KENYA – Sterling Capital Limited, a Kenyan based investment bank, has reached a deal to acquire a 20 percent stake in emerging markets private equity (PE) firm, Afvest, for an undisclosed value.

The investment bank said in a statement that the deal with Afvest was in line with a strategy to position itself “alongside a growing number of private equity funds”, which invest in scalable early-stage businesses with potential to generate high returns.

According to a Business Daily report, Sterling, backed by New York-based equity fund Kuramo Capital, said there was an opportunity for funding business with capital requirements of less than US$0.5 million (Sh50 million).

“Many private equity funds manage over Sh10 billion (US$100 million) and, therefore, have a bias to invest relatively large amounts of Sh500 million (US$5 million)per transaction.

“This limits these private equity funds to relatively larger businesses that have more options than relatively smaller businesses,” the firm said in a statement.

Afvest, backed by Kenyan professionals, largely focuses on technology-driven start-ups and early-stage enterprises with “significant scope to scale to new markets”.

“Your typical SME cannot absorb Sh500 million in capital that many private equity funds are looking to invest per transaction.

“Because of this, they tend to be overlooked by financiers, and as a result, often experience financial constraints which affect their scalability,” Mr Kenneth Ngaine, a founding shareholder and board member of Afvest said.

Founded in 2012, Afvest’s notable investments have been in solar firm Plexus Energy, San Francisco-based venture capital fund 500 Start-ups and mobile lender Micro Mobile.

Earlier this year, Sterling Capital said that it will launch a US$20 million (Sh2 billion) hedge fund that will raise money from institutions and high-net-worth individuals to invest in a wide range of assets and strategies.

These will include the proposed introduction of derivatives on the Nairobi Securities Exchange (NSE) that will allow the fund to make bets on movements of prices of assets such as stocks.

The funds were to be raised privately from select prospective investors and the process does not require approval from the Capital Markets Authority (CMA).