An SME finance expert forum sponsored by the Dutch Good Growth Fund (DGGF), Aspen Network of Development Entrepreneurs, EAVCA and the Ministry of Affairs of the Netherlands was held at the Villa Rosa Kempinski earlier this month. The event featured experts and professionals from the entrepreneurial finance ecosystem in Kenya including investment funds, capacity growth players like finance consultants, government players, donors, NGO’s and entrepreneurs. The session facilitated by Ben White of VC4Africa began with a presentation by Stefanie Bauer from Intellecap presenting a snapshot of ongoing research the firm is doing on SME financing in East Africa.

The Parallel and Network Entrepreneur

The presentation elaborated on how Kenya is a Launchpad for regional expansion within the SME finance space evidenced by the number of acquisitions. The presentation explained that Kenya has the highest credit gap in East Africa in the financing of micro and SME companies, with a bulging “missing middle” with 68% of the businesses relying on retained earnings for financing, and a low level of awareness and uptake of financial products. The research suggested that most SMEs may be the result of necessity entrepreneurs rather than growth entrepreneurs, speaking of the average entrepreneur being a Parallel and Network Entrepreneur running multiple businesses neither of which is extremely sizeable, with few systems and processes in place and the founder exerting significant control and ownership of the businesses. The presentation emphasised that there is a shortage of seed and long term capital ranging from US$ 50K through to US$ 500K, a shortage of long-term growth capital and a gap in high quality, affordable business support services. The forum concluded that finance is however not the only challenge SMEs are facing.

The forum then broke into 3 cohorts and I have the pleasure of attending a panel discussion led by Mr. White. The distinguished panel consisted of Stephen Gugu (Director at InVhestia Africa and Principal, ViKtoria Ventures), Mbwana Ally (Principal, Savannah Fund), Robert Yawe (Managing Director, KAY System Technologies) and Hilda Moraa (Founder, Weza Tele and Head of Enterprise Liquidity Solutions, AFB). Ben began the discussion by acknowledging the growing recognition of angel investing in Kenya and its role as a key component on SME finance. Mr. White then defined angel investing as very early stage in the maturity level of the firm, typically funding asks range from US$10K through to US$1M and the companies deploying disruptive business models. The panel elaborated the need for local-based business angels with contextual understanding and well-developed networks as key growth elements for the entrepreneurial ecosystem. Ben mentioned that there are presently 168,815 African dollar millionaires, and this number growing 53% to 257,519 by the year 2020.

Someone Who Believes in You

Hilda Moraa, the brain behind Weza Tele, a disruptive financial technologies company that was recently acquired by AFB for a rumoured US$ 1.7M emphasised the importance of local-based angel investors, something she credits to the success of Weza Tele with their angel investor playing a big role in opening doors. In addition to this, Hilda mentioned the value of mentorship, that the greatest gift you can give to an entrepreneur, is believing in them.