This panel was made up of Diana Gichaga (Founder & Managing partner of Private-Equity Support), Peter Fry (Director, Kua Ventures Limited), Mohamed Saeed (Investor Relations & Capital Raising Manager, Zoscales Partners) and was moderated by Oliver Crowley (Partner, Pinsent Masons).
The Half Year Venture Capital in Africa Report, 2022 by the African Private Equity and Venture Capital Association described Kenya as a top ten (10) investment destination by deal volume and value. Its dynamic and creative business environment, and its numerous promising startups that draw investors’ attention are some of the features that make Kenya stand out as a top PE/VC investment destination in Africa. Valuable insights have subsequently emerged from the various deals that have taken place on the factors that make an investment successful as well as the challenges that need to be overcome.
Each stage of the lifecycle of PE/VC investments presents opportunities and challenges that determine the overall success of investments. Kenya and the region experience unique success factors and barriers under each stage, which this panel shared perspectives on.
Need for proper documentation and record keeping by entrepreneurs.
Lack of documentation combined with unrealistic projections set by entrepreneurs, unwillingness to give capital and an unfavorable macro-economic environment were highlighted as some of the key barriers to PE/VC investment in Kenya. Proper recordkeeping and documentation significantly support investment decisions by investors. It enables investors to verify representations made by the entrepreneurs as accurate especially during the due diligence process. Diana argued that lack of documentation often translates to lack of preparedness by entrepreneurs which deters investors.
Relationship management and mutual understanding by both entrepreneurs and investors
Entrepreneurs need to set realistic expectations with investors which is crucial for building trust, managing risks, avoiding disappointment and generally maintaining credibility. Peter Fry observed that entrepreneurs need to manage relationships with investors whilst maintaining transparency and making investors aware of the aspects of their businesses that need investor support. By the same token, it is crucial for investors to understand entrepreneurs better by thinking through entrepreneurs’ lenses and understanding their businesses better.
Coupling of investment and exit strategies for successful deals.
A successful PE exit marks the success of an investment. The panel acknowledged that the region’s exit environment has not been without challenges, whilst highlighting that Africa’s initial public offers (IPOs) are scarce and therefore not suitable as an exit mechanism for PE investors. Mohamed attributed exit success to applying a multifaceted approach such as diversifying exit options, longevity in the assessment period and planning on the exit prior to acquisition. This, coupled with strong investment strategies contribute to successful exits. He gave an example of Zoscales’ ‘3c’ investment approach which entails
(a) concentration by having relatively few portfolio companies;
(b) control through obtaining an equity stake in the entrepreneur’s business; and
(c) champions by working with industry leaders.
