Highlights of The Startup Bill, 2022

The Startup Bill, 2022 seeks to establish incubation programmes for startups and basically foster the startup ecosystem in Kenya. Generally, incubation programmes seek to provide financial and technical support to help startups scale. According to the Startup Ecosystem Report published by Disrupt Africa, there are approximately 308 active startups in the technology ecosystem with the majority of them being financial technology (FinTech) entities with a representation of 30.2% of the total number of startups in the Kenyan Market. In order to promote innovation and ensure growth of startups, the Startup Bill, 2022 seeks to regulate the ecosystem to ensure that these objectives are met. Some of the notable provisions of the Bill are:

1. Establishment of Incubation Programmes

The Kenya National Innovation Agency which is established under the Science, Technology and Innovation Act is tasked together with county executive committee members consisting of the county executive member from each County responsible for matters relating to science, technology and innovation to develop a policy framework for the development of the business incubation sector and startup system and further establish incubation programmes They are also tasked with entering into partnerships with local and international business incubators for the promotion of startup growth in Kenya; establishment of certification and admission programmes of incubators; and promote development of business incubation programmes among other initiatives geared towards the growth of startups. In addition, the Agency and the Committee are also tasked with the development of guidelines and standards that will regulate the relationship between the incubator and the startups.

2. Registration and Admission of Startups into Incubation Programmes

The Kenya National Innovation Agency will be responsible for the registration of startups and which will be undertaken by a Registrar recruited by the Public Commission. Basically, the Bill establishes the office of the Registrar of startups who will be the custodian of the database of all registered startups. The Registrar is further tasked with the supervision of startups which are registered under the Bill and the issuance, renewal and cancellation of certificates of registration.

An entity will be eligible for registration as a startup if it meets the following criteria:

1. It is registered in Kenya as either a private limited company, a partnership, a limited liability partnership, or a non-governmental organization under the private limited company under the Non-Governmental Organizations Co-ordination Act;
2. Is newly registered or has been in existence for a period of not more than three years from the date of incorporation or registration with the exception of startups the biotechnology sector which shall be in operation for not more than five years;
3. Has a scalable business model or has in its objects the innovation, development, production or improvement and commercialisation of innovative products, processes or services;
4. Has its headquarters in Kenya;
5. Does not distribute profits;
6. Wholly owned by one or more citizens of Kenya;
7. Has at least fifteen percent the entity’s expenses attributed to R&D activities;
8. is a holder, depositary or licensee of a registered patent or the owner and author of a registered software

Entities which are as a result of a the split, reconstruction, merger or reconstitution of an existing business or holding and subsidiary of any existing business will not be eligible for registration.

Startups will be required to make submission into an incubation programme to the Agency where the incubation programme is managed by the Agency, the Ministry or any other entity on behalf of the National Government and to the county executive committee member where the incubation programme is managed by the county government. Where the above criteria is met and the requisite documentation is shared with either the Agency or the county executive committee member, the Registrar or the county executive committee member will issue the certificate of admission into the incubation programme.

3. Certification of Incubators

The Bill defined an incubator as a company, partnership, nongovernmental organization or limited liability partnership which offers support for the birth and development of start-ups, innovation, and related R&D processes.

Entities will be admitted as incubators where they meet the following criteria:

1. They registered in Kenya as either a private limited company, a partnership, a limited liability partnership, or a non-governmental organization under the private limited company under the Non-Governmental Organizations Co-ordination Act;
2. Has as one of the principal objects the delivery of services to support establishment and development of innovative startups;
3. Has in place facilities and adequate equipment for startup activities;
4. Is administered by persons with competence on business and innovation;
5. Collaborates with universities and other research institutions; and
6. Has experience in supporting innovative startups.

4. Startup Incentives

The Bill further proposes various incentives for startups. Some of the incentives are: the subdization of the formalization of startups; facilitation of the protection of intellectual property; fiscal and non-fiscal support and the provision of any other support to enable the development and growth of startups. The Bill also proposes the establishment of a credit guarantee scheme which is aimed at the provision of accessible financial support to startups and capacity building on financial and risk management of startups. Training and capacity building for startups is also provided under the Bill.

An Overview of the Startup Sector with the Passing of the Bill

With the passing of the bill, startups will have increased opportunities for scaling and reduce some of the risk that are associated with navigation of a new market place. For instance, the setting up of the credit guarantee scheme will help startups adequately deal with some of the financial risk that they face such as access to financing. The Bill will also stimulate the growth of the various sectors and offer innovative solutions offering solutions to some of the existing deficiencies in this markets as well as foster sustainable entrepreneurship.