Kenyan Startups Stuck In A ‘Special Needs’ Corner Of Investment

By  |  July 13, 2023

When it comes to startup investment, our market most definitely counts as ‘special needs’. Globally, investors don’t like risks of any sort.

They don’t like any political protests, they don’t like gaps in legislative frameworks, or legal systems that aren’t underpinned by swift and reliable courts.

But our challenges go way further than that in drawing in funding for our young entrepreneurs.

At first base, we have an issue of size. In the investment journey that spans from seed capital to venture capital, our sums are so small, they almost cannot be handled.

Typically, funds that invest in startups consider below USD 100 K as tiny compared with the average size of seed funding worldwide of between USD 1 M and USD 2 M – which is just to fund product development.

But for the Kenyan hopeful that has found a way to make our bridges stronger, say, the case for over USD 1 M on product development is hard to find – enough to employ nearly 150 engineers for a year, which is more than a fifth of the scientific establishment size of the Kenya Agricultural and Livestock Research Organisation.

It doesn’t get any brighter further up the investment ladder, with the average venture capital deal running at nearly a billion shillings.

As we move to tiny and tinier, that leaves investors without the costs per business in setting up each investment, such as the salaries for the investor professionals in the days spent finding, analysing and creating an investment plan.

These just can’t be covered on a USD 10 K (KES 1.4 M) early investment. Like, USD 10 K investment, USD 20 K in administration charges?

This leaves most startup incubators and even the investors supported by philanthropists, as an aid project in entrepreneur support, rather than a market.

Then, there is the issue of finding promising businesses. Ironically, our investment marketplace, which so often talks about market linkages, is remarkably short of them.

Our few dozen business incubators and accelerators are all constantly searching for candidates to support with business know-how: so they provide a feedstock of a few hundred businesses a year to investors.

But Kenya has 1.5 million formal small businesses and over five million informal small businesses, making that few hundred into a pin-prick.

In reality, we can all forget about the few ‘lottery winners’ who get investors this way. The doors are closed for a land of rising businesses, and we stay stuck with hustle and struggle.

Yet social network venture Shujaaz estimated from 2019 research results that supporting two million startups would add Sh180 billion a year to the Kenyan economy and create a million jobs.

It isn’t clever to stay stuck in the special needs corner of a market built for other worlds: for us, we need an investment market built for Kenyans.

The author, Jenny Luesby, is a development communication specialist and Managing Director, Words on Africa.

Featured Image Credits: Kenyan Wallstreet

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