Kenya Companies Act 2015

This morning, a session was held by the law firm of  Anjarwalla & Khanna in Nairobi to advise stakeholders abount the new Companies Act and Insolvency Act that are now law. 

The Cabinet Secretary for Industrialisation, Adan Mohamed, said that the day when President Uhuru Kenyatta signed 4 bills into law - the companies act, insolvency act, special economic zones act and business registration act - was his proudest day in two years in the Cabinet.

Partners at the law firm explained various sections of the new companies act including: 

• It makes businesses easy to register and operate - and one person can form a company. 
• Memo (can be one page long) & articles are simpler 
• Role of the company secretary has been clarified. Corporate governance has been clarified with penalties for directors and management including for conflict of interest.
• 30% local shareholding in a foreign company. Adan said this was a mistake that the government would rectify. The team from Anjarwalla & Khanna said that while the 30% rule  is probably constitutional it's impractical, and the AG & government agree. They also explained that it is for new branches only - and does not apply to existing branches, or to any subsidiaries of foreign companies
• It gives minority shareholders court powers if main shareholder/management are prejudicial or make bad decisions / transactions on behalf of the company
• New company is able to do anything including borrow unless if it restricted
• PE Investor oversight: Investors can attend board meetings as observers  and  without being directors or  legally bound by decisions
• A company must have at least one natural person as a director (all companies have 6 months to rectify this)
• Companies can buy back shares from other shareholders
• Kshs. 6.75 million (~$67,500) is the minimum paid-up share capital for a public company (this will affect some land owning companies and large property developers)
• Public companies need to know who beneficially owns their shares (the true owners behind proxies)
• Companies are required to have websites and to publish financial statements online
• Share buy backs are now allowed. 
• All shareholders have rights to preemption when companies create new shares - (and this can only be from profits, not new money)
• MBO and LBO:'s banks could not finance acquisitions, but now they can. e.g. Management can to a  bank and use the assets of the company secure financing to buy it or pay off foreign outgoing shareholders - (this opens another exit opportunity for investors)

Adan also said that the insolvency law, which previously was aimed on recoveries for secured creditors, is now focused on bringing insolvent companies back to life.

Blogging in 2013

Top blog posts in 2013

1. Consumer Guide on Solar for Homes
2. Kenya Bank Rankings 2012 (Part I) 
3. Kenyan M&A
4. Private Equity Moment
5. Subway (Restaurants) to Kenya
6. Why Unit Trusts are better than Bank Savings Accounts
7. Chama Management 101  (a book review) 
8. Paypal in Kenya
9. Base Titanium aims to be a model for the Kenya mining sector
10 Buyouts, Vultures, Divestments

So lot's of interest in reading up merger and investment activity in Kenya this year, but, overall, the top posts visited were Safaricom/CBA launch M-Shwari and Who Created M-Pesa  both published in 2012.

New African ICT VC Fund

Last week, saw the launch of a new Convergence Partners Communications Infrastructure Fund (CPCIF) from Convergence Partners. It is a pan African fund that has raised $145 million (from the IFC, EIB, FMO, DBSA and CDC) that they are seeking to invest in companies in communications, fibre, infrastructure, data centres etc. in countries like Kenya , DRC, Rwanda, and Sudan.

The Fund will target established companies with sound management, that are aiming to improve products or quality, or add value to their services – to invest amounts of about of $20-30 million in exchange for stakes of 15-49% with a horizon of about 10 years.

Their past portfolio includes investments in Seacom, New Dawn (with Intelsat) and Internet Solutions (who are taking over at Access Kenya and they plan to open an an East African office soon. 

Separately, in a nice post, @Wanjiku asks if there’s a racial bias in ICT funding from venture capitalists in Africa. 

NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million.

At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market.

These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms  own 37% of the company’s debt.

The Essar fallout prompted Parliament  to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.

Since then, the government announced that a new office will advise the government on  state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.

  
EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing off all its shares. It had 18% in 2004 and 4% in 2012. - via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

Agri-Business:  The  acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.

Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.

Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)

Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.

Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.

The  acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).

The acquisition of Ma Cuisine by Harper Holdings.

Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).

  

The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%. 

EDIT GAZETTE NOTICE No.  15068 - THE TRANSFER OF BUSINESSES ACT


NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).


The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya.
The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya.

The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor.

Dated the 5th November, 2013.

KIPKENDA & COMPANY ADVOCATES,

Advocates for the Transferor.

COULSON HARNEY ADVOCATES

Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele holdings.

Africa Media Venture (AMVF)  a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for  Kshs17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  

Lonrho is selling it's entire stake (11%) in African airline Fastjet. 

Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange after Bralirwa and Bank of Kigali.

Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.

Across the border, Tanzania's Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%

Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of shares in Bullpak.

EDIT: Kestrel Capital has arranged a $1.2 million private placementof convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 

EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets,  made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private health care provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30%. and has received  an exemption from complying with the NSE requirement to make a take-over offer.

After listing at the NSE, I&M shareholders have done a swop to bring the company's investors numbers past the 1,000 shareholder mark.

  

The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP is the largest  advertising group in the world is strengthen its control of Kenya and the East African market ahead of the merger of the Omnicom the No 2 firm, Omnicom (owners of TBWA) and No 3 – Publicis (of France) advertising firms – which when combined will be larger than WPP.

De-Listing's – Companies leaving the NSE 

Access Kenya Group after their buyout by Dimension Data was approved by the Government

CMC  at the conclusion of a  buyout offer from Dubai’s Al-Futtaim Group  who have offering Kshs 13  a share, or about $90m. 

The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.

R.E.A. Trading, which owns 56%  of Rea Vipingo Plantations has offered to buy out all other shareholders at a prices of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by some shareholders challenges of family and reputation.

Private Equity Moment

Access Kenya directors have approved the sale of the company to Dimension Data and will now recommend that all other shareholders vote in favour of the deal at an shareholders EGM on August 20, 2013. The company will forward this circular to all the company's 28,000 shareholders and need to get a 75% vote approving the deal which will pay Kshs. 14 (~$0.16) per share and also de-list the company from the Nairobi Securities Exchange just six years after an IPO and listing.    

Elsewhere, the government has agreed to waive the requirement that local Kenyans have to own 20% of the company after the Dimension Data takeover.

 

Other Deals

Big Milk: According to the Standard, dairy giant Brookside has acquired a majority stake in rival Molo Milk - continuing a pattern of the company buying out it's rival's and consolidation in the milk processing sector.

Unfriendly Oil: Kenol Kobil is fighting off the takeover of a prime petrol station at Yaya area, Nairobi by a rival company - Hashi Energy. KenolKobil (management) claim an armed gang of 20 people raided the petrol station, kicked out its staff, and rebranded the outlet with the Hashi Energy logo.

Recent M&A deals approved by the Kenya Competition Authority include:

Automobiles

- The acquisition of DT Dobie Kenya (distributors of Jeep, Mercedes-Benz, Nissan, Renault, Chrysler) by Toyota Tsusho Corporation  - with a provision that implies that there will be some separation of brands above and below 1,800 cc.

- The acquisition of Cica Motors Kenya (distributors  of Hyundai Trucks and Greatwall brands) by Toyota Tsusho Corporation 

Banking, Insurance & Finance

The acquisition of Iroko Securities by Ecobank Development Corporation.

Health & Beauty

The acquisition of Laborex Kenya and Epdis Kenya by Toyota Tsusho Corporation.

Technology

- The acquisition of Comztek Holdings by Datatec in a South African deal valued at 88 million rand (Kshs 767 million)

- The purchase of all assets of Interest Africa by BSS Africa (Belgium Satellite Services)

KQ-KLM: The Competition Authority also exempted the joint venture agreement between Kenya Airways and KLM Royal Dutch Airline from the provisions of section 21 of the Competition Act which prohibits the abuse of a dominant position in the Kenyan market. 

Private Equity Moment

Following the January  post on M&A deals, here are some recent events. 

The Private Equity Confidence Survey was published by Africa Assets and Deloitte and it showed that, in 2012, private equity firms invested $1.13 billion towards 58 deals in Sub-Saharan Africa. This was a a slight decline from 2011, and that Kenya, Nigeria and South Africa accounted for 45% of the deals in 2012.  Also in the survey; 

- Despite the enormous hype surrounding Kenya’s growing IT sector, dubbed the “Silicon Savannah”, no IT or venture capital deals were reported in eastern Africa in 2012. This clearly reflects that both the IT sector and VC industry in eastern Africa, and indeed Africa more broadly, remain quite young and underdeveloped. Interestingly, IT-Tech deals were done in 2012 in South Africa, Ghana, Nigeria and the DRC.

-  One conference speaker on VC deal structuring said the problem is ‘Kenyan entrepreneurs believe they each have a fantastic proprietary idea, and they want lots of money up front to develop it, regardless of the lack of business model planning done by many of them. 

- The dominant exit route across Africa is a sale to a strategic investor..and most investors expect the average investment lifecycle to be between two to five years.

Recent M&A deals approved by the Kenya Competition Authority include:

Agri-Business & Food

- The acquisition by Almasi Beverages of Kisii Bottlers, Rift Valley Bottlers and Mount Kenya Bottlers 

- The acquisition of Lord Erroll Limited by Koita International Kenya.

- The acquisition of Ocean Agriculture (EA) by JH Verwiel.

- The acquisition of Siret Tea Company by Siret Outgrowers Empowerment & Produce Company. 

- The acquisition by the Rai Family of shares of Sukari Industries.

Banking, Insurance & Finance

- The acquisition of I&M Bank by City Trust Limited.

- The acquisition of PSJ & Associates by PKF Kenya.

- The acquisition of 66.66% of Mercantile Insurance by Colina Holdings

Building, Energy & Real Estate

- The acquisition of shares in Cemtech (who were to put up a cement factory in Pokot) by Rock Field Corporation. 

- The acquisition of Economic Housing by Mali Rasili Group. 

- The acquisition of all assets of Mutonga Mutuandaju Small Hydro Power  (a hydro-power project in South Imenti, Meru) by Intrepid Energy. 

Health & Beauty

- The purchase of shares in Alexander Forbes Healthcare by Zanele Investments Holding Company

- The acquisition of the health and beauty business (cosmetic & hair brands) of Interconsumer Products by L’Oreal East Africa 

- The acquisition of certain assets & liabilities of RTT Health Services by Imperial Group 

- The acquisition of Lyntons Pharmacy by Luwada Management

- The acquisition of Star Biotech Lab & Diagnostics (a pathology lab) by Metropolis Health Healthcare

- The acquisition of an indirect interest in the assets of Strategic Industries Limited.

Media & Communications

- The acquisition of Alldean Networks Limited by ISAT Africa Limited FZC and Richard W. Bell.

- The acquisition by EMC Acquisition, LLC and Emerging Markets Communication, LLC of EMC, LLC.

- The acquisition of shares in Dodhia Packaging Limited by Corpak Africa and Corpark Kenya

- The acquisition of  the investment in Rodwell Press held in Interlabels Africa by Interlabels Industries Private Limited.

Oil & Mining 

- The acquisition of Aviva Mining Kenya by Africa Barrick Gold (from Aviva Corporation)

- The acquisition of 87.25% of Pacific Seaboard Investments Limited by Tardigrade International Inc.

Tourism

- The acquisition of East Africa Safari Ventures by Natural Habitat Safaris.

- The acquisition of 80% of Nairobi Tented Camp  by Porini Limited.

- The acquisition of Leleshwa Safari Company  by Natural Habitat Safaris 

- The acquisition of Vittoria Limited and subscription of shares in Olarro Conservancy Limited by Arabian Ranchers Property Investments 

Transport, Engineering & Logistics 

- The acquisition Swift Global Logistics by DSV Air & Sea Holdings

- The purchase of 55% of Tradewinds Aviation by NAS Africa Aviation 

- The acquisition of 60% of Treadsetters Tyres by Bharat Doshi, Aashit Shah and Carlet Overseas Corporation.

- The acquisition of 40% of Tredcore Kenya by Magister Limited

- The acquisition of Vtechnologies (Kenya) Limited by UHT SAS.

EDIT
More deals approves in May 2013
- The acquisition of the remaining shares in Cable Television Network by Wananchi Group
- The acquisition of 99% of Microensure Advisory Services by Microensure Holdings
- The acquisition of Brightermonday.com by Cheki Africa Media.

- The acquisition of 1,680 steers and 792 cows from Delamere Estates by Ngombe Ltd 

- The acquisition of 80% of Altech Kenya Data Networks and 100% of Altech Swift Global Limited by Liquid Telecommunications Holdings

-  The acquisition of the business of Daru Shifa Centre by Viva Afya

- The acquisition of Endebess Estates (Kilifi Holdings)  by Ballobhai Chhotabhai Patel.

Other recent deals in the News

- Jacana Partners and InReturn Capital announced a merger, and plans for a $75 million SME Fund

- 88mph and the eVentures Africa (eVA) Fund announced a partnership to improve investment opportunities

- Does Tuskys Supermarket want to buy Ukwala  a rival supermarket chain?

- 90% of I&M Bank shareholders have accepted the takeover by City Trust Ltd and the deal makers have been granted a 2 week extension to reach out to the remaining shareholders. Next steps include a share split.  mandatory acquision of the balance of shares, and a possible NSE-listing on June 12. 

-  Airtel signed an agreement to fully acquire Warid Uganda – the combined entity will remain the number two carrier in Uganda with 7.4 million customers  and a market share of 39%. 

- Fastjet and the CEO of Fly540 agreed to cease their court battles and work towards an acquisition of Fly540  - freeing FastJet to commence Kenyan operations. 

- A summary of China investments around the world in the year 2011.

-  In the US, M&A of VC-backed startups are at a four year low. 

-  Venture capital merger and acquisition activity in the US dropped in the first quarter of this year, ending with the fewest exits since the first quarter of 2009, according to the just-released venture report from Dow Jones VentureSource.

- Some 86 M&A transactions were done for a total amount of $4.3 billion, down 44% in deal activity and a decline of 24% in capital. In the final three months of last year, 113 deals brought in $7.6 billion to the VC-backed startups.

- Companies raised $6.36 billion in the first quarter of 2013, the lowest amount raised since the third quarter of 2010, when $6.1 billion was raised. In the first three months of the year, 752 companies were funded, which is similar to the 732 companies that got funded just over two years ago. Healthcare deals accounted for almost a third of the invested capital.

EDIT Jambo Biscuits food processing business is being transferred Kilimanjaro Foods.

Agriculture Moment: VC Funding, Farmer Social Networking

Recap of recent agriculture-themed events and blogs posts

 

Farm blogs: The agriculture themed blog Tracking The Scent had a recent post that linked to an article by Bedah Mengo about farming being unattractive to young Kenyans.  The blog was the was the winner at the recent Bloggers Association of Kenya (BAKE) in the category of  agriculture blogs agriculture blogs and that also included several worthy competitors including Kipsizoo 

 Young Agropreneur Chronicles of a Kenyan Farmer and the Pan-African Agribusiness & Agroindustry Consortium blog.

Other recent blogs and articles of note relating to agriculture include: 

 

Timbuktu Chronicles had a post about going back to farming that noted Although Kenyan youths make up over 75 per cent of the country's population, farming is not considered an attractive option. This mentality has been entrenched in the education system that traditionally dooms the academically challenged to farming, otherwise known as the 'poor man's profession'. As a result, according to Kenya's agricultural ministry, the average age of a Kenyan farmer is 55. However, the tide is beginning to turn.

The blog How We Made it in Africa highlighted nine agribusiness opportunities including fruit juices, cassava, soya bean, sorghum (replacing barley in Kenyan beer) vegetables, milk, and equipment leasing. 

The  Business Daily newspaper had an article on large scale (white) farmers in Kenya  in Tanzania, and some the challenges in terms of production, leasing, markets, diversification and business secessions.

Farm Networks & New Media Tools: The iHub blogged about the results of the Rockefeller Foundation 2012 Innovation Challenges Competition which aimed to generate innovative ideas for how to address water insecurity, food insecurity, as well as key challenges posed by urbanization. Four Kenyan Entries were shortlisted as finalists and two emerged the winners in the categories farming now and decoding data. The one on farming was by Joseph Macharia and aimed to empower youth with agricultural information through radio and other ICTs.

At a recent Wireless Wednesday session at the mLab, several mobile applications relating to agriculure were showcased including Mkulima Calc (a farm management system) GreenhousePro (an input calculator) FarmPal (equipment for hire, sell produce online, find temp farm staff)  Fishmate, GreenHouseDIY and Mpoultry.

There is a very nice & informative Farming Kenya group on Facebook group as well as a mobile social network cfor farmers called Ukulima.net.

Financing: Away from the traditional financiers in agriculture like banks and the agriculture finance corporation. They covered a variety of targets sectors and are of interest to farmers willing to invest alongside the funders.

Last week saw the launch of a new  Kshs 2 billion (~$25 million) African Agricultural Capital Fund by Pearl Capital Partners that will invest  in high growth businesses in the agricultural value chain in East Africa

They have been in investing in the East Africa region for a few years in diverse companies including in seed, certification, ethanol and poultry. They invest invest, advise and growing with investee companies over  5 – 7 years.

  

The fund is seeking agri-business firms with a  turnover of less than $10m, fewer than 150 employees, less than $5m asset value, but which have high quality management chains to invest amounts of $300,000 to 2.5M (Kshs 25 - 200M shillings) in debt or equity. 

At the launch Jane Karuku, the  president of  AGRA (Alliance for a Green Revolution in Africa), spoke about their goal of promoting food security, by invest throughout the food chain from seed to market (including sustainable markets, regional/export) and the work they had done with partner banks and institutions to finance $4 billion in Kenya, Uganda, Mozambique and Tanzania where they have had the greatest success by funding seed companies.

NSE Moment: Kenya Airways Rights, Private Equity

Rights Issue: Kenya Airways just launched a rights issue, in which the airline hopes to raise Kshs 20.6 billion ($250 million) from shareholders its 73,612 shareholders (to whom it has mailed out a 36 page abridged prospectus in lieu of the full 236 page information memorandum)

While KLM (Dutch airline owns 26% of KQ) and the Kenya Government (23%) have committed to take up their full rights, thus assuring the airline of 49% investor commitment, some retail may be shocked to find out the amount they are being asked to pay for the rights. The formula works out as 16 new shares for every 5 owned (pay 3.2X their shareholding) so if one owns 1,000 shares worth ~Kshs 14,000 ($167), they are being asked to Kshs 45,000 ($542) to take up their full rights.

Some banks have lined up for the controversial practice of shares for loans, but with a rights issue there is some assurance of getting your full allocation. See more reading and analysis of the KQ rights here.

Not now: Both UAP Insurance & Family Bank have set aside plans to list at the Nairobi Stock Exchange for now. The bear market, (is it ending?)is said to be the reason, but Family have again postponed a listing to raise cash from a private investor instead. With UAP they are expanding in the region in Uganda, South Sudan, and DRCongo but they feel the market is not conducive and the will go for property/real estate investments to fund these new territories.

Why not NSE?: Africa Assets recently published their 2012 East Africa Private Equity Survey and while they found a lot of investor optimism, with 53 funds operating in the region (16 solely focused on investing in East Africa) , most deals in East Africa are 'small' (40% are under $5M) and none of the fund managers see IPO's at local stock exchanges as viable exit avenues for their investments (49% expect a sale to a strategic investor)

The Survey also notes that Kenya’s Capital Markets Authority (CMA) is finalising the legal and regulatory framework for a new Small and Medium Enterprises Exchange (SMEX). This market will have less stringent listing requirements than the main Nairobi Securities Exchange (NSE), which is intended to encourage more SMEs to consider a listing.

Apart from the costs of listing and the paperwork, another general obstacle to SMEs listing is that it implies a massive transition: for companies that are, by definition, small and often family owned, the requirement to disclose internal information to an anonymous investment public and have outsiders involved in the company’s decision making will be challenging.

Getting Local Funding for ICTs in Kenya

Local funding for ICT's is the genesis of a Report on ICT (PDF) released by Kenya’s Capital Markets Authority. It was funded by the Rockefeller Foundation and drawn by Strategic Business Advisors (SBA).

The CMA had set up rules for Venture Capital firms, but there has been little uptake despite the offer of 10-year tax holiday – and VC firms operate in the East Africa region, but many are based in Mauritius and other countries. In seeking other ways of enabling ICT's to obtain local funding in the region, a taskforce was setup (chaired by Richard Bell of Wananchi) – and which comprised 25 people drawn from the government, technology, venture capital, private investment - and featured input from Kenya, Uganda, Rwanda, South Africa and Tanzania.

One of the solutions considered was impact investing which the Rockefeller Foundation has championed as a new asset class that will draw the private sector into making socio-economic investments that solve age old problems.

Some Findings:
- ICT's do not attract local funding in East Africa and while it is easier for large Telco’s to get money, it is early stage firms who require funding the most ($10,000 - $150,000) - this is where most mobile software development firms fall owing to the low barriers to entry.
- Most ICT companies are Small & Medium Enterprises (SME's) - who face the same challenges as other SME’s – including low collateral, skills, capital etc.
- Investors also face challenges such as difficulty doing due diligence, lack of sector information, red tape (it took 8 years to set up one particular VC firm)- and while there are angel investors, there is no angel investor network

How & why to get local funding into ICT
- Education and policy reforms with insurance, financial, and other investor groups in regards to the ICT sector
- Regulatory changes; easing of regulations for ICT firms to raise funding locally, and encourage more IPO’s. Many firms invest in Asia because it gives clear exit strategy through IPO’s
- Support technology incubation, mentorship and angel networks
- There will be a multiplier effect; once foreign investors observe the investments and returns that locals get, they will probably replicate that ten times over

Will this happen? Will local pension and insurance regulators relax their rules to allow the funds they oversee to be deployed in the risky world of local ICT? These same regulators have spent years tightening the screws to clean up wasteful spending in real estate, and loopholes through which retirement funds were lost.

The report is a start, and it lay out the path to local funding of ICT's. These investments are very risky as is real estate which insurance, unit trusts, and SACCO's are edging back in to.

Entrepreneurship Moment: Apprentices, Intellectual Property, Mentors, Partners

Over the last few week, I have been exposed to various events and lessons that touched on entrepreneurship. We had the Legatum business awards winners feted in Nairobi, talks by some young US technology start up executives, and got to watch the movie 'social network', and final episodes of the Apprentice beamed live from the US.

Talk 1: Russell Simmons co-founder of Yelp.com and Jawed Karim co-founder of Youtube were here for i/o Ventures which aims to incubate start up entrepreneurs and formalize angel investing – this is because giving back is a big deal in Silicon Valley.

They talked at the Nairobi iHub and some of the business advice they imparted to local entrepreneurs included
- What you are working on, will be different in 3 to 4 years, but keep going & don’t give up
- If you have bad chemistry with an employee/co-worker, fire them as soon as possible – as dealing with them takes up so much productive energy
- It’s hard to find good team members. But it may be better to recruit from universities, as enthusiasm trumps experience
- Get your product out immediately, don’t over tweak - perfect it as you go along. Also, instead of juggling many projects, focus and do one project really well - hit home run and people will line up for more
- On Intellectual Property: In Kenya, theft of ideas is a big worry with young companies seeking partners & financiers, but their advice was that in Silicon Valley, theft of ideas not an empirical problem
- If you have idea, someone else has same idea – and having idea does not give you advantage, it’s about being better to execute better than anyone else,
- Don’t be afraid to share your ideas, because once you launch, everyone will see it anyway

Talk 2: Paul English co-founder of Kayak.com who’s working on Join Africa a last mile (wifi) connectivity project with University of Nairobi, University of Kigali and MIT also gave a talk on entrepreneurship.

- Most important elements for him were the team, customers and profit incentive
- Don’t make customers happy – blow them away – kayak.com is the best for getting cheap flights (actually make more money from hotels than airlines)
- Take risks, but pick partners carefully.
- He has no customer service, everyone in the company does that
- Be the best; He said even if an employee took their code to a rival, he believes he’d’ still build a better travel site

At the talk, Communications PS Bitange Ndemo also talked about push to have a sub-patent law and creative commons in Kenya, as opposed to unwieldy patents - these are suitable for local development of incremental innovations as many creations will not qualify pass IP test. He also believes it’s best country for have flexible laws until we develop further

Apprentice: Got to watch the final few episode of Donald Trump's Apprentice - which this year featured Kenyan born Liza Mucheru-Wisner. She was one the 16 contents, picked from several thousand applicants and made it to the final three. She would have gone further but for the sudden decision by Trump to fire her even when her team had won a challenge.

Earlier, in defending her decision on that project, she got into a debate with Trump about race as a factor in marketing of products, and Trump said he fired her be she did not get along with her fellow contestants – and she was shocked because they were all in a competition to win, not be popular.

The apprentice is a TV show with plot, structure, bad guys, and a defined ending. But it’s a microcosm for business & entrepreneurs who face different challenges, have to play multiple tasks, who's plans don’t always go right, may not have the resources they need or you don’t get to work with the right people - and there’s always a bit of improvisation to get a win.

Liza Mucheru-Wisner, Apprentice Contestant
It’s all cut and edited into a dramatic hour package for TV, which means that you don’t see a lot of the hard work that contestants put in. Liza said she actually got a long with all the contestants and the harsh comments were never repeated in front of contestant during tasks, but only came out in boardroom, when everyone was fighting for to stay in the show.

Despite not being the Apprentice, she does not feel like she lost. She represented herself well, put a spotlight on herself and her passion (education, kids, technology) and as a result she’s got lots of offers to consider, one of which may may involve becoming a goodwill ambassador.

Social Network: This is a well received movie about the origins of Facebook - and which leads Roger Ebert’s list of top movies of 2010> I got a 50/= ($0.6) bootleg copy in Nairobi and it’s a must see for any entrepreneurs - with lessons on maintaining focus amid changing business concepts & expectations, management, and picking/rejecting partners

Investing in Africa Moment

Legatum Africa Awards: Three Kenyan companies - Biodeal Laboratories (generic drug manufacturer), Craft Silicon (financial software developer) and Mellech Engineering (construction & engineering), have been selected as finalists in 2010 Africa Awards for entrepreneurship.

They are competing for $350,000 in fund prizes, with a grand prize of US$ 100,000 and five other prizes of US$ 50,000 each. The other finalists in the top 10 are Malcom-Ezindaleni Hydraulics (SA) NTR Technology (Botswana), Planbuild (Uganda) Sigma Electric ( Ethiopia) Steel & Tube Industries (Uganda), Tutuka Software ( SA) and Wilkins Engineering (Ghana) – who were also shortlisted from more than 2,700 entries.

Legatum, a privately owned investment group and Omidyar Network, a philanthropic investment firm, organized the awards, who's winners will be announced on December 6 in Nairobi.

Agriculture Equity: The African Agriculture Fund, a private equity fund closed on US$ 135 million of funding in November 2010. The funds will be invested in the agriculture value chain from primary production to processing at $20 million per portfolio company.

The Fund also has a dedicated SME sub-fund and a technical assistance facility of 10 million euros, to support out grower schemes in large companies and business development services in SMEs.

Transparency Equity: Late in October, Omidyar and Hivos created the Africa Transparency and Technology Initiative (ATTI) - a fund that will support technology-driven initiatives that give citizens the tools to hold their governments to account. Omidyar Network will invest up to $2 million and Hivos will administer the fund.

Diaspora Fund: The Enkare Innovators Fund was launched and is seeking US$850 Million from Diaspora for investments in Eastern, Southern & Northern Africa with early focus on Kenya, Tunisia, Egypt and South Africa. This is via a private placement that will run from January to July 2011 and is promoted by Cauave Deaa Et Al Capital Partners

Silicon Valley Visits: The Kenya ICT Board will host a team from I/O ventures, comprising entrepreneurs & founders will from Silicon Valley who will visit Nairobi on December 14 & 15 and who are seeking young ICT entrepreneurs to mentor.
Mombasa housing development
Impact Investing: Impact Investments are a new asset class as per a report being launched this week in Nairobi, London and New York - by the Rockefeller Foundation, Global impact investing network, and J P Morgan.

These refer to investments that have an intended purpose of positive social or environmental good besides a financial return – and probably what Acumen Fund have been referring to as patient capital.
- Impact Investments are primarily debt or equity, and are investments not philanthropy investments
- They studied 1,100 investments and found that about 500 were less than $500,000, and only 35 were more than $10 million
- Impact investments are founds in sectors like agriculture, water, housing, education, health, energy and financial services (micro-finance is the most mature sub-sector)
- There are now metrics, tools, ratings, conferences – all devoted to impact investing and how to measure non-financial impact; One benchmark called IRIS (based on IFRS) and others are Pulse and GIIRS . Currently impact investments are measured primarily by investors own proprietary systems, or by a mix some investor goals such as job creation, asset accumulation, or energy efficiency
- The report has a robust outlook for the sector and concludes that there are potential impact investing requirements over the next 10 years of between $400 billion and $1 trillion, with potential profit of $183 billion to $667 billion, and with the bulk of these to be found in the urban housing sector.

Further Reading

Invent for Mobile: CGAP article which asks how viable companies in mobile health and mobile money can attract VC funding and interest.

Large Private Equity: FT article - about private equity in Africa by Andrea Bohnstedt (@andreabohnstedt), the publisher of Ratio Magazine

Briefcase VC

What’s briefcase VC?

In Kenya we are familiar with briefcase NGO’s and briefcase contractors. 'Briefcase' is a not so nice was of describe someone who has access to power but does not invest resources in business. A briefcase NGO has no programs or operations, and exists merely to solicit funds from donors, while a briefcase contractors wins government contracts/tender (through the influence of a power network) which he/she has no capacity to implement, then sub-contracts these to compete firms (without access).

A Briefcase VC (venture capitalist) is probably a tourist on holiday, who calls around or approaches vibrant local tech companies with unsolicited offers to invest in them - but has no funds or capacity (beyond a website) to do so and no recent deals to speak of, and unfortunately are able to put hungry young companies through hoops as they restructure and comply in the hope of getting funding that it unlikely to materialize.

Venture Capital in Nairobi - VC101

A talk on venture capital (VC) was given by Vincent Kouwenhoven and Brian Hirman of the eVA (eVentures Africa Fund BV) at the iHub in Nairobi. They both have about 15 years experience in VC and enumerated the criteria the fund uses for investments including that target companies in Africa should have profitable track records (not start-up's) to qualify for VC investments of between 25,000 and 250,000 Euros (~Kshs 2.5 million to Kshs 25 million).

The fund was launched in January 2010, and in the ½ year they have invested in 5-6 companies. The founders are seasoned travelers in Africa and their interest was piqued by observations they made over the last three years including;
1. Chinese investment interest in Ghana and Kenya
2. Arrival of fibre optic cables
3. More African returnees returning from the Diaspora who were setting up their own companies (it’s a good sign). They have been exposed to Kenya for many years and sense that entreprenual spirit in Nairobi is very good as are competence levels in high technology sectors.

- All their investment are active in the digital scene – whether mobile, internet, communication platforms – and include a leading internet company in Ghana, while in Kenya, they have Jumuika, Ratio Magazine, and the latest deal signed today is for an investment in Verviant (w/ Liko Agosta better known for Pesapal)

- They invest growth funding in companies and try and cultivate a healthy portfolio, unlike other VC’s who make several weak investments in the hope that one or two will payoff and offset the failures. Their investment clearly spells out the use of proceeds/funds which can vary, but ideally should not be for increased salaries or other debt repayment (unless to retire expensive debt). They also mentioned that their investment criteria is a guide, not cast in stone (e.g. Jumuika was a startup)

- They get involved in the operations of the company; whether marketing, technology, financial, entrepreneurship, HR policies. They act as a sounding board and advise owners (use skype a lot) on how to scale up e.g. when they get traction, how to set up customer care capacity

- They seek out committed entrepreneurs – not part timers, or people with one good idea they have not developed, or people with a dozen ideas (not focused). They want to invest in people with the gut and belief to start a business and are willing to eat bread & water to hack it put (not one who relies luck) - and who also enjoy what they are doing. Other "no no’s" include people who ask for too much money that dilutes their equity (EVA want founders to retain at least 51% at all timea), or which enables them to run the business without risk for two years (i.e. with the VC’s funding)

- On exit strategy their preferred rout is a buyout of the company within 3 to 7 years by multi-national or larger company. In cases where an investor may not be ready to sell, the VC can sell their stake to another VC.

VC Coffee Chat

On Monday June 28 at the iHub in Nairobi there will be a talk on venture capital, in continuation of a series of events that bring together local financiers and entrepreneurs.

In preparation for that, we had a chat with Eline Blaauboer of TBL Mirror Fund which is a Dutch venture capital fund that has made four investments in Kenya and are also branching around East Africa.

The Fund invests a minimum of EUR 100,000(~Kshs 10 million) taking minority stakes in companies that show fast growth and the potential to be market leaders. They look for well-managed ambitious and visionary SME’s and TBL invests in all sectors particularly where the partners have extensive industry knowledge, as a VC focused on a specific sector is not sustainable here yet. It's interesting to note that, while it is said in local banking that women are not ambitious enough to dream big and attract large funding, ½ of their investee are women-led companies

Related
- TBN are hiring both an investment manager and an investment analyst.
- On Monday June 28 at the iHub in Nairobi there will be a VC 101 event with a talk on venture capital given by Vincent Kouwenhoven of the EVA Fund
- Recap of recent VC activity in the region by Ratio-Magazine.

Skunkworks: Nairobi September 29

The latest Skunkworks was held on September 29 2009 at Teleposta Towers Nairobi. The focus of the tech group this week was on Tech & Entrepreneurship and four speakers were chosen to provide their insight on the new business models they are developing in Kenya. This comes at a time when the fibre cable initially considered the greatest thing since sliced bread has become a corporate product with targets to break-even before cheap internet costs can be passed on. The fibre is just one arm, so it was good to hear techpreneurs talk not just about revolutionary business but grappling and scaling numerous challenges of running such businesses in this part of Africa – i.e. business registration, financing, staffing, patenting, winning contracts, succeeding and making money

skunkworks panel

full disclosure – I correspond with Liko, drink with Kahenya and Joshua arranges some advertising at this site

1. Liko Agosta - Founder and CEO of Verviant a leading web developing firm and BPO provider talked about:
Startup financing: He started his company with savings, then family & friends, and finally banks
company strengths: include having a good team (20 staff in Kenya), good track record (measured by repeat business they get), interacting with customers, good customer service (including fixing up products for their customers that other companies had previously messed up)
customers: - have contracts with companies in the USA, Canada, Europe, New Zealand, and South Africa
- show companies how they can save money e.g. Africa online, akamba, instead of having staffed offices all around t company waiting for people to bring them money, have a platform that does this cheaper
watch cash - many business fail because they are under-capitalized, entrepreneurs should save money and keep costs low because it can sometimes take many months for them to get paid
- advises tech companies to focus on mid size products and contracts; this is because cash flow kills many Kenyan companies and this is likely to happen when if serving large contracts whose payments are spaced out
new product: pesapal will allow Kenyans to pay online via mpesa or zap for products and services from vetted merchants. It will also store transaction details details for 7 years, and comes with a readily available API, and pre-built components. More details on pesapal availed at verviant site on October 2.

2. Caroline Juma is the managing director of KCR - which stands for Kenya computer resources. She talked about her company which does human resources for IT professionals exclusively.
education or experience don’t always matter: while some companies ask for job candidates with advanced degrees or who have several years experience to fill positions, she sometimes finds that the best person may be one who is still in school, or who does not have the work experience. She looks at what they have done; KCR can test/examine what their skills are and will vouch for them to companies to employ them as IT professionals. IT professionals should show initiative, and work on projects that will enhance their career prospects not just learn outdated VB in university
don’t wait for governments: Kenya is not known for IT and call centers will not save the day. People should stop waiting for the government to do things in outsourcing, fibre etc. But governments don’t do that they only crate policy.
KCR is free IT professionals can place their CV's with KCR for free, there is no charge, unlike with other placement companies
IT conference upcoming KCR will be involved in an Aitech conference in November in Nairobi on business match-making

3. Kahenya Kamunyu - CEO, ViRN Instruments. Involved with Zuqka, previously worked for BT, Yahoo, Sanyo Business, and Sony Playstation. Currently developing smart ideas and providing Venture Capital to small enterprises. Kahenya has been coding since he was 13 years old and gave a talk on his entrepreneurship and employment history from South Africa, UK, Japan and finally in Kenya, and the lessons he has picked up along the way:

boot-strap: be frugal, pay bills, and put whatever cash is left aback in the business. Businesses that are under-capitalized and will fail
More education produces bad developers! college kids write better program than senior engineer with degrees; his is because kids write code without rules, while company programmers can only write within the parameters/box set by the company
business is fun
what?! if you’re single you’ll never make money – get a wife/husband.
have a wish list: these targets let you know where you are going and give you targets to work for
look after your health don’t over-work yourself or get tired. Work smarter
give back to community: tithe, get involved in non-profits, help others – this is because what goes around comes around, and you may be the one in need of a helping hand next time
debt is bad: do not start a business when in debt, you will go deeper into debt and have to sell off assets
on partnerships: set the rules before you go into partnerships
Kenya is not friendly to start-ups it is very hard to start a business and expensive. It would also be nice if there were incentives for local companies. E.g. Vodacom in South Africa has a super low tariff for start-up businesses that use their products, why not Safaricom? Also banks are not friendly in lending to star-ups.
banking secret you can use a patent to get a bank loan
small is better many entrepreneurs chase one big multi year contract, but it is better to serve several small contracts. The big contract may pay one, and replace you with someone cheaper, while the small ones, diversify the risk, provide for better cash flow, and the happy customers whose expectations are easier to meet, will grow and stay your loyal customers of many years big fish =small fry, small fish= big fry
high tech not the answer many young people go into high tech industry because its the in-thing, cool, sexy now, but internet has expiry date, while people will always eat food.its unfortunate some entrepreneurs are too proud to go into mundane (non-tech) industries that are more sustainable in the long run-
Kenyans should invest in R&D talk to customers, observe competitors. Many Kenyan companies don’t do this and fail owing to bad idea/false assumptions i.e. build it and they will come.

4. Joshua Wanyama: Founder and CEO of Pamoja Media, and a TED fellow, helps companies strategize their online presence to make money.
company strategies (i) interactive strategy (ii) creative development (iii) media buying & placements online
niche is getting companies aiming to advertise to Africans e.g western union
understand marketing: easy to get a meeting in Kenya, much harder in the US
keep learning: learn through reading, searching online & in libraries, networking, associating with smart people. He has learnt more about business from reading after his education
use web tools: he runs a web based company that has several components - all online including e-mail, ad server, sales leads, finance (payroll) and project management> can this also be retransferred to a farmer or fisherman?
opportunities Kenya
- include online services, e-commerce, procurement and local content
- It’s time to walk the talk in Africa; in a country like Kenya only 20% of the top 100 sites ranked by alexa for Kenya are Kenyan companies. We need to retain more people within our domain, and keep traffic generated within Kenya
- thanks to m-pesa’s success, it’s now easier for Kenyan mobile development companies to get funding from abroad
- Mentioned other companies doing exciting things online including: Preciss,
Ushahidi, Verviant, Nyeri Online, Jumuika and Mama Mikes
keys to success for Kenyans online
- tell our success stories better
- Ease the way of doing business: it has taken him several months to register his business in Kenya as well as to open a bank account for the company in Kenya. There seem to be difficulties for companies that have overseas-based directors or partners, and he has only been able to open an account with the help of a lawyer
- Cultivate a culture of entrepreneurship. Financing entrepreneurs is risky business the world over with expectations that 40% of business will fail, 40% will break even and 20% will bring in rewards
- companies should do R&D and follow through on these because one year from now the company or its products may not be relevant

Kutwa Tuesday

West to East: Following Bank of Africa (2004) and Ecobank (taking over EABS), West Africa's leading bank, United Bank of Africa (UBA) is making an entry to East Africa starting with Uganda and has also applied for a license to bank in Kenya. 

Venture Capital Fund: From the East African Development Bank (EADB) is now operational, with small and medium enterprises (SMEs) in East Africa are eligible for funding. 

Uchumi’s turnaround : Uchumi have finally published their financial results of the receivership period from 2006 to 2008. The turnaround has been remarkable and in the half-year ending December 2007, they surpassed full-year sales from 2006 (year of collapse). Still, the current ratio is still poor (less than 1), but that’s about three times better than it was when the company sunk. 

The company lost 751 million in June 06, which improved the first year of receivership to a loss of 257m in 07 – and are on track to make a profit in 2008 – while operating fewer stores. It’s probably too soon to be re-listed (there would only be sellers, no buyers) and a dividend would not be likely for 5 years as the company still has an accumulated loss (negative reserves) of about 1 billion shillings ($15 million)

peeves two things irritate me though at Uchumi (i) their cashiers never have any shilling coins and insist on giving out sweets in lieu of change (ii) Cashiers’ who take advantage of my not having a u-card to top up their accounts with points I pay for. 

Insurer collapses: Invesco Assurance finaly goes under. The company which insured many matatu’s is now under statutory management and can’t make any policy payments or sign up new business. And when the history of the company is written, one paragraph must address why almost every insurance company (including Invesco) decided to put up an expensive office building in the Upper Hill area of Nairobi, far away from their core clientele.

Kenya Re profits: How much did Kenya Re earn in 2007? An interesting discussion at stockskenya. 

Diaspora dollars: How much do Kenyans abroad remit to the country (through official channels)? CBK reports $54 million in January 2008 and the country is on track for an increase from the $573 million sent in 2007. 

Dollar launderer: A Nation report cites US concern about money laundering in Kenya which has weak laws regarding the crime. The State Department report notes the difficulty as Kenya is a hub that mixes regional trade with exports to East & Central Africa, donor aid & NGO’s (managing over U.S. $1 billion annually), remittances from expatriate Kenyans estimated at $680-780 million annually, and Eastleigh Estate which handles unofficial remittances by the Somalia Diaspora. Also, though banks maintain records of transactions over U.S. $100,000 and international transfers over U.S. $50,000 (and report them to the CBK) they fear customer reactions to such release of information – and this was hammered home by a November 2007 court award that ordered Barclays Bank to pay a customer 400,000 shillings ($5,700) for providing customer details to the British High Commission.

New boards 

- The Kenya College of Communication and Technology (KCCT) board now has Michael Joseph, Nick Nesbitt, Naushad Merali and Paul Kukubo to guide some relevance in communications training. 

- The Resettlement fund (for election victims) has retired Archbishop Ndingi, former minister Akaranga, and retired athlete Kipchoge Keino on board.