Kenya’s Start-Ups Secure Record Funding In Africa
The Entrepreneurial Spirit Has Been Growing Across Kenya’s Agri-Tech, E-Commerce, Fintech And Logistics Sub-Sectors.
The Entrepreneurial Spirit Has Been Growing Across Kenya’s Agri-Tech, E-Commerce, Fintech And Logistics Sub-Sectors. The growth has attracted large funding rounds from international venture capitalists (VCs) and institutions on solid and proven investments. Between 2015 and 2020, for example, investments in the country increased to Sh26 billion from Sh20.8 billion ($191.4 million), representing a 27.3 percent of the continent’s total investment. Nigeria came second with Sh16.3 billion followed by South Africa (Sh15.5 billion), Egypt (Sh15.4 billion), Ghana (Sh2.2 billion) and Morocco at Sh1.1 billion.
“This is the largest amount of funding ever achieved by a single country. The record was previously also held by Kenya, when in 2019 the country’s start-ups netted Sh16.2 billion ($149.2 million),” Disrupt Africa Tech Startups 2020 Funding report shows. The growth was driven by an increase in the number of start-ups that raised funding, which rose to 59 from 45, representing a 31.1 percent jump. Out of these, agri-tech company Twiga Foods and conservation venture Komaza recorded standout rounds, bagging Sh3.2 billion ($29.4 million) and Sh3.1 billion ($28 million), respectively.
Others were logistics start-up Sendy at Sh2.2 billion ($20 million), retail-tech solution Sokowatch raised Sh1.5 billion ($14 million), energy ventures SunCulture (Sh1.5 billion ($14 million), Angaza (Sh1.46 billion ($13.5 million), and Solarise Sh1.1 billion ($1 million). “This is only the fourth highest tally in terms of number of funded companies – with Nigeria, Egypt and South Africa all boasting more funded start-ups, albeit to a (substantially) lesser cash total,” the report notes. Since it was started in 2014, Twiga Foods has grown into one of Kenya’s successful start-ups.
The company was founded by former Coca-Cola employee Peter Njonjo and Grant Brooke. The duo stewardship has seen the company secure funding from international organisations, among other investors. For instance, last year, it secured a Sh3.2 billion ($30 million) from the International Finance Corporation (IFC) to support small and medium enterprises as well as expand to East and West Africa. It runs a mobile phone-based platform that sells bananas and other fresh produce from small-scale farmers to local vendors and markets.
Similarly, in 2020, Logistics firm Sendy, which operates an app linking delivery drivers with customers, raised Sh2 billion in funding from a group of institutional investors including Japanese conglomerate Toyota Tsusho Corporation (TTC) for expansion. Whereas only six funded ventures bagged over Sh1.1 billion ($1 million) dollar-plus rounds in 2015, this increased to 22 last year in the country.
“The number of start-ups raising over a million dollars has been on the rise for years in Kenya; and the size of these rounds is also fanning out – whereas in the early years even the highest rounds were in the Sh1.1-2.2 billion ($1-2 million) range, today large tickets span from Sh1.1 billion ($1 million) to Sh3.3 billion ($30 million), evidencing the increasing availability of growth funding.” Top investors in Africa include Future Africa, Orange Ventures, Musha Ventures, among others. While markets such as Nigeria and South Africa are fintech dominated, Kenya is dominated by diverse firms in energy and agri-tech.
The energy sector contributed Sh4.5 billion (21.4 percent) of Kenya’s total and agri-tech Sh3.9 billion (18.7 per cent of the total). “The remaining funds were split between the logistics space Sh2.97 billion (14.3 per cent), e-commerce Sh2.6 billion (12.4 per cent), and fintech Sh1.8 billion (8.5 per cent).” Overall, the number of funded start-ups by sectors are distributed into fintech (24.9 per cent), e-commerce and retail tech (13.9 percent), e-health (10.3 per cent) and logistics (7.3 percent). Least being marketing (1.5 percent), prop-tech (2.5 percent), artificial intelligence (AI) and internet of things (IoT) (2.5 per cent).
“Looking at funding figures for 2019, it seemed like fintech – long Africa’s most attractive destination for tech start-up funding – might be losing some of its allure. Though the number of funded ventures continued to rise, total investment had declined by almost 20 per cent from 2018,” the report adds. Despite the growth, budding entrepreneurs find it difficult to secure seed as well as other forms of early-stage funding in the country. This is because major rounds raised in the country go to companies with expat founders or CEOs. For example, out of the six stand-out deals, all went to companies with expat founders.
“The country certainly lacks the thriving local angel community apparent in Nigeria, for example. So while Kenya has the innovation and on-the-ground activity to keep producing success stories year by year, more needs to be done to promote local investment into local companies at all stages of the start-up life cycle.” An economic impact caused by the Covid-19 pandemic is already being felt amid fundraising delays as well as investment plans.
“Corporate budgets are in flux, development institutions may prioritise aid over investment, and signing up LPs to your latest African fund given the risks that are inherent with relatively early-stage investments in emerging market businesses, may yet prove much more challenging in 2021. It is this that could yet have a negative impact on investment, and startups must await nervously developments for 2021,” it notes.
This news was originally published at Business Daily Africa.