Nairobi and Lagos dominated the number of ventures, which participated in the survey at 59 and 98, respectively.
SMEs struggle to secure external funds with only 5.6 per cent of them getting loans from banks and 80.6 per cent relying on personal savings.
They are also keen on economic growth of the country the venture operates in, investment protection policies and political stability.
Entrepreneurs ought to invest heavily in “quality” managers to increase chances of attracting external funds for growth and expansion.
A survey by Venture Finance in Africa (VC4A), a networking organisation of business professionals in 159 countries, says return-hunting, African-focused venture capitalists interrogate the soundness of the founding team before making an investment decision.
The annual research, published this month, is based on data from 591 startups in 48 countries, including six non-African, and 111 Africa-focused investors from 40 nations around the world.
Nairobi and Lagos dominated the number of ventures, which participated in the survey at 59 and 98, respectively.
“The report shows entrepreneurs should focus on the quality of their management and team to increase their likelihood of success,” VC4A says.
“This also is a clear outcome of the investor survey, where the quality of the management team was identified as the most important factor for financiers when deciding in which companies to invest.”
Investors interviewed in the survey also listed financial performance of the startup and its market size as other key factors before sinking their cash in a company.
They are also keen on economic growth of the country the venture operates in, investment protection policies and political stability.
“At the same time, affinity with the market is seen as less important when compared on average. This can be interpreted as a growing opportunity for cross-border investing and an appetite for international syndications for group investment deals,” VC4A says.
“All other factors aside, the right team makes the difference and is the single most unique trait we see across the companies making commercial progress.”
About 2.2 million small-sized businesses were reported to have closed shop in five years through mid-2016 largely because of inadequate operating funds, according to data from the Kenya National Bureau of Statistics (KNBS).
SMEs struggle to secure external funds with only 5.6 per cent of them getting loans from banks and 80.6 per cent relying on personal savings.
Egypt leads the rest of Africa in attracting external capital with an average investment size of $624,100 (Sh64.82 million), the VC4A report indicates. It is followed by South Africa at $329,547 (Sh34.23 million) and Uganda ($, 106,860 or Sh11.10 million).
Kenya ranked fourth with an average investment size of $78,825 (Sh8.19 million). Other leading destinations are Nigeria ($73,357 or Sh7.62 million), Cameroon ($62,340 or Sh6.47 million) and Ghana ($31,532 or Sh3.27 million).
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