Not the first time, there was some discussion this week about the lack of local capital, local private equity funding, and the disconnect between local entrepreneurs and venture capital.
This happened at the 3rd Annual East Africa Venture Capital Association (EAVCA) Private Equity Conference in East Africa in Nairobi this week.
Panelists discussing local capital investments in private equity. Only 0.02% of local pension funds under management is invested in PE pic.twitter.com/1mvj9SdaLO
— Eva Warigia (@eva_hawa) June 15, 2017
The EAVCA conference had several panels such as on fintech and another on getting local pensions to fund private equity and on to entrepreneurs. Elsewhere, there have been separate citations that whenever high numbers of African companies funded are mentioned, the list is topped by companies operating here but which have American or European founders
Some responses related to this from the summit:
- Europe and North America continue to lead as sources of funds raised for P/E investing in East Africa – EAVCA Survey (PDF)
- Kenyan pension funds investment into private equity grows from 0.02 to 0.15% following @FanisiCapital recent raise – EAVCA
- US founders in Kenya have broader foreign networks and that makes it easier to more access to capital
- Funders look for governance structures in local companies. Have that, and the chances of getting funding are better.
- Local funding is better: foreign firms are very indecisive, and getting more local investors would help local companies grow faster.
- Kenyan entrepreneurs raise capital but are quiet about it. That’s why Lions Den has a challenge finding entrepreneurs for their television show.
- Global uncertainty sees capital movement to domestic markets in this case money will flow back to Europe and another America.
- Kenya has published an amnesty for people to declare offshore wealth and repatriate this – and KRA expects $3 billion in the extra collections next year (It currently collects tax of about $14 billion) and this funding could be competition for local private equity funds
- It takes a longer time to put together local P/E funds. Many approvals steps, talks to many potential partners and in the time they were raising capital, the laws changed. Also, it takes longer to raise a $10 million fund, and that will not really make a big impact, as the costs of running it are heavy. So there is an opportunity for umbrella funds.
- Pension funds work by consensus – and one if one trustee decides he/she doesn’t like an asset class / or doesn’t understand risk, it’s a tough sell. That said, the Kenya Power Pension Fund has invested in private equity.
- Private equity sounds like a pyramid to some. Pension trustees are there for three-year terms and may not be able to assets P/E funds that have 10-year investment windows.
- Do fund managers talk badly about P/E funds, as they do not earn commissions from that asset class? The commissions go to P/E managers.
- There are East African high net worth individuals (HNWI) who can invest in P/E firms. But they want a controlling position, and, as they are focused on real/estate property, they want to see VC P/E returns that are comparable to real estate. Also, they may give you 5% of their investment, and they become the biggest problem.