Many East African startups continue to raise funding/ Getty Images
NAIROBI, Kenya Mar 6- Early-stage venture capital (VC) investments recorded the fastest growth in new deals into East Africa last year, a new report has revealed.
Majority of these deals were in financial, agribusiness and ICT sectors which have recently offered high growth potential for both local and international investors.
According to an analysis by investment adviser I&M Burbidge Capital, early stage VC deals nearly doubled from 16 in 2020 to 29 last year.
This was contrary to the slowdown in deals involving later stage private equity reported over the same period, which dropped by three to 38.
During the review period, development finance institution (DFI) deals also dropped down from 16 to nine while mergers & acquisitions slowed down from 26 in 2020 to 17 last year.
“The region has witnessed a shift towards early-stage investments, with 29 VC transactions being recorded, with a total disclosed deal value of $56.28 million (up from $39.07 million in 2020) and median deal value of $2.30 million ($2.28 million in 2020),” said I&M Burbidge Capital in its 2021 annual financial review.
“The foreign-led merger and acquisition activity dampened due to the availability of cheaper cost of capital (including debt) in more developed nations, making it easier and more attractive to carry out M&A activity in the developed nations rather than the emerging ones.”
The investment advisor noted that while taking on more risk in case the businesses fail, Early-stage investors stand to make outsized returns if the start-up becomes a success and its value rises in due course.
Kenya accounts for the lion’s share of deals across various categories including private equity.
According to the firm, this has largely been driven by Nairobi’s position as the regional financial hub, good connectivity to other global capitals and a thriving SME sector which provides a steady pipeline of investment opportunities.
Last year, Kenya hosted 76 deals out of the total 110 deals recorded in the East African region, followed by Rwanda at 10, Uganda (9), Tanzania (8) and Ethiopia at seven.
This year, the corporate finance advisory firm expects private equity activity to remain robust, driven by demand for capital from local businesses seeking expansion, while mergers and acquisitions are likely to remain muted.
The investment advisor however noted that Kenya’s General Election slated for August could drive some capital to neighbouring countries, or force investors to look for deals earlier in the year before the polls.