Introduction to Private Equity and Venture Capital

Written by Wellington Ayugi

What is Private Equity Finance?

Private Equity is a type of equity investment in a private company that is not listed in any stock exchange. The investment can result in a partial or complete ownership of the private company. The aim of the investors is to earn higher returns.

A Private equity fund is a private pool of money that is used to invest money by buying equity ownership in high growth companies. These investments will eventually generate considerable returns to investors contributing money in the fund. 

What is Venture Capital?

Venture Capital is simply money invested in startups that have a high potential for growth. The money is invested to acquire a stake in these startups. The investors can decide on playing an active or passive role in the day to day company activities.

Venture Capital Funds handle the money of investors who are looking to buy private equity stakes in small enterprises and startups that are perceived to have high growth prospects. The funds mitigate their risks by making small investments in several startups. They hope to be rewarded with a relatively large payout when one achieves high growth.

Differences Between Private Equity Funds and Venture Capital Funds

Private equity firms and venture capitalists make money by investing in companies and exiting. However they both have different ways of doing things, such as:

  1. Private equity funds purchase mature private companies. Venture Capitalists invest in young startups with promising long term potential.
  2. Private equity funds make large investments in the range of hundred millions to over a billion. Venture Capital funds invest in lower amounts in the region of tens of millions.
  3. Private equity funds acquire businesses across different commercial sectors. Venture Capitalists usually focus on technology and eco-tech solutions.
  4. In most cases Private equity firms buy a controlling stake in a company. Whereas Venture Capitalists usually acquire a minority stake in a target company.
  5. Private equity funds use a mix of debt and equity for buyout transactions while venture capitalists stick to equity.

Private Equity Firms in Kenya

Kenya has witnessed a record number of private equity deals in the last two years. The trend indicates investor confidence in the country due to a stable economic climate. Sectors that have experienced private equity investment are healthcare, infrastructure, real estate and financial services. Below are some options available locally:

  • Helios
  • Fanisi Capital
  • Ascent Capital
  • Old Mutual/UAP Group

Venture Capital firms in Kenya

There are different Venture Capital firms operating in the country with a focus on startups and SMEs. The ones available to local entrepreneurs are:

  • Savannah Fund
  • Jacana Capital
  • Seed Capita
  • AfricInvest
  • The Hub

Many private equity funds in the country are shifting to financing SMEs, exhibiting strong growth potential. Access to debt finance has proved to be a challenge for many companies due to high costs of credit. As a result many are shifting to equity funding for medium to long term investment.

Learn More:

  1. Sources of Funding for your startup
  2. Introduction to Private Equity

About the author

Wellington Ayugi

Wellington Ayugi handles Business Development at Covered and has a passion for personal finance, microfinance, and developments in financial technology