Introducing university Venture Capital (VC) funds into the market could offer pension schemes an attractive diversification play while fuelling Kenya’s knowledge economy. Globally, the model is well established.
Kenya’s higher education sector faces an urgent financing challenge. Public universities and TVETs are weighed down by ballooning debts- totalling KShs 72.37 Billion as of March 2025, according to the Controller of Budget.
Kenyatta University (KShs 14.06 Billion), The University of Nairobi (KShs 12.75 Billion), and Technical University of Kenya (KShs 9.49 Billion) carry some of the heaviest burdens. TVETs fare relatively better but are not immune, Eldoret National Polytechnic leads with KShs 455.67 Million in pending bills.
The financial strain has triggered calls for bold remedial measures. Proposals range from government bailouts, concessional loans from development partners, and debt restructuring to the return of the private parallel program for C+ students and below. Others advocate for own-source revenue through income-generating units, commercialization of research, or private-sector-inspired operational models. Yet the sector’s overreliance on public funds remains its Achilles’ heel.
One innovative solution could be the creation of university-led venture capital (VC) funds- vehicles that can simultaneously finance innovation and reduce dependence on the exchequer. Beyond cushioning universities, these funds can unlock new asset classes for Kenya’s under-diversified pension schemes, which have increasingly concentrated their portfolios in fixed income assets.
As of June 2024, Kenya’s pension industry had amassed KShs 1.97 Trillion in assets under management (AUM). Fixed income investments dominated-government bonds accounted for KShs 1 Trillion (51.1%), while guaranteed funds held another 20.48%. Alternative asset classes such as REITs, private equity, venture capital, and unquoted equities together made up less than 2% of total AUM- exposing funds to concentration risks.
Introducing university VC funds into the market could offer pension schemes an attractive diversification play while fueling Kenya’s knowledge economy. Globally, the model is well established. Over 200 university venture funds are actively financing spinouts, spin-ins, and spinoffs- leveraging intellectual property to create commercial value. A spinout typically originates from within the university, while a spin-in involves external startups integrating into the university ecosystem, and a spinoff splits from an existing academic initiative into a standalone enterprise.
The most visible example is Oxford Science Enterprises (OSE)- a £1.1 Billion independent investment firm backing over 40 spinouts from the University of Oxford in sectors ranging from fusion energy and neuromorphic chips to cell and gene therapies. Founded to bridge Oxford’s research excellence with commercial capital, OSE invests between £50,000 and £25 Million per company.
MIT’s Engine Ventures, with AUM exceeding US $1 Billion, backs ‘tough tech’ startups focused on climate, health, and advanced systems. It sees opportunity in sectors like hydrogen energy (US $600 Billion), carbon capture (US $1 Trillion), and neurological disease (US $721 Billion). Likewise, Cambridge Innovation Capital (CIC) has mobilized £3.1 Billion in co-investment capital for life sciences and deep tech, while Cambridge Enterprise Ventures has invested in nearly 200 companies since 1995.
Kenya has taken tentative steps in this direction. Meru University of Science and Technology (MUST) established a KShs 100 Million innovation fund to invest in internal startups, early-stage ventures, and external spin-ins seeking R&D collaboration. The fund blends seed models and equity investing with an ambition to transition into a fully-fledged venture capital entity.
The momentum now needs to scale. Universities and TVETs across Kenya should consider establishing their own venture funds- not only to diversify their income streams, but to spark a domestic innovation ecosystem that also de-risks institutional investor portfolios. The structure can be reinforced by partnerships with licensed fund managers and regulated pension schemes under the Retirement Benefits Authority.
This also paves the way for growth in Corporate Venture Capital (CVC), where large firms co-invest in promising university-linked ventures. Safaricom’s Spark Venture Fund, launched in 2014 and managed by TBL Invest, was a pioneer. With investments ranging from KShs 6 Million to 22 Million, it supports mobile tech startups with funding, business development services, and market access via the telco’s ecosystem.
By aligning university-based innovation with long-term capital, especially from pension schemes seeking diversification- Kenya can not only address its education financing crisis but also lay the foundation for a resilient, knowledge-driven economy.
Nicasio Karani is a banking and macroeconomics specialist, currently serving as General Manager- Special Projects and Bank Economist at Equity Group Holdings PLC.
*The view expressed here are the author's own and do not necessarily reflect the editorial stance of The Kenyan Wall Street.