Sterling Capital has reached a deal to acquire a 20 percent stake in emerging markets private equity (PE) firm, Afvest, for an undisclosed value.
The investment bank said in a statement that the deal with Afvest was in line with a strategy to position itself “alongside a growing number of private equity funds”, which invest in scalable early-stage businesses with potential to generate high returns.
Sterling, itself backed by New York-based equity fund Kuramo Capital, said there was an opportunity for funding business with capital requirements of less than Sh50 million.
“Many private equity funds manage over Sh10 billion and, therefore, have a bias to invest relatively large amounts of Sh500 million per transaction. This limits these private equity funds to relatively larger businesses that have more options than relatively smaller businesses,” the firm said in a statement Tuesday.
Afvest, backed by Kenyan professionals, largely focuses on technology-driven start-ups and early-stage enterprises with “significant scope to scale to new markets”.
“Your typical SME cannot absorb Sh500 million in capital that many private equity funds are looking to invest per transaction. Because of this, they tend to be overlooked by financiers, and as a result, often experience financial constraints which affect their scalability,” Mr Kenneth Ngaine, a founding shareholder and board member of Afvest said.
Founded in 2012, Afvest’s notable investments have been in solar firm Plexus Energy, San Francisco-based venture capital fund 500 Start-ups and mobile lender Micro Mobile.
The deal with Micro Mobile, however, turned sour in 2017 after the two disagreed over activation of a clause that was to convert Afvest’s debt to equity, leading to a protracted court battle.