In Kenya's innovation ecosystem, funding is one of the greatest hurdles. Hundreds of innovative start-ups fold up every other year, unable to get investors to scale up their businesses.
For Jonas Tesfu, a Norwegian with Eritrean roots, for all of those start-ups unable to grow, it is a chance foregone to solve real societal problems.
This has always troubled him and finally, he decided to do something about it by setting up a firm that finds suitable international investors for start-ups in the region.
He quit a successful career with Procter & Gamble (Nordics-Norway, Denmark) to set up Pangea Accelerator, an investment platform that plays the role of a matchmaker for firms in different stages of growth.
Mr Tesfu decided to headquarter the firm in Nairobi, overlooking other innovation start-up bright spots such as Rwanda, and Nigeria. Kenya, he says has a mature economy and advanced digital ecosystem.
“Before we started in Kenya, we went to Rwanda, Uganda, Tanzania, and Ethiopia to talk to start-ups, investors, and governments before choosing our base country of operations,” he says.
“We looked at Kenya being a leader in the innovation ecosystem, by far out-competing any other African country in the region,” the Norwegian says, adding that he did not settle for his country of birth Eritrea due to its repressive government regime and undeveloped digital economy.
Investment range
“Eritrea has like one percent internet penetration while Kenya’s is at 42 percent. We do not have M-Pesa in Ethiopia or Eritrea. I’ve always wanted to do something in Eritrea but the political regime does not allow it,” Mr Tesfu who has a Masters degree in Strategic Management from Lund University explains.
The company runs programmes such as Blue Economy that supports women and youth-owned, ocean-based enterprises. Their scale-up programme targets start-ups with difficulties accessing follow-up investments ranging between Sh60 million to Sh357 million ($0.5-$3 million), depending on their stages.
Pangea Accelerator eyes firms in fintech, health tech, logistics, agriculture, and renewable energy sectors. Mr Tesfu says many businesses have opportunities to receive grant funding or soft funding but this requires a lot of application and reporting, which is not necessarily fun work and their founder are not necessarily good at it.
“We have created a system where we do the whole process for them, from A to Z,” says Mr Tesfu, who is in his 30s.
So far the firm has supported about 200 start-ups in Kenya, chanelling about Sh952.4 million ($8 million)- in both direct and follow-up investments. The funding pipeline is never dry thanks to partnerships it has cultivated with Viktoria Ventures, IKEA Foundation, Katapult Accelerator, among others.
“We have a big selection of investors we work with and about 60 of them. Many of them are diaspora investors,” he says.
What does Pangea Accelerator consider when investing in start-ups? Some of the attributes include the founder's ambition to grow, size of the market, scalability, founder problem fit, impact and social, and environmental effect.
“We want to support entrepreneurs and businesses we see are contributing to improving society rather than those that just want to make money,” says Mr Tesfu.
Ownership stake
Each investment attracts an ownership stake, which depends on the negotiations.
“We take percentage ranging from about four to 10 percent in the startups that we invest in. Usually what we tell the businesses is that they need to provide us with an evaluation of what the business is worth based on numbers.”
“Some start-ups also want very active support like in sales, recruitment, development and so on, and then we can take a little bit higher stake if we are active supporters,” he adds.
One of the successful companies under its scale-up programme is WorkPay, which builds human resource and payroll solutions in Kenya, whose investment grew from Sh5.5 million ($50,000) (about two years ago) to Sh251.1 million ($2.3 million).
