Impact of Investment by Angel Investors in Technology Startups in Kenya

Abstract

Investment in startup businesses has been recognized as an important resource for Economic growth and, therefore, economic development. However, most startup businesses find that in order to grow and scale they need external financing as well as advice. The main sources of funding for businesses in Sub-Saharan Africa as personal/family loans followed by private equity, bank debt, government funding, venture capital, angel and seed funding and other sources respectively (Omidyar Network and Monitor Group 2012). The objective of this study was to establish the impact of investment by angel investor on technology startups in Kenya. The study was done using primary data from technology startup owners who have received investment from angel investors from 2012 to 2014. The study had convertible debt, equity and a mixture of debt and equity as the dependent variable and increased chance of startup survival, higher chances of getting secondary financing, faster scalability for the business, access to secondary markets, rapid prototyping and go to market strategies, better structures within the business, better financing terms compared to local commercial banks as the independent variables. The results show that 30% of startups received debt investment and 15% received equity investment. This reveals that for most early stage businesses most investors were not confident about the revenue forcasts and so they preferred to give debt since they can get security for their financing. The other startups had either personal financing or grants. From the study it is clear that there is an emergence of new sources of financing from angel investors. This investment is meeting the challenges that startup founders face mainly in form of financing and improving the skills of the entrepreneurs and their teams. The motivation for the angel investors is mainly social impact and high returns if the business thrives. It is clear that tech startup with angel investment will continue to lead in the technology field by having higher chances of survival, growth rate, job creation and higher revenues compared to startups that do not have angel investment. As more young and innovative individuals begin their entrepreneurial journeys there will be stiffer competition for the limited opportunities to get funding, This will influence the quality of innovations, the number of filed patents and the overall impact of ICT to the economy of Kenya.