Kenyan startups are facing a funding squeeze even as pension schemes hold substantial pools of capital that remain largely invested in government securities, raising fresh questions over why more domestic money is not reaching private businesses.
New data shows startups in Kenya raised Ksh16.3 billion in the first half of 2026, down from Ksh17 billion during a similar period in 2025. The decline represents a drop of about 4.1 per cent and has intensified debate over how the country can unlock more local capital to finance emerging businesses.
The funding slowdown comes against a backdrop of significant pension assets being channelled into government securities rather than private equity, venture capital and infrastructure investments.
As of June 2026, government securities accounted for approximately 47 per cent of pension assets, while only 1.36 per cent was invested in private equity and 0.02 per cent in infrastructure debt instruments.
This is despite pension schemes being allowed under the current investment framework to allocate up to 10 per cent of their assets to private equity and venture capital, as well as a further 10 per cent to infrastructure debt instruments.
The figures were highlighted during the 10th East Africa Venture Capital Association (EAVCA) Annual Private Wealth Conference in Nairobi, where investors, policymakers, development partners and business leaders examined ways of strengthening domestic capital markets and supporting businesses seeking to scale.
The discussions pointed to a major gap in Kenya's investment ecosystem: capital is available, but mechanisms for connecting institutional investors with businesses that need funding remain underdeveloped.
Investors argued that stronger links between startups and full-service investment banks could help businesses become more attractive to institutional investors through better valuations, due diligence, capital-raising strategies and investment structures.
"As we mark 10 years as an association, we are looking ahead to strengthening domestic capital, accelerating regional integration and positioning East Africa to attract and deploy global investment at greater scale," said Christine Maina, Chief Executive Officer of the East Africa Venture Capital Association (EAVCA).
"Our rebrand reflects this broader ambition: to evolve with a changing investment landscape and help structure the next stage of Africa's growth. Private capital will be critical to financing entrepreneurship, infrastructure, innovation and economic resilience, and our ambition is for EAVCA to be at the center of the partnerships, policies and investment needed to shape that future."
The conference also identified risk as one of the key barriers preventing more institutional money from flowing into startups and other private-sector investments.
Muathi Kilonzo, Managing Director of NCBA Investment Bank, argued that large investors require properly structured opportunities before committing capital. "The opportunity before us is to make the connection between capital and opportunity more efficient," said Kilonzo.
"Institutional capital requires investable structures, credible projects, appropriate risk allocation and clear pathways to returns. NCBA Investment Bank has the privilege of being the largest full-service investment bank in the region, having mobilized over Ksh100 billion in assets under management, and we have the capacity to help startups and enterprises prepare to unlock their next phase of growth," said Kilonzo.
Delegates proposed greater use of guarantees, blended finance and credit enhancement mechanisms to spread investment risk, alongside stronger local fund-management capabilities.
They also called for deeper exit markets to enable investors to recover and recycle capital into new businesses, as well as more aligned regulations to facilitate investment flows across East Africa.
For Kenya's startup ecosystem, the challenge therefore extends beyond attracting foreign venture capital. The growing focus is on whether domestic institutional investors can be connected more effectively with local enterprises, potentially creating a more sustainable source of funding as global startup capital becomes harder to secure.
The Ksh16.3 billion raised in the first half of 2026 underscores the pressure facing entrepreneurs, while the relatively small share of pension assets deployed into private markets highlights the untapped domestic capital that investors believe could help close the funding gap.
