Kenya’s tech ecosystem is one of the fastest growing industries in the world. Driven by significant investments in broadband infrastructure capabilities, a favorable policy and regulatory framework, breakthrough innovations as well as the successful adoption of the technology, it has experienced double-digit growth averaging 23% per year over the past decade.
Equally remarkable is its contribution to economic growth. The sector is estimated to contribute up to eight percent of the country’s GDP through IT services while creating more than 250,000 direct and indirect jobs by the end of 2020.
The sector, however, faces significant challenges that pose a great threat to sustainable growth. A persistent funding gap that discriminates against local approaches, the failure of start-ups to transition to growth, the lack of global visibility and exposure as well as the ownership and control challenges brought about by private capital arrangements tested Silicon Savannah’s ability to realize its potential. and impact Kenya.
As the industry appreciates the urgent need for new financing and investment approaches, public market listing remains one of the main catalysts for accelerating the growth of technology companies in Kenya.
Likewise, the Nairobi Securities Exchange (NSE) plans to introduce technology board to mobilize more domestic and international capital and increase incentives for investment in the sector in Kenya. Going public might be the best solution for tech companies looking to support their growth.
But why should the fastest growing companies in the industry, able to attract other forms of financing, consider going public?
CAPITAL FACILITATING GROWTH AT COMPETITIVE RATES
Going public allows companies to tap into and have unparalleled access to a diverse base of national and international investors. This allows a business to access long-term, growth-friendly financing at competitive rates. Technology companies can raise initial or ongoing equity to fund their operations as well as strategic initiatives such as acquisitions that are critical to growth.
The patient capital raised through listing can enable technology companies to execute growth strategies, thereby consistently improving long-term shareholder value. Listing can also help tech companies build their ability to raise capital in the future by increasing their investor base.
ACCESS TO REGIONAL AND INTERNATIONAL MARKETS
For technology investments to produce above-average returns, the need to access larger and more integrated regional and global markets is essential. Listing can provide opportunities for technology companies to evolve in regional and international markets by exploring cross or double listing opportunities in target offshore markets. This will improve their visibility in other markets and provide them with an access route and the possibility of starting operations.
OPPORTUNITY TO MONETIZE VALUE AND DIVERSIFY ASSETS
Going public can help tech entrepreneurs monetize the value of their businesses and allow them to diversify their assets into other investments. A key characteristic of the wealth created by entrepreneurs is that a large majority of the wealth is concentrated in a business and is highly illiquid. Listing creates a platform for initial owners and investors to sell their property in initial public offerings and unlock the value of their businesses. The strategy of using government procurement to monetize has been deployed by tech entrepreneurs in various emerging markets in Asia and South America.
MAINTAINING CONTROL AND IMPROVING GOVERNANCE
It is common knowledge that private capital financing arrangements raise concerns about the ownership structures and forced management of companies. Being able to stay in control and vision is essential for local tech companies to drive growth. Public procurement offers technology companies a way to raise significant capital while retaining control, leadership and vision for the business. The governance of private companies is also a “black box” with extremely limited information on the control and decision-making structures of companies.
Going public offers unparalleled access to growth opportunities. Tech companies can tap into Kenya’s financial market and have the opportunity to unlock funding, access a diverse mix of investors as well as gain global visibility.
Likewise, the favorable public market environment supported by both the NSE and the Capital Markets Authority, the drop in listing costs as well as the increase in points of contact with investors in the main markets. investment, increased liquidity and improved governance can lead to exponential growth.