4.2 Presentation of case companies
4.2.5 Startup
Social Bites was founded in 2017 by Johannes Traerup from Denmark, who is our last interviewee for the case entity in the multiple-case study. So forth he will be referred to as “the interviewee from the startup”. The startup, Social Bites, is a dairy company that sells frozen dairy products called milk pop to the low-income earners. Locals join Social Bites as vendors, whereby they are being provided with the means to sell and the products on credit. Having sold the products, they return to the sales depot and are reconciled. The products are produced and packed in Nairobi and sold in the warmer climates in Mombasa, Kenya’s second largest city.
The founder built the concept after having worked for many years with similar products in West Africa. In 2018, he was seeking his first official round of funding and went to pitch his business model for many VC firms in Nairobi, but eventually found that Social Bites was at a too early-stage for VC funds to enter. Consequently, he decided to look for BAs, and as this search took him back to his origins, he found three investors, two from Denmark and one from the United Kingdom. The investors came in over two rounds, the first one in July, 2018, and then the second one in July, 2019 at undisclosed amounts.
Summary of chapter 4.2
Chapter 4.2 presents the 5 VC firms, the industry association, EAVCA, Pangea accelerator
and the startup, Social Bites, constituting the entities used for the multiple case study of
this research. Each case holds unique characteristics, angles and insights, and together
they provide a holistic view of the institutional challenges pertaining to the VC industry
and the general process of early stage venture financing.
5 Analysis
Having presented the developments of the VC industry in Kenya as well as the case entities that have been selected for the multiple-case study, the following section contains the analysis and the presentation of our findings.
In the first part of the presentation of the empirical findings, we will answer the first part of the research question. As outlined in the research purpose and the research approach sections, this encompasses a confirmatory approach where the propositions are compared to the empirical data. Hence, the aim is to test whether the general assumptions about emerging market characteristics, referred to as institutional barriers, are applicable to VC in the case of Kenya. Moving forward in a deductive, confirmatory approach, we aim at examining the three propositions one by one, starting with 5.1 Regulatory Uncertainties, followed by 5.2 Liability of Outsidership and Liability of Foreignness, and lastly 5.3 Underdeveloped Supportive Industries. In this deductive part, we take a point of departure in the literature as we structure the analysis around our propositions. We further use our primary data, which is constituted by the semi-structured interviews which have been coded and semi-structured. As we present the data in the form of citations, we make references to data sources by referring to the interviewees according to their VC firm. An example is “interviewee from VC 1”, which then refers to the interviewee from VC 1, as labelled in the presentation of cases-section.
At the end of the first part, we present the findings in a summary table of the firms’
perceptions of the institutional barriers in Kenya. In section 5.4 Qualification of findings, we address the institutional barriers in relation to the severity, how they affect the VC firms differently, and at what stage in the fund’s investment cycle they occur.
Thereafter, in section 5.5 Coping Strategies, we take an inductive approach to the data, as
we aim to explore what strategic implications these institutional barriers have had for
the VC firms in Kenya. Hence we seek to answer the second part of our research
question. In this inductive section, we look for patterns in the ways the interviewees
express their operations and their strategic considerations. As such, we find it
purposeful to include the data extensively to discover these patterns. These patterns are
then presented as coping strategies to the institutional barriers found in the deductive part of the study. The inductive approach implies that we are not driven by any literature or existing theory, but are data-driven. We aim to see whether these coping strategies can be perceived as generalisations in a broader perspective.
The table below contains a summary of the institutional barriers to VC in Kenya as perceived by our interviewees, structured in accordance to the proposition and to each of the cases.
Inter- viewee
P1 Regulatory uncertainties P2 Liability of outsidership & -foreignness
P3 Underdeveloped supportive industries
VC 1 Challenges related to political cycles, positive view on
government's efforts to ease tax pressure and improve exit opportunities for private investments. Untrustworthy financial reporting.
Lack of investments in ventures founded by locals which ultimately implies that many ventures lack understanding of the local regulatory - and market specifics. Challenging due diligence processes if no local networks or local team.
Inadequate information sources, particularly in less popular industries.
Insufficient grants and other early stage financial supporting mechanisms. More exit possibilities coming into place through
supportive stock market regulations.
VC 2 n/a VCs are heavily reliant on
foreign networks that ultimately affect the later investment rounds and exit opportunities where less foreign networks
exist. Challenge relating to local adaption of the ventures.
A lack of seed investors such as BAs. Lack of family friends and fools. Accelerators are not really sufficient. Not really aware of the accelerators. No opportunity for exits.
VC 3 Unsupportive legislative environment
Lack of technology skills and international best practices are constraining VC investments in local founders.
Sufficient information sources are being established. Insufficient accelerators, but improving. Not really aware of the
accelerators. More education on venture capital is needed.
VC 4 Challenges related to election cycles. Tax regulation is
beneficiary. Lack of governance, accounting standard and trustworthy reporting.
Disconnection between many entrepreneurs and foreign networks.
Challenges relating to lack of local knowledge amongst foreign led investees. Lack of technological skills amongst the local Kenyan ventures.
Many information sources but coverage is not sufficient.
Accelerators are supportive for deal sourcing as they reduce cost and time for conducting due diligence.
VC 5 Generally supportive government interventions.
Challenges related to governance and reporting.
Challenges related to foreign ventures who lack local market knowledge.
Ventures with local founders are
disadvantaged even in relation to angel networks and donor funding.
Information from agencies is not
sufficient. Lack of local LPs who can invest in VC. Limited options for exits.
Industry Association
Challenges relating to currency fluctuation due to political uncertainties. Opportunities relating to new tax benefits and less regulation for investors.
Challenges related to enforcement of shareholder protection
Cultural differences are enforcing network barriers. Lack of local presence and local knowledge hinders the creation of adequate investment criteria
Lack of BAs. More local LPs are coming in to support private capital markets. Challenge with an information gap.
Accelerator n/a Need for local solutions
and frameworks both from investors and ventures.
Lack of BAs. Describing how they are trying to solve this by offering education to investors.
Startup n/a Getting access to foreign
networks will increase chances that you get referred to other investors.
Lack of local knowledge can significantly hinder the scale-up process of
ventures, in particular during the recruitment process.
Lack of BAs.
Table 3: List of institutional barriers from our findings as divided into the case entities.