Kiambu, Mombasa reap big as startups look beyond Nairobi

The study indicates that more than 1,000 startups in Kenya raised over Sh266 billion in funding over the past three years, with the fintech sector taking a third of the deals.

Nairobi still dominates the startup ecosystem in the country with 58 per cent of enterprises, followed by Kiambu and Mombasa with 18 per cent each.

"Kenya's startup ecosystem has come a long way in the last decade, with real growth beginning in 2016 and amplifying in 2020-2022," said Maitri Capital Managing Director Poonam Vora.

"The combination of a vibrant economy, Kenyans' willingness to try new solutions, resilience during difficult times like Covid-19, and a rapidly growing talent pool make it one of the most attractive on the continent, if not globally."

According to the study, just 11 per cent of startups that are over 10 years old have raised over Sh500 million in funding, with seven per cent having raised up to Sh50 million. The majority of the respondents indicated that raising funds was difficult, with debt emerging as the least favourable route for many startups.

"The Kenyan startup ecosystem has undoubtedly experienced exponential growth in the last few years," said Stella Muthuri from the UK-Government East Africa Research and Innovation Hub.

Systemic issues

"While this is a significant accomplishment, systemic issues continue to impede further progress in assisting entrepreneurs and solution providers to scale their products," she said.

"Access to financing is one of them, alongside an immature regulatory environment and a lack of coherence in approaches to supporting accelerators and hubs."

Equity financing ranked top among the routes that entrepreneurs have used to raise capital, followed by convertible equity, safe notes, grants and convertible debts.

"Debt as a standalone method of startup financing was low, at six per cent of the total," the report said.

"As repayable venture debt options have become more prevalent in the market in the past three years, their usage has been primarily for on-lending by most startups with fintech elements or investors with a strong impact lens which provides working capital loans that are uncollateralised."

Four in 10 startups in the survey were founded by women and half of the enterprises had more than 41 per cent of staff being female.