Study shows investments to double in the next five years as investors race for deals
The entry of impact investors into the local deals scene has seen them compete for the limited number of viable startups with more traditional private equity firms
The findings of the report are based on 14 case studies of early stage SMEs and a poll of 16 representatives of financial and private equity firms.
The amount committed by impact investors into Kenyan enterprises is expected to double to Sh123 billion ($1.2 billion) within the next five years, a new study by US-based consultancy FR LLC and University of Virginia Business School shows.
The rise of social impact investors — who invest in firms or projects that will have a wider social impact such as high job creation — is opening up an additional funding stream for start-ups which have traditionally relied on private equity and venture capital funds for financing.
The study titled "The State of Social Impact Investing in Kenya" that was carried out over a nine-month period found that social impact investors have pumped in about Sh62 billion ($600 million) into Kenyan enterprises in the last decade although this is still less than a quarter of the $2.6 billion total raised by private equity firms over the period.
“Social impact capital is a growing investment flow in Kenya representing up to $600 million in shareholdings in over 200 companies in East Africa with an additional $650 million in the pipeline for investment,” the survey report reads.
“While previously investing in start-up and early stage growth companies, social impact investors are now competing for expansion deals of $3 million to $5 million.”
These investors are mainly pumping capital into renewable energy, healthcare, sanitation, ICT, financial services, ecotourism and consumer goods sectors.
The findings of the study were presented last week in Nairobi at a forum for senior SME executives, private equity investors, transaction advisers and representatives of development finance institutions.
The entry of impact investors into the local deals scene has seen them compete for the limited number of viable startups with more traditional private equity firms, which has had the effect of distorting the market by driving up valuations of potential targets.
