Kenya’s capital Nairobi has improved as one of the most preferred cities for startup investments, climbing 24 places to position 113 globally, up from 137th last year.

According to the latest Global Startup Ecosystem Index report published by sector research centre StartupBlink, Nairobi also rose one spot among African peers to rank third after it pipped South Africa’s Cape Town.

The latest ranking points to a sustained perfection by Nairobi from the 163rd place it occupied in the 2022 grading.

In yet another win for Kenya, Kisumu made it to the global top 1,000 list for the first time, holding the 985th position while on the downside, Mombasa slipped from the coveted group continuing on its last year's course where it dropped 46 slots to rank at position 937.

Among factors that have been attributed to Nairobi’s consistency in maintaining startup attractiveness include active public sector involvement that has seen the establishment of tech hubs such as the Konza Technopolis as well as the promise to enact the Startup Act, which is a framework that encourages a culture of innovation and entrepreneurship.

Read: Kenya is Africa’s start-up funding top destination

“Besides public sector efforts, Nairobi is home to regional offices of global tech giants like Google, Microsoft, Samsung, and Intel, which makes the city attractive to tech startups. Also, the presence of accelerators like Antler and Pangea Accelerator contributes to the startup culture,” said the report.

“The Association of Startup and SMEs Enablers of Kenya (ASSEK) actively fosters relationships between stakeholders within the ecosystem.”

Mobile payments solution M-Pesa has also played a prominent role in cementing the city’s status as an innovative tech hub with the report noting that its takeoff was impressive considering Kenya’s relatively low population compared to larger African economies.

Nairobi’s improvement comes at a time when local news headlines are awash with reports of entrepreneurial struggles as startups fold down while others scale back operations on what they have primarily termed as a prolonged funding drought.

E-commerce firm Copia is the latest to join the ranks of struggling startups in Kenya. Copia was on May 23, 2024 placed under administration barely weeks after it issued a redundancy notice of sending home 1,060 workers, woes it blamed on liquidity constraints.

An analysis by Business Daily shows that at least eight Kenyan tech startups have closed shop in the past two-and-a-half years despite absorbing a combined total of Sh11.2 billion while scores more are exhibiting distress signs.

Although most of the startups blame their troubles on the funding drought, available data and interviews with founders suggest other factors, including the viability of their business models and most recently, unfavourable and unpredictable taxation regimes.