The Role of Venture Capital on the Growth of Startup Enterprises In Nairobi

Abstract

Venture Capital is a source of non-bank financing which is quite prevalent in developed financial markets that privately fund startup firms, offer management experience and technical support to startups (Sahlman, 1991). Furthermore, private equity firms are increasingly showing interest to invest in East Africa and preferably to put their money in Kenya owing to a vibrant private sector and ease of doing business deals (Deloitte, 2016). Most of entrepreneurial funding in Kenya is finding its way onto startups markets, which are the main engines of growth for the region with a total of 254 private equity deals have been reported in the region since 2010, with a cumulative value of $21.1bilion. There’s a buoyant growth in start-ups in Kenya and hence there is need to identify the contribution of business angels to the success of these start up enterprises. Despite their significance and the increased efforts by governments and other stakeholders to ensure the success of startups, past statistics indicate that 40% of the startups fail by the second year with at least 60% closing their doors by the fourth year. The target population of this study consisted of 254 SMEs that have used venture capital. The research employed a descriptive study and sampled 72 SMEs for the study. Data was collected through semi structured questionnaire. The completed questionnaires were reviewed and edited for accuracy, consistency and completeness. The data was analyzed using descriptive statistics, such as mean scores, percentages and standard deviations. The results were presented in frequency tables, charts and graphs. Regression and correlation analysis was applied to show the relationship between variables. The study established that venture capital financing, management support, technical expertise and monitoring played a great role in growth of startups. From the findings, it is recommended that venture capital investors can do more to encourage startup investments. Venture capitalists have a role to play in stimulating direct venture capital investment via co-investments with corporations. The government and Policy makers should provide credit and equity financing to eligible Venture Capital Finance Companies to support startups and provide money to support other activities and programs for the promotion of Venture Capital Financing. This would be an important method for initially stimulating interest in an activity that many corporate executives are possibly not currently considering.