Safaricom, Kenya’s leading telecommunications company, plans to establish two venture capital firms as part of its strategic approach to investing in promising tech start-ups. The proposal will be presented to shareholders during the annual general meeting scheduled for July 28, 2023. By entering the seed-stage and growth-stage funding landscape, Safaricom aims to counteract the funding challenges faced by many Kenyan start-ups and foster technological innovation.
Approaching Shareholders for Venture Capital Establishment
Safaricom has sought shareholder approval to establish two venture capital firms as part of its growth strategy. The proposal includes the incorporation of a company limited by guarantee to invest in seed-stage start-ups, supporting the development and growth of technology entrepreneurs in Kenya. Additionally, Safaricom plans to incorporate a private limited company or repurpose an existing subsidiary to invest in growth-stage start-ups and initiatives aligned with the company’s strategic mission.
“(The board proposes that) the incorporation of a company limited by guarantee to invest in seed stage startups to support the development and growth of technology entrepreneurs and build reputation and trust within the tech community in Kenya be approved,” the notice signed by company secretary Kathryne Maundu reads in part.
“The incorporation of a private limited company (or the repurposing of an existing subsidiary) to invest in growth-stage startups (scale-ups) and initiatives that enable achievement of Safaricom PLC’s strategic mission for a financial return (profit) be approved.”
Operational Shift from Spark Fund Grant
The proposed venture capital firms mark a significant operational shift from Safaricom’s existing Spark Fund grant, which was introduced in 2015 to promote the growth of seed-stage start-ups in Kenya. The new entities will replace the unincorporated trust named Zindua that managed the fund. Safaricom has invested approximately $1.5 million (KSh211.2 million) in the Spark Fund without receiving proportional tangible value. The transition to incorporated firms will enhance administrative and governance processes, strengthening the company’s investment initiatives.
Focus on Growth and Financial Returns
One of the venture capital firms will primarily target growth-stage tech start-ups, aiming for financial returns to Safaricom. The proposed limited liability company will strategically align its investments with Safaricom’s mission, supporting innovations that offer potential profitability. Any gains generated from the investment portfolio will be reinvested in Safaricom, contributing to the company’s overall growth.
“We are proposing the setup of a limited liability company for investing in growth stage startups and initiatives that are strategically aligned with our mission for a financial return,” says Safaricom.
“The intention is that any gains from the portfolio of investments will be capitalised back to Safaricom PLC.”
Safaricom’s Advantages for the Start-up Ecosystem
Safaricom’s involvement in venture capital investments holds significant promise for the Kenyan start-up ecosystem. The company’s robust financial resources and extensive networks position it to support innovative ideas that may otherwise face funding limitations. By leveraging its vast capabilities, Safaricom aims to foster growth and capitalize on groundbreaking concepts, enhancing the local start-up ecosystem’s vibrancy.
Addressing Funding Challenges
The Kenyan start-up ecosystem has shown remarkable progress, ranking third globally in the start-up ecosystem index after South Africa and Nigeria. However, recent months have witnessed concerns as promising tech start-ups faced challenges due to a lack of funding. Safaricom’s venture capital initiatives aim to address this funding drought and provide much-needed support to emerging entrepreneurs and innovative ventures.