Climate Technology Program | In Brief No. 2 The Kenya Climate Innovation Center: How it Operates and Lessons for Clean Technology Incubation The Kenya Climate Innovation Center (KCIC) is a clean technology business incubation center established by the World Bank Group’s Climate Technology Program to support Kenya’s green enterprises. Launched in 2012, the KCIC was the first ever Climate Innovation Center (CIC) to be established under the program. This brief shares the KCIC’s operating model as it has evolved after four years of operations and reflects on the lessons for similar clean technology incubation centers that can be drawn from the KCIC experience. More on the Kenya CIC’s programs and results can be found at www.kenyacic.org or www.infodev.org/climate. from the United Kingdom’s Department for International Introduction Development (DFID) and the Danish International Development Agency (Danida), both committed supporters The Kenya Climate Innovation Center (KCIC), launched in of Kenya’s climate, energy, and private sector development Nairobi in September 2012, was the first Climate Innovation objectives. An initial grant of $4.5 million (all figures are in USD Center (CIC) to be established by the World Bank Group’s unless otherwise noted) was provided in 2012 by the World Climate Technology Program. CICs are locally owned and Bank to finance the KCIC’s establishment and first four years operated institutions that provide promising clean technology of operations. A second grant of $4.9 million was provided in entrepreneurs with the knowledge, capital, and access to 2015 to establish an early-stage financing facility, the Kenya markets required to launch and grow their businesses. The Climate Venture Facility (KCVF). Long term sustainability of network of CICs has grown to seven centers globally covering the CIC and the KCVF is predicated on the KCIC being able to the Caribbean, Ethiopia, Ghana, Morocco, South Africa, and tap diverse sources of funding ranging from fees-for-services, Vietnam and additional CICs are being planned. sponsorship, investment returns or public financing. The KCIC in 2016 is supporting more than 130 startup and early-stage Kenyan companies based on innovative Governance Arrangements technologies and business models in climate-related sectors, such as renewable energy, bioenergy, climate-smart With funding secured, the World Bank led a competitive agriculture, water, and low-carbon services. The KCIC has process to identify implementation partners. A consortium of become a recognized center for green growth in Kenya, ranked local and international organizations was selected, consisting at the top of the 2014 edition of the prestigious University of Strathmore University, Kenya Industrial Research and Business Incubators (UBI) Index and named “Most Promising Development Institute (KIRDI), the Global Village Energy Business Incubator” in Africa. Partnership (GVEP), and PricewaterhouseCoopers (PwC). These partners bring complementary strengths to the center, such This brief provides an overview of how the KCIC operates and as private sector advisory experience and clean technology extracts lessons from the KCIC model that could guide the expertise, allowing them to provide the range of organizational development of similar clean technology incubation centers in and technical competencies required to manage such a developing countries. complex technical organization. Background The center is physically housed at Strathmore University’s business school building in Nairobi, providing an appealing Planning and Funding space and location for entrepreneurs to meet. The day to day operations are overseen by a CEO and a management team Prior to launching the KCIC, the World Bank consulted over consisting of an Entrepreneurship and Innovation Manager, 120 local clean technology stakeholders about the design an Outreach and Partnerships Manager, and a Finance and of the center, including research and development (R&D) Administration Manager. The KCIC has 12 full-time staff organizations, universities, business incubators, industry, covering entrepreneurship and innovation, outreach and government, entrepreneurs, investors, non-governmental partnerships, monitoring and evaluation (M&E), research organizations, and bilateral donors. The eight-month and policy, communications and knowledge management, stakeholder engagement process, which analyzed current finance, procurement, and administration. The center plans innovation capacity and market gaps for 16 clean technology to more than double its staff to meet the growing needs of its sectors in Kenya, was critical for building local interest and entrepreneurs. ownership. The result was a locally tailored KCIC business plan fit for Kenya’s nascent but vibrant clean technology and The KCIC is registered as a company limited by guarantee with entrepreneurial context. an independent board. Originally, the consortium members sat on an Advisory Committee and provided guidance on strategy, Funding to establish the center was raised by the World Bank technology, policy, and implementation. After registration, In Brief No. 2|Page 2 the KCIC newly formed a Board of Directors that includes both clients and the KCIC sign a Letter of Agreement (LoA) that consortium and independent members. The KCVF is being outlines both parties’ commitment for collaboration. established as CIC Investment Ltd, a separate legal entity, with As of March 2016, 626 applications have been received and an independent board and investment committee (IC). The 132 have been accepted as clients. Among these, about 50 KCVF will be led by a Chief Investment Officer. The KCIC reports companies are currently actively engaged with the KCIC. See to the World Bank to ensure that the program objectives are Figure 2 to learn more about the KCIC portfolio. met in a timely and efficient manner, following the terms and conditions agreed between the World Bank and the donors. During the admissions process, a KCIC officer is assigned to Figure 1 lists the partners of the KCIC. the company. If the company is admitted, the officer originally assigned to evaluating the application stays with the company throughout the time it is supported by the KCIC. Upon Operating Model admission, a work plan is drawn up by the assigned officer The KCIC admits clients on a rolling basis. Interested and the client to outline the client’s needs and services to be companies submit a basic online form and KCIC’s admissions offered. This document is used by the KCIC officer to review evaluation committee (AEC) – composed of KCIC staff and the client’s achievements against targets on a monthly basis. sector experts – makes an initial determination of the Companies also have access to other officers knowledgeable in company’s (i) fit with the KCIC’s target sectors, (ii) technical a desired topic or field on an as-needed basis. and commercial feasibility, (iii) potential environmental and Throughout their time as clients, the KCIC provides each social impact, and (iv) commercial progress to date. Companies company with a range of group services open to all (e.g. clearing this first assessment then meet with the Innovation accounting trainings, business strategy sessions), as well as and Entrepreneurship Officer who discusses their business customized support (e.g. proof of concept grants, specific ideas and plans and conducts due diligence. Promising regulatory support). Depending on the types and costs of applicants are then presented to the AEC, which determines services sought out and availability of services providers, whether the company should be admitted to the KCIC. New Figure 1. Partners of the Kenya Climate Innovation Center Kenya Climate World Bank Consortium Partners: Strathmore, KIRDI, Venture Facility (KCVF) GVEP and PWC • Provided seed funding to Other • A separate legal entity establish the KCIC and • Sat on the KCIC Board and provided advisory services and mentoring. Partners with an independent board KCVF. and investment committee. • The KCIC is housed by • Include Adelphi, • Oversees the Strathmore University’s UNIDO, LTSI and OEA. implementation business school. of the center. Future Sponsors KCIC Providers of Specialist • The KCIC has raised • A company limited by Services funds from other donors guarantee with an independent • The KCIC outsources and will become financially board. services to and established independent of WB funding. • Staff comprised of direct employees and non-remunerative collaborations secondees from consortium partners. with them. In Brief No. 2|Page 3 Figure 2. KCIC Portfolio at a Glance* By Sector By Age of Business By Age of Entrepreneurs Sectors: Other 3% Agriculture: irrigation, fertilizers, organic Water 10+ years pesticides, livestock 18% 50+ years 20-29 years 13% Agriculture management 25% 22% 26% 6-10 1-2 years Bio Energy: cook stoves, years 13% 41% briquettes, biomass, Renewable 30-39 years Energy 26% 40-49 years 22% biofuel/biodiesel Bioenergy 31% Renewable Energy: 3-5 years 33% wind, solar, 28% hydroelectric, geothermal By Source of Innovation By Business Stage By No. of Employees Water: filters, purifiers, 20+ 10% 20+ 13% desalination units, water 11-20 8% bore equipment Commerciali Adapted existing 6-10 10% 11-20 21% -zation 44% Comerciali product 82% *Data is based on a -zation 75% 6-10 15% M&E survey conducted Testing in Feb. 2016 to collect 1-5 72% 28% 1-5 51% infomation on the KCIC clients at the point of R&D 15% entry and currently. Ideation 13% Testing 15% Reproduced existing Originated new product 15% At entry Currently At entry Currently product 3% the KCIC pays the cost of some of the services offered to the other clients. admitted clients. Some of these services are provided by the consortium partners that have relevant expertise to meet the needs of the KCIC clients. However, the KCIC frequently refers Client Services and Programs clients to external advisors and service providers when they Business Advisory have the most relevant and cost-effective offerings. The KCIC provides business and technical expertise and A company is able to remain a KCIC client as long as the mentorship to equip its clients with the skills and knowledge company is showing clear progress toward its business goals they need to turn technologies into viable businesses. The and commitment to the customized plan for services agreed range of business acceleration services, provided by both between the KCIC and the company. As the KCIC evolves in internal staff and external experts, include the following: 2016, it is seeking to establish more formal exit requirements • Business development: access to online toolkits for for clients to ensure that companies that are not making developing a business plan and review by the KCIC staff progress are not absorbing resources that could be used on In Brief No. 2|Page 4 • HR: designing organizational structures and recruiting new internal and external business and technical experts, before a staff funding decision is made by the KCIC’s investment committee. • Finance and legal: setting up accounting systems, taxation, PoC grants are given in tranches after successful completion compliance, and incorporation of set milestones. As of March 2016, 20 companies have been • Intellectual property rights (IPR): assessment of IPR and awarded a total of about $782,000 in PoC grants, 85% of patent applications which has been disbursed to the grantees after completion of • Operations: strategic advice on marketing and distribution milestones. • Product development and design: expert reviews of The KCIC also facilitates access to external funding, such as engineering design, testing of prototypes private venture capital, local banking institutions, awards, The KCIC is establishing a broader network of business and and grants. The KCIC supports its clients on preparing a technical mentors and professional service firms (accounting, pitch deck and a budget, as well as organizing matchmaking legal, marketing) that are based in Kenya in order to allow events between KCIC clients and potential investors. So far readily available access for KCIC clients. Recruitment of high over $8.1 million has been invested in KCIC clients by third quality mentors is a considerable challenge due to the limited parties, including the Africa Enterprise Challenge Fund, Spark number of individuals with deep and relevant experience in the local area, as well as the challenge of designing an incentive structure to retain and grow this pool of mentors. The voluntary system of mentoring that is used in developed Box 1. KCIC Removing Regulatory market incubators and accelerators with access to broad local Barriers for Client mentor pools does not easily translate to Nairobi, which has a Safi International is a KCIC client aiming to replace wood, limited number of high quality mentors. charcoal, and kerosene stoves with clean, safe, and affordable ethanol-powered cook stoves within the Kibera slum, one Enabling Environment of the largest slums in the world. The company’s patented burning technology utilizes low-grade ethanol, called The KCIC promotes development and improvement of the denatured alcohol, which is a byproduct of the alcohol market conditions for its clients’ products. In many cases, this production process. The KCIC supported Safi to lobby simply means the KCIC assists its clients with understanding the government to lower the taxation and excise duty of the implications of policies and regulations including denatured alcohol — which was set at the same rate as changes to both that occur on a regular basis. The KCIC has the alcohol used for beverage production — ­ so that it can also promoted changes in policy and regulations to remove be used for household fuel. After a series of meetings with impediments to more rapid clean technology penetration into the KCIC and the market. The direct interaction of the KCIC with its clients Safi, the Kenyan positions the KCIC to effectively engage with the government Revenue Authority on the day-to-day business challenges experienced by clean exempted the technology entrepreneurs. See Box 1 for an illustrative excise duty on example. denatured alcohol in December Access to Finance 2015, removing a The KCIC currently provides direct and indirect financial significant hurdle support to its clients. The KCIC provides select clients with a for Safi and other Proof-of-Concept (PoC) grant of up to $50,000. The company’s companies working application outlining the idea and the use of grant funding on ethanol-based is first reviewed by a PoC eligibility committee, consisting of biofuel businesses. In Brief No. 2|Page 5 International, Global Alliance for Clean Cookstoves, Nestle, intelligence to its clients, including market opportunities, Innovation Prize for Africa Awards, and others. In November sector trends, and pricing strategy for climate technologies. 2015, three KCIC clients working on solar pumps and Examples include bi-weekly bulletins and eAlerts for specific irrigation systems were chosen as winners of an agriculture clients when relevant news becomes available. innovation competition organized by the U.S. Agency for Partnerships have served to provide the KCIC with additional International Development (USAID). They were among 15 benefits. For example, the KCIC has an agreement with WIPO innovators selected from a pool of 871 applicants to receive for 300 hours of free training on intellectual property rights for up to $2 million in funding and acceleration support under KCIC entrepreneurs. the competition “Powering Agriculture: An Energy Grand Challenge for Development.” Access to Facilities Finally, the KCVF has been established to provide capital, along with high engagement management and technical The KCIC provides office and meeting space. While many of its assistance, to companies at conceptual, technology clients operate offsite, about 40 companies use the KCIC space prototyping or initial market testing phases to further validate as their main base of operation. The office facility is also used and develop their business models and prepare to scale. The for conferences and meeting space, including the monthly KCVF aims to invest on average $300,000 in each early-stage networking event called “Business Meets Innovation”, which clean technology investee in the form of equity, quasi equity, features inspiring speakers throughout the year. equity-like debt, or mezzanine instruments. The KCVF will also KCIC clients are also offered access to prototyping and testing provide management and technical assistance, as these early- facilities at KIRDI, the Kenya Agricultural Research Institute (KARI), stage companies require a a great deal of hands-on support to the University of Nairobi, and Strathmore University. One client, get on a trajectory to scale and commercial viability. for example, has used these laboratories to measure the calorific The KCIC clients will be a principal source of deal flow for the value of fuels to assess the efficiency of their products and to KCVF as they become more investment ready and seek their ensure adherence to industry standards. first found of investment capital. However, the KCVF will also See Figure 3 for some quotes from the KCIC CEO and clients. consider investments in companies that are not KCIC clients, consistent with the KCIC’s broader mission to support the clean technology ecosystem’s development in Kenya, as well Lessons for Clean Technology as the sustainability of the KCVF through investments returns. Incubators There are several aspects of the KCIC model that could provide Access to Information guidance to similar efforts. The KCIC organizes and participates in a number of events to promote visibility for the center and its clients. It has A strong model of public private partnership hosted conferences and competitions and partnered with The consortium model behind KCIC successfully brought organizations promoting entrepreneurship, innovation or together extensive local and international knowledge and green growth. Partners include 1776, L.A. Cleantech Incubator experiences from various sectors including the private (LACI), World Intellectual Property Organization (WIPO), and sector, universities, public R&D institutes, and civil society Climate Technology Centre & Network (CTCN). In addition, the organizations. The government of Kenya, which was consulted center promotes greater awareness of its clients’ products or throughout the process of establishing the center, is keenly services through online campaigns on Facebook, Twitter and aware of the KCIC and featured it in the National Climate YouTube, TV interviews, and press releases. Change Action Plan. The KCIC has leveraged this to effectively The KCIC also supports its clients by educating their clients on lobby the government and improve the enabling environment current market conditions. The KCIC regularly supplies market for local clean technology businesses, as demonstrated in lowered duties and taxes for biofuels and solar products. In Brief No. 2|Page 6 Figure 3. Quotes from the KCIC CEO & Clients Partnerships elevate quality of services and branding The KCIC uses partnerships to enhance business incubation service delivery. Extending beyond the consortium partners, “Climate change is also an opportunity, the KCIC has partnered with KARI, WIPO, ECLOF Kenya especially so for the private sector.“ (a microfinance organization), Nation Media Group, The – Edward Mungai, CEO of KCIC Next Big Thing, Industrial and Commercial Development Corporation, International Fund for Agricultural Development, Access2Innovation, Agri Pro, University of Nairobi, SANKALP “When you work with the CIC, you are Forum, and others to elevate visibility and leverage expertise respected more. You are accepted in the fields of energy, agribusiness, water, and finance. better.“ Furthermore, the KCIC is part of the World Bank’s global CIC – Amos Nguru, CEO of Afrisol Energy Network that connects incubators and entrepreneurs in the climate technology space in developing markets with clean technology resources globally. “CIC has provided us with funds to buy the cans and the packaging machine … Looking Forward Everything is possible. It’s just a question of Over the first four years of its operations, the KCIC has trying.” – Keek Onyokie Slaughterhouse successfully built a strong management team, recruited a significant number of clients, and partnered with a diverse group of organizations. These achievements have put the KCIC “What they (the KCIC) gave us today was on the path to achieve its mission to provide a country-driven an idea of how the bank thinks … so that approach to accelerate the development, deployment, and you can present your products properly transfer of locally relevant clean technologies. and actually get an investor interested in what you have to offer.“ The longer term outcomes of the KCIC efforts are still being – Mshila Sio, CEO of AguaKenya understood. Clean technology businesses are challenging in that they require high upfront capital costs and long pathways Source: http://www.infodev.org/videos to profitability. The KCIC and the World Bank’s CTP are using a rigorous M&E program to monitor the KCIC’s performance over time. It will measure achievement of the center’s intermediate Comprehensive approach to business incubation results and assess impacts to determine whether the center services and access to finance is achieving its overall objectives using data drawn from the CIC staff, clients, and service providers, as well as comparing The KCIC provides grants to select clients, and the KCVF observed outcomes with a counterfactual to estimate what aims to provide early-stage capital and assist the investees would have happened if the project had not been undertaken. with management and technical assistance. The KCIC has These results will shed light on both the overall performance also supported a select group of its clients to prepare for of the KCIC and provide a collection of stories of success, and launch a crowdfunding campaign. The combination of challenges, and shortcomings in the years ahead. providing both business incubation support and investment capital is unique compared to other Kenyan incubators, though The success of the KCIC will lie with its success as a platform to increasingly utilized by more successful incubators globally. It catalyze the development of the clean technology market and is too early to tell how successful this approach will ultimately industries in Kenya, but also ultimately with the success of the be; however, the unique design holds promise for meeting the KCIC client companies in bringing profitable, scalable, climate full range of needs of clean technology businesses. friendly solutions to market. In Brief No. 2|Page 7 Climate Technology Program In Brief About Us The Climate Technology Program (CTP) In Brief series is a publication of the World Bank Group’s Trade and Competitiveness (T&C) Global Practice and infoDev. infoDev’s CTP is managed by the Innovation and Entrepreneurship Unit of T&C. CTP focuses on the growing opportunities of the clean technology sector in developing countries. Through a global network of seven Climate Innovation Centers, the program provides local entrepreneurs with the knowledge and resources they need to launch and scale their innovative business solutions to climate change. CTP In Brief is a series of knowledge briefs highlighting important aspects of the CTP global and in-country operations and research. Learn more at www.infoDev.org/climate. © 2016 The World Bank Group Acknowledgements 1818 H Street NW This brief was prepared by Jin Lee with contributions from Michael Washington, DC 20433 Ehst, Xue Zheng, and Martin Theuri. More on the Kenya CIC’s programs and results can be found at www.kenyacic.org or www. Website: www.infodev.org infodev.org/climate. Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG