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Kenya: Startup Act welcomed, but funding still a pain-point

Kenya , 11 Nov 2020

The Startup Act 2020, gazetted in September, was met with excitement within the start-up community with the hope it could revive ‘the Silicon Savannah’. However, according to business and financial experts, more needs to be done to ensure inclusivity for these small companies and easier access to finance, both locally and internationally.

Nairobi-based financial expert CPA Beryl Terryl Nyajuoga says that the government should put more effort into understanding and providing local financing for these small businesses.

Nyajuoga said: “The biggest challenge that tech start-ups face is over-reliance on foreign funding. This type of funding has faced major backlash with majority of founders expressing the existence of funding bias skewed towards European or Caucasian led start-ups. Financing is a major part of business success. Promoting domestic patient capital investment will be a major boost to start ups.”

She added that other sources of capital, such diaspora remittance and pension funds, could be leveraged while encouraging the growth of local investors through incentives such as tax cuts. This will foster organic growth of angel investors who will eventually emerge as full time investors.

“Kenya is estimated to have approximately 1190 angel investors with investments valued at approximately US$3.7 million compared to traditional assets like real estate. The huge capital gap has been largely attributed to low historical returns on VC investments,” said Nyajuoga.

She added that the method of encouraging successful, old generation entrepreneurs to become angel Investors has been used in emerging start-up ecosystems like Brazil, India and Nigeria.

Pan-African legal firm Bowmans Law agrees. The company believes that apart from legislation, the government should be aware of the funding challenges that limit start-up growth locally.

“The Bill should not seek to deter foreign investment – unfortunately, Kenyan start-ups have not always been able to rely upon Kenyan investors and have often been forced to look elsewhere. If the aim of the government is to foster and encourage growth and innovation in Kenya, we would encourage the use of regulatory sandboxes in the first instance to see what works and what doesn’t and importantly to facilitate and encourage a conversation with the impacted stakeholders. Through these sandboxes key issues faced by start-ups will become more apparent and more easily addressed.”

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