Venture capital fund targets start-ups

Start-ups and small businesses in East Africa stand to benefit from a new funding scheme launched by Fanisi Venture Capital Fund.

Targeted are those dealing with agribusiness, information communication and technology (ICT) retail, financial services, real estate and tourism, especially those shunned by other venture capital firms and private equity due to their sizes and high mortality rate.

The fund, which was formed last year by Amani Capital Limited, a Norwegian Investment Fund for Developing Countries (Norfund), expects to invest between Sh37.5 million ($0.5 million) and Sh225 million ($3 million) in new start-ups, early stage companies and businesses which have the potential to grow their top and bottom lines.

The investments, which may top $50 million, may take the form of growth capital infusion or buyouts of start ups and established businesses with a high growth potential in Kenya, Rwanda, Tanzania and Uganda.To finance these ventures Fanisi has received $7.5 million (Sh562 million) from the International Finance Corporation (IFC), the World Bank’s private lending arm.

“IFC’s support to Fanisi Venture Capital Fund a local and first time fund management platform is critical in enabling SMEs which are the missing middle to access capital for their growth projection” Mr Ayisi Makatiani, the chief executive of Fanisi Capital, the fund’s local investment advisor, said.

“Fanisi’s support for start-ups and SMEs will be crucial for the sustained development of the East African corridor,” said Jean Philippe Prosper, IFC’s Southern Africa region director.

The new funding from IFC comes at a time when venture and private equity firms in Africa are having a difficult time tapping capital at the international market due to the financial crisis.

“Attracting private investors has become particularly challenging as they are acting more cautiously, focusing their attention on the more developed emerging markets” said Jonny Gill a portfolio analyst at CDC of Britain.

The IFC injection is however seen as an added boost and a vote of confidence in the African economies by the international market.

CDC recently committed Sh78 million to two private equity funds manager, Helios Investors and Development Partners International (DPI).

“In 2010, interest from foreign investors is expected to grow but we expect investment levels to be lower than the peaks of 2007,” said Richard Laing, the CDC chief executive officer.

The new focus on Sub-Saharan Africa is due to its projected strong economic growth.

“Despite the global economic downturn, we continue to see long-term investment opportunities across Africa – particularly in sub-Saharan African countries where businesses suffer acutely from limited access to capital,” said Mr Laing.

The African Development Bank president Daniel Kaberuka recently indicated that the Sub-Saharan economies would experience growth of seven and above per cent due to global growing demand for commodities and a lesser impact from the global recession.

Like other venture capital and private equity firms, Fanisi targets to exit within three to five years.

IFC, a member of the World Bank Group, is actively involved in funding private business activities through mobilising capital and providing advisory and risk mitigation services.

“IFC funds have a time limit of eight to 12 years before exiting from a fund management program”, said Jamal Isa of IFC in Nairobi.