Tech startups take lion’s share of Kenya’s Sh33bn venture capital

The funds raised by Kenyan start-ups went up Sh11.4 billion ($100.6 million) last year, making the country one of the hottest investment destinations in Africa, particularly for tech-based enterprises.

 Local start-ups raised Sh33.17 billion ($291.98 million in 2021 up from Sh21.74 billion ($191.4 million) in 2020, representing a 52.6 percent jump.

 Fintech led with most deals at 27 followed by e-commerce (13) as well as agri-tech, e-health, energy and logistics, which got six VC funding each

 A rise in investment was boosted by a growth in the number of start-ups, from 59 to 87, who raised seed funding between the period, representing a 47.46 percent growth.

 “In general, Kenya has been on the rise for the past years, with the amount of funding raised in the country spiking year-by-year,

 “In 2020, the amount raised by the country’s startups was the biggest total achieved by any country to date – beating Kenya’s own previous record, set only the year before in 2019,” the 2021 Disrupt Africa Tech Startups Funding report shows.

“In 2021, Kenya beat the record amount again, but so did other countries, the above three of which have shot ahead.”

 Out of Sh33.17 billion raised, Sh9.7 billion ($85 million) came from AI Company Gro Intelligence under Series B round and agri-tech venture Twiga Foods, which raised Sh5.7 billion (US$50 million) in Series C funding.

 “There were two standout rounds for Kenya in 2021, which seriously boosted the country’s total funds raised. These two companies accounted for 46.2 percent of Kenya’s annual funds,” the report shows.

 Kenya’s standout performance also arose after the number of firms raising more than Sh113.9 million (US$1 million) rose to 35 last year from 22 in the preceding year.

“This contributed to an average ticket size of Sh387.1 million ($3.4 million) per startup, up from Sh364.3 million ($3.2 million) in 2020, and up on the Sh375.7 million ($3.3 million) of 2019.”

 Despite this positive trend, Kenya remains a market skewed towards the earlier stages of funding, the report states.

 “Of the 48 rounds to name the stage of funding, 37.5 per cent was at the pre-seed level, and a further 41.7 per cent at seed stage. This echoes the fact that 60 percent of startups in Kenya raised below the million dollar mark.”

 Venture capital and private equity funds have found Kenya a rich ground for investing in startups in previously underserved and fast-growing sectors of the economy in the past decade.

 They are attracted by high returns – although risk is high – with family offices and finance institutions in the west providing them with capital.

 Such funds provide local startups and SMEs with the much-needed capital that they would otherwise struggle to get from formal financial institutions such as banks, while also providing technical expertise that the small firms need in order to grow their operations.

Fintech continues to attract more funding, coming in with the most deals last year.

 “Fintech was the third best funded sector, netting $62.1 million (Sh7.1 billion) (21.3 per cent of the total). Given the lack of any mega round in the fintech sector this year and that this sizeable amount was raised by 27 ventures combined, arguably fintech was ultimately the most popular space overall,” the report adds.

 “The energy sector contributed a further 10.7 percent of Kenya’s funds – $31.4 million (Sh3.6 billion). Other note-worthy sectors included e-commerce, where startups raised $9.8 million (Sh1.1 billion); transport startups bagged $6.2 million (Sh705.9 million); and logistics $5.2 (Sh592.02 million),” the report adds.

Positively, Kenya fares well when it comes to female co-founders, with 28 or 32.2 per cent of the year’s funded startups having at least one female co-founder, higher than the pan-African average.

 While 72.4 percent (63 companies in Kenya) have a local founder, 42.5 percent have at least one international founder.

 The report also indicates that 26 of Kenya’s funded ventures, representing 29.9 percent, have taken part in an accelerator at some point. In total, the funded startups employ 2,480 people.

 “Generally speaking, Kenya’s ecosystem is fairly well-spread – with some funding across all stages of the startup lifecycle, and startups funded across all sectors,

 “Kenya will continue to fare well and outperform its own records, although it may already have had its time in the spotlight as investors increasingly look to West and North Africa for new opportunities,” the report shows.

More than 560 African start-ups raised capital last year with a combined $2.15 billion (Sh244.1 billion), growing by 42.1 per cent from 397 in 2020.

 Kenya trailed Nigeria, Egypt, South Africa in the number of deals at $903.7 million (Sh102.7 billion), $445.8 million (Sh50.7 billion) and $336.4 million (Sh38.2 billion) respectively.

 Top investors on the continent are Launch Africa Ventures, Kepple Africa Ventures, Future Africa, Founders Factory Africa, among others.

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