Venture Capital Environment in Kenya

The venture capital (VC) environment in Kenya has potential. The technology market segment in Kenya has existed since the 1990’s and is the third biggest technology hub in Africa; behind only South Africa (1) and Egypt (2). Nairobi is Kenya’s main technological hub which is known as “Silicon Savannah.” However, in recent years technological hubs have sprung in other cities of Kenya - such as Mombasa, Kisumu, Voi, Eldoret, Nyeri and Machakos. All hubs support entrepreneurship in the technology sector, cultural sector, and innovative solutions sector. The decentralization of technological industries from the city of Nairobi as a hot spot could mean that the technology industry in Nairobi had become saturated. This is a favorable sign for the economy & the technological industry of Kenya because it is expanding growth through the country, creating more jobs and wealth. Local entrepreneur Ahmed Maawy, founder of SwahiliBox, aims to present the same opportunities in Mombasa that could be found in the city of Nairobi.

Who and what are the major catalysts for change?

Major catalysts for change are venture capital firms and private equity firms that are investing in Kenya. Private equity investors and fund managers include:

  • Acacia Fund Limited

  • Aureos Kenya Managers Limited

  • InvesteQ Capital Limited

  • Business Partners International Limited

  • Grofin East Africa

  • Acumen Fund

  • African Agricultural Capital

  • Miliki Ventures

  • Africa Invest Capital Partners

  • Fanisi Fund

These companies are all registered in the Capital Market Authority. Notable local investors include Transcentury Kenya and Centum Investments. If foreign organizations keep investing and creating more jobs for the Kenyan economy, venture capitalism in Kenya will grow. These firms invest in socio-economic problems, technology and information industries, environmental and human rights industries.

How does this affect the economy?

The key firms investing in Kenya have allowed new organizations to outsource outside the city of Nairobi, beginning their business in different cities. The technology sector contributes an estimated 8% of the country's gross domestic product (GDP). In the first quarter of 2017 Kenya’s internet speed was 14,958.20 Kilo Bites per second (KBps) the highest it has ever been. In 2015 the internet speed was 1,416.85 KBps an exponential increase of 955.73% in two years. In the first quarter of 2017 the United States and South Africa’s internet speed was 17235.62 KBps and 6595.6 KBps respectively. Kenya has already surpassed South Africa and is competing with the likes of the United States on internet speed. Over the past five years from 2013 to 2018 the disposable personal income increased 62.15%. Corporate tax rates in Kenya have not changed over the past five years and have stood flat at 30%. From 2013 to 2018 Kenya’s debt to GDP was 39.8% and increased to 57.1% respectively. The increase in government debt is due to Kenya’s increase in lending from China, Kenya is $534.1 billion Kenyan Shillings in debt with China ($5.3 billion USD). Unemployment rate has been decreasing at a slow pace. In 2013 unemployment rate stood at 11.8%, in 2018 unemployment rate stands at 11.5%, a decrease of 2.54%.

What is the future for venture capital in Kenya?

Statistics foreshadow the beginning of a lift off for venture capital in Kenya. Intellecap researched a poll in 2015 to understand entrepreneurship in Kenya, 68% of business leaders in Kenya admit that financial access is a struggle. And 40% of those entrepreneur’s self-finance their business. There is an increasing concern in Kenya; that most of the funds are given to foreigners. Kopo Kopo, BitPesa, M-Kopa, are all founded by American and British entrepreneurs. The success stories in Kenya need to increase. Kenyan entrepreneur Rodgers Muhadi founder of Paykind, was forced to travel to fundraise in the United States. Most of the venture capital firms are foreign operated, it is importance for venture capitalists to have a robust stock market to have an exit through the initial public offering. Kenya must foster a local technology stock market, more efficient tax structures and minimize labor rigidities to attract more venture capital.

Written by: Santiago Gonzalez Villalobos


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