acquiring grants, but not at necessarily building a business from them.” Henri differs in opinion. Saying that “you can't do research and development without grants."
“That's why if you look at China, Asia, Europe and America, they spend billions and billions of dollars on grants. Why? Because they understand that to stay ahead of the game, they need to keep developing new technology.”
Adding that the value of grants won’t be realized now because “new technology has value in the long term.” Plus, technology financed by grants takes long. This makes it unattractive for other forms of capital financing. Hence the grants. “You can not produce new technology on a loan for example,” Henri says.
[caption id="attachment_3885" align="aligncenter" width="1024"]
One of the versions of ARED's Solar-Powered Mobile Kiosks[/caption]
But even when it comes to grants, the majority - if not all - of the funds have come from the West and Asia. African governments and organizations haven’t participated as much.
Henri thinks this is “the reason why Africa has very low technology development”. The reasons, he says, is that “we don't fund R&D.”
“We expect people to get in business and have a product ready. That's why you see that we import technology. Everything you see in Africa is imported. We don't develop almost anything.”
Around 8 years ago, there was a scandal in Uganda about the misuse of Global Fund. The funds were meant to Fight AIDS, Tuberculosis and Malaria. Such occurrences aren’t rare, especially in grant money funded projects.
Although none is publicly known amongst entrepreneurs, many fear it may be taken as free money. Hence not spark the efforts as one would if they raised it from Angel investors or VCs.
Henri’s ARED has been a big beneficiary of grant and awards money. As well as social impact investment capital. But he also admits that many that receive such category of money might not use it as effectively as they could otherwise.
“Of course people view grants as free money,” Henri admits. Though he advises that “if you're smart, you gonna use that money smart[very well].”
To him, “it is like anything else” and “if you use it dumbly, you not gonna make it too far.” Pointing out that “without grants, I wouldn't be talking to you.”
“I would say 80% of our technology was developed through grants and competitions. That's about $1M.”
Henri has an obsession with grants. To the extent that you may not realize that he has received investment before outside grants.
But he says it is because he wants to promote African technology. “That's really my goal,” Henri says.
“Besides having a company, I am trying to push the youths to develop African technology. Because we can not have a sustainable development economically if we do not own our technology. There's a reason why America and Asia are the top economies. That's because they export technology.”
In the past decades, China rose to become a manufacturing and technology powerhouse. Overtaking Europe and Japan to now rivalling the United States. But, that came with proactiveness.
CNN Money wrote: “As China has raced to become a hi-tech manufacturing powerhouse, it stands accused by the U.S. government, industry groups and think tanks of trying to take a shortcut by spying, hacking or forcing companies to hand over their intellectual property.”
“China understood that quickly,” Henri says. “When it was rising, one of the things they did was so smart. Any company that used to come to them, the number one rule was that if they wanna open shop in China, they had to share the technology with the Chinese. We don't do that [in Africa].”
Investment
ARED was founded in 2013. Initially, Henri funded the whole project. He says that he “was able to use the profit[s] I gained from my last business to research and develop the solar kiosk and fund two years of business operations.”
However, that has since changed. When I asked him about investment, he said they have so far used a mixture of grants and investor capital. “We have investors. We just don't talk about them,” Henri says. Village Capital is one of them. Though their “biggest investor is called GreenTec Capital.”
ARED was the second company Greentec capital invested in. The investment company has also invested in Uganda’s Wazi Vision giving it up to $800,0000 last October. Greentec and Village Capital invested $250,000 and $50,000 respectively. However, the company is still seeking to raise an additional $1.5 Million.
Product Development
“Hardware is hard. It's called hardware for a reason.” said prominent Silicon Valley VC, Marc Andreessen. The statement “hardware is hard” is not just a statement. It is a testament to the number of hardware startups that have faced their deaths in the most recent past.
However, it seems hardware is even harder for those in Africa. Because, as Henri confirmed, “there are no product development companies in Africa.” Though they tried to make some designs in Rwanda, “it didn't work out too well”.
Kenya is trying to, according to Henri, “but they're not there yet.” This implies that one has to look beyond the continent.
Countries like German, China or the U.S. are usually the first option. “You have to go to Europe or America or China to develop,” Henri says. Though he warns that “China is complex” because “the laws are not as protective as in Europe.”
Developing a product outside Africa is expensive. The main reason. “Manpower costs 10x more in Europe and the States than it does in Africa,” Henri says.
But again, in most cases, these grants come from European and American organizations and Foundations. They’d also want to create business for their home companies. “When you get grants from Europe and America, they make sure that you use their companies,” Henri warns.
Currently, ARED is using a German hardware company called Techsolute. They have been working with them, for now, two and a half years and Henri thinks it is “very good.”
Expansion
As mentioned earlier by Henri, one of the biggest challenges a company in Rwanda faces is the small market size.
Last year, ARED decided to expand to Uganda. Making it their second market. They started the process of registration and hiring from mid-2017 until the end of the year. Though fully started operations in January this year.
“So we registered our company in May,” Herni says. “Of course, we had to wait for licensing and all. We got the licence in November and brought our first kiosk in January. Now we are piloting. Our expansion is to use what the telecoms have been using for decades. We use an aggregator model. We licence your technology to local partners and share the revenue.”
The company plans to divide Uganda into five areas. Then after the pilot, they “shall start looking for area developers that will help us develop those areas.” The current estimate is that Uganda will have between 3000 to 5000 solar kiosks at full market potential.