The news came like a bolt from the blue late last month – Africa’s two most famous hubs were now one after the Lagos-based Co-Creation Hub (CcHub) acquired the Nairobi iHub.
Both hubs are centre points within their own ecosystems, formed within months of each other, with formidable brands and reputations. Launched in 2011, CcHub has built a community of over 14,000 people and incubated a portfolio of over 120 early-stage ventures, including LifeBank, Riby, BudgIT and WeCyclers. iHub, meanwhile, launched in 2010, and is home to internationally-recognised companies such as BRCK and Ushahidi, as well as startups likes Eneza Education, Taimba and Optimetriks.
But now, in 2019, they are acquirer and acquired, with iHub now part of CcHub’s pan-African stable, maintaining its own brand and local management but owned by a Nigerian counterpart and directed by chief executive officer (CEO) Bosun Tijani. How did it come to this, and what does the future hold for the new “African mega incubator”?
Back to the beginning
For all the similarities between CcHub and iHub, the two organisations came about in very different ways, which would impact the way they went on to develop their models.
Founded by Tijani and Femi Longe, CcHub started life as a for-profit and sought sustainability in a big way from the beginning. iHub, however, essentially sprung out of Ushahidi, the open source mapping startup founded by David Kobia, Erik Hersman, Judith Owigar and Ory Okolloh, and derived initial funding from the company. Omidyar Network and Hivos were other early backers.
Both hubs immediately gained deserved reputations for supporting local startups as the Nigerian and Kenyan startup scenes began booms that continue to this day, and their names became almost synonymous with their local ecosystems. Yet while CcHub ploughed ahead in its quest for sustainability, charging for workspace, backing dozens of startups through its incubation programme, and launching the Growth Capital Fund, iHub remained donor-funded.
Eventually, this became unsustainable. Though iHub has never released any financial information, and the major players are unwilling to go into detail, it is clear that by 2016 the hub was losing money and needed to change its ways to stay relevant, or even survive, in a world where co-working spaces and incubators were now very common.
Dr Bitange Ndemo, former permanent secretary in Kenya’s Ministry of Information and Communication, and a key player in iHub’s early years, told Disrupt Africa his understanding was that the hub was struggling financially by 2016.
“Their consultancy was not doing well,” he said.
Hersman corroborates this, saying iHub was running a profit until 2013 when he left operationally, but was “not quite break even, but close” between 2013 and 2016.
However close, changes were deemed necessary. Kamal Bhattacharya had worked at IBM for 17 years, most latterly at IBM Research – Africa, but by July 2016 he was looking for his next project. Persuaded to help out by Hersman, he joined iHub as interim CEO, with a brief to “repurpose” the organisation as a more commercial entity.
Speaking to Disrupt Africa, Bhattacharya does not deny that the financial situation was less than stellar, but says it was “not too bad”.
“There was always money, I wasn’t trying to save them from going broke. Sure it had some financial issues, but there was a lot of good will towards it and they attracted quite a lot of good deals,” he said.
“But if you want to get acquired you need to have a proper structure and some kind of philosophy. That is what I thought was lacking. In my time it was in no shape or form to be acquired.”
Acquisition 1.0, iHub 2.0
That, apparently, has changed, with much of the credit put down to the new strategy put in place by Bhattacharya, many aspects of which have since been implemented. To kick it all off, iHub needed investment. This was secured, but it didn’t come from who we were told it came from.
In a 2016 blog post, subsequently reported by Disrupt Africa, Hersman said the hub had raised funding in order to help it scale operations, tighten up its service offerings and reach sustainability. Declaring the “next chapter” for the space, Hersman said the investors were local players in the tech ecosystem, namely Dr Bitange Ndemo, Becky Wanjiku, Ken Mwenda and Miguel Granier.
This is not what actually came to pass, however.
“They kept on postponing while trying to get more investors. I was planning to invest US$10,000, which perhaps was too small,” Ndemo told Disrupt Africa.
Instead, iHub was actually acquired for the first time, by Granier, founder and managing director of the VC firm Invested Development, which since 2009 has invested in a host of African tech startups, including Hersman’s BRCK. Granier bought iHub outright, and pumped in some cash to help it repurpose itself according to Bhattacharya’s strategy. This meant “iHub 2.0”, with the hub moving to a new building, and spinning out its consulting business, among other things.
“We very quickly began investing in the team and scaling up operations by doubling the square footage in our move to Sentau Plaza. We dove in deep to understand which parts of the business made sense, and which parts we were struggling with. In 2017 and 2018 we tried several new business models while maintaining our core focus of community, innovation and research,” Granier told Disrupt Africa.
A brighter future, commercially
Some things touted at the time never happened – an investment fund, for example – but Bhattacharya, who eventually left iHub for Safaricom and has since started his own business, said the changes made the business more commercially viable in a more mature ecosystem.
“The model had been great when iHub started, it created a tremendous brand, it was very powerful,” he said. “But I looked at how the ecosystem was changing, the proliferation of co-working spaces, the change in demand. The ecosystem was more mature. We needed to think about what we were going to do at iHub rather than become a collector of programmes.”
This move to a commercial model was “huge”, said Bhattacharya.
“There was no free lunch anymore, you had to have receipts! That was the right decision,” he said.
But it was also unpopular with some, as co-working ceased to be free and iHub became more mindful of expenditure, and Granier has been subject of some criticism. Bhattacharya says this bad press is undeserved, however, as Granier actually saved the day.
“Opinions might divert here, because it is tricky when you mess with a big brand that has a lot of social value. But times change,” he said.
“In the state it was in, Miguel really saved it, from the perspective of what the financial situation was, and the morale of the whole place, by providing some stability and moving towards a more commercial model. We cleaned up a lot. We had to.”
These changes still did not make iHub profitable, however. Bhattacharya said losses were inevitable because of the decision to relocate, while Granier says it has a “very clear near-term path to profitability and has for sometime”.
“iHub has had financial ups and downs, like most young companies, but has continued to build very strong brand value,” he said.
An inevitable merger?
At the heart of all of this – and this is hardly a shock, since Granier’s Invested Development is a profit-seeking fund targeting exits – was a plan that iHub would become the subject of M&A interest as it fixed itself up financially. Bhattacharya said this was always a consideration.
“The question was how we could turn it around into something that could be ready for a merger. Even at that time [in 2016]there were thoughts about a merger,” he said.
Granier, however, said the idea emerged more gradually as the team analysed iHub and its space in the wider African tech ecosystem.
“Throughout the process we explored expansion and saw a real opportunity for consolidation. Africa has over 300 tech hubs and most are not sustainable. iHub has a tremendous brand, strong global partnerships, a massive community, and a solid reputation in and outside of Kenya. Starting in late 2018 we became convinced that the best path forward for tech hubs in Africa was for the bigs to consider consolidation,” he said.
While all this had been going on, CcHub – indisputably one of those “bigs” – had been busy, expanding its portfolio, taking startups on tour internationally in partnership with Google, and starting its African expansion by launching its Design Lab in Kigali. In 2018, the conversations that ultimately led to CcHub acquiring iHub began.
“The strength that CcHub brings in terms of management capacity and a model that really scales was clear from the very beginning. iHub could not find a better partner and I think the combination of iHub and CcHub will lead to more consolidation that will dramatically improve the business and impact that they can deliver,” said Granier.
Unwilling to disclose how much the deal was worth, Granier also refused to even say whether Invested Development had made a profit on the transaction, saying only that “our fund is performing well”.
“Like most investment funds we do take losses from time to time that are offset by gains from other investments. The advantage we have as a fund is a diverse portfolio,” he said.
Make of that what you will. CcHub CEO Tijani is also not disclosing the relevant information.
Huge pan-African opportunity
Bhattacharya said he hoped the deal represented more of a merger given the huge opportunities in the tech space.
“If you really think about it, this is kind of the best possible outcome. These two organisations coming together is a great thing for Africa and the startup community.If implemented the right way this is a huge opportunity. They can grow, there is South Africa, there is Ethiopia, and all sorts of other places. It should be a first step to something,” he said.
Granier thinks the acquisition is great for iHub, and the Kenyan tech ecosystem, which has experienced “some growing pains” over the past few years.
“iHub has kept its place as the destination for tech innovators and entrepreneurs to congregate in both good and bad times. Just look back at the blog and see how each major event that impacted our community, for terror attacks to prestigious luminaries visiting East Africa culminate with an event at the iHub. To heal, to learn, to be inspired and to share,” he said.
“iHub serves the community by being an ever-present beacon and that is why we are so excited about CcHub stepping in. They have the talent, model, and commitment to make sure that iHub will remain that beacon and ensure that it evolves to best reflect the needs of the community.”
The last word must go to Tijani, the new main man, who has already confirmed that CcHub’s Growth Capital fund will follow the hub itself in expanding across the continent. He said iHub will continue to play a crucial role as the community nexus point in Kenya, but there will be changes as it comes under its Nigerian counterpart’s umbrella.
“We are creating a strong alignment across all our three locations, partner hubs and organisations within and outside of Africa to broaden the overall CcHub goal of enabling technology innovation for economic prosperity. This will thus see us expand some of the work we do in corporate innovation, STEM education, governance and public health to Kenya and East Africa,” said Tijani.
The development of the wider African tech ecosystem, as opposed to just Nigeria’s, or just Kenya’s, is at the heart of the new entity.
“Our decision to acquire was driven by the need to create a robust platform that’s capable of attracting the best resources and partnerships to accelerate the application of technology and innovation for economic prosperity across Africa. We’d like to be able to improve the success rate of tech startups across the continent by being intentional about how we harness resources and know-how to support businesses to build and scale across the continent,” Tijani said.
This desire could see CcHub make more such acquisitions in the future.
“We’d like to accelerate our work with large corporates and government to apply technology within context to address some of the pressing business and social issues across Africa. This acquisition is a great addition to the CcHub family, especially following the launch of the Design Lab in Kigali earlier this year. We are open to strengthening CcHub as an organisation and as such open to opportunities that align with this objective,” he said.
So Africa’s new “mega incubator” could yet get bigger. For now, it is a case of “wait and see” in terms of what impact the CcHub-iHub combination could have across the continent’s tech ecosystem.