Acquiring a Kenyan Tech Startup: What Due Diligence Actually Needs to Cover

Acquiring a tech startup in Kenya is not the same exercise as acquiring a manufacturer or a licensed financial services business. The value sits in code, data, contracts and a handful of people, most of which does not show up on a balance sheet, and legal due diligence built around traditional asset checks will miss most of what decides whether the deal is worth the price.

Who actually owns the intellectual property

Start here, because it is the most common gap. Confirm that every material asset, source code, trademarks and domain names, belongs to the company and not to a founder, an early contractor or a development agency. Under section 31(1) of the Copyright Act, 2001, copyright vests initially in the author, but where a work is made in the course of employment under a contract of service, or is commissioned by someone who is not the author’s employer, copyright is deemed transferred to the employer or the person who commissioned it, subject to any agreement excluding or limiting the transfer.

That helps, but it is not a substitute for paper. Section 33(3) provides that no assignment of copyright and no exclusive licence has effect unless it is in writing signed by or on behalf of the assignor. Whether a freelancer’s work was truly “commissioned”, and whether the contract limits the transfer, are factual questions a buyer should not leave open. Ask for the contracts with every contributor to core code, and make confirmatory written assignments from founders and contractors a condition of closing.

Data protection compliance, not just data volume

A large user base is only valuable if the data was lawfully collected and processed. Under section 18 of the Data Protection Act, 2019, no person may act as a data controller or processor unless registered with the Data Commissioner, subject to the thresholds the Commissioner prescribes by reference to industry, data volumes and the processing of sensitive data. Check the registration, the legal basis for the personal data held, the processor contracts, and any breach history or unresolved complaints. An acquirer inherits this position with the user base, and a failure found after closing is far more expensive to fix than one caught in diligence.

Competition approval can decide the timetable

A share purchase or asset purchase can be a merger under section 41 of the Competition Act, 2010. Under section 42, a merger to which the Part applies may not be implemented unless the Competition Authority has approved it, an unapproved merger has no legal effect, and payment of the full purchase price counts as implementation while a down payment of up to twenty per cent does not. The thresholds below which a merger is excluded are set by Gazette notice, so check the notice in force at signing and do not assume that a small startup deal falls outside it. Where the buyer is already active in the same space, the analysis is less likely to be routine.

Acquiring a tech startup: the cap table is rarely as clean as the pitch deck

Verify that every funding round closed the way the company says it did. Compare the register of members, the board and shareholder resolutions, share certificates and the filings made with the Registrar under the Companies Act, 2015 against the shareholder agreement and any convertible instruments, SAFEs or option promises. Informal promises of equity to early staff or advisers are common in startups and become claims on the buyer after closing. The aim is to establish the legal position, not the spreadsheet version, before agreeing a price based on percentage ownership.

Regulatory licences that travel with the business

If the target holds a regulatory licence, such as a digital credit provider registration, a payment service authorisation or a virtual asset service provider licence, confirm whether it survives a change of control or whether the buyer must apply afresh, and how long that takes. Several Kenyan financial and fintech regulators treat a change of control as an event requiring their own approval, sometimes before the transaction can close. Read the licence conditions and the governing regulations for each regulator, because the rules differ by regime.

What walks out the door if key people leave

A small technical team usually holds knowledge that never reached documentation. Review retention arrangements, confidentiality and restraint clauses, and whether the key engineers are employees or contractors. Tie part of the price to retention through deferred consideration or vesting, so that value is protected if founders leave after completion, and document the handover of credentials, repositories, cloud accounts and administrator rights at closing.