Startup Bill 2020 and the opportunities for venture capitalists in Kenya

28 Oct 2020

Introduction

Kenya is experiencing a rapid growth in its entrepreneurial market and has been distinguished as among the leading hubs of startup businesses in Africa. This is largely owed to the technological advancement and enabling environment for local and international investors that exists in the country. Venture capitalists and private equity funds have played a critical role in the mushrooming of startups in Kenya by providing financial support and market services to them.

On 14th September, 2020, the Senate published the Startup Bill, 2020 (“the Bill”) on the Kenya Gazette. The Bill seeks to provide a legal framework for startups by facilitating the registration of startups and creating linkages for the startups to access capital from financial institutions and investors.

This Article highlights the key tenets of the Bill and the potential opportunities that are lined up for venture capitalists within the startups ecosystem.

Establishment of incubation programmes

The Bill proposes the establishment of incubation programmes at both national and county levels. Further, the Kenya National Innovation Agency (“the Agency”) working in conjunction with the counties are to put in place a national and county incubation policy framework for development of startups.

Local and international business incubators may enter into partnerships with national and county governments in order to provide for an expansive breeding ground for startups. This will be a great avenue for venture capitalists that are modelled on providing startup capital and the promotion of market strategies for innovators.

Registration of startups and eligibility requirements into an incubation programme

According to the Bill, the Agency is mandated to conduct registration of startups and to appoint a Registrar of Startups. The Registrar shall maintain a database for the registered startups and shall conduct reviews of the financial needs and investment support that startups require. Venture capitalists and private equity funds stand to greatly benefit from the availability of this data.

For an entity to be registered as a startup and for admission into an incubation programme the entity must be registered as either a company, partnership, limited liability partnership or a non-governmental organization. The entity must be headquartered in Kenya and be majorly owned by one or more citizens of Kenya. Notably, the Bill does not specifically cap the threshold for local shareholding, as the newly introduced National Information Communication and Technology Policy, 2020 which set the minimum local shareholding to thirty percent for the tech companies.

Certification of incubators

The Bill defines an incubator as an entity whose principal object is to support the birth and development of startups and innovations. In order to be certified as an incubator, the entity must include a list of investor companies within its structure and existence of collaboration with other investors. The certified incubator is mandated to create investment opportunities for the private sector and particularly venture capitalists.

Conclusion

It is thus evident that the Bill recognizes the fundamental inclusion of venture capital and private equity funds in the growth of startups and the importance of creating a favourable environment for their existence.

 

Author:

Esther Omulele
Managing Partner
MMC Asafo

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