The effect of venture capital on financial performance of small and medium enterprises in Nairobi, Kenya

Abstract

iv ABSTRACT Venture capital has been one of the sources of finance, which is more prevalent in developed financial markets, for small scale and start up firms. In Kenya Venture capital has been there for long but little used due non-awareness. It has had a significant effect on the financial performance of Small and Medium Enterprises (SME) in the developed countries. Small businesses have been used as stepping stone to industrialization in the developed countries. Many SMEs in Kenya remain small due to lack of working capital and funds for expansion, hence industrialization has been slow. SMEs lack finance due to discrimination from the formal financial institutions especially banks. SMEs have few alternatives of accessing finance other than relying on their retained earnings to finance their investments. Among the developing countries, Kenya has had venture capital since independence yet, development of SMEs has been too slow. The primary data was collected by administering structured questionnaire to the sample respondents. The questionnaire was used since the level of understanding of a the questions by the respondents was expected to be relatively high. The questionnaire was considered effective since it was not time consuming, considering that the respondents are based in Nairobi county. The data was analyzed using descriptive statistics. Statistical Package for Social Sciences (SPSS) was used to aid in the analysis .The researcher preferred SPSS because of its ability to cover a wide range of common statistical and graphical analysis. It is also very systematic. Computation of frequency in tables and graphs as was used in data presentation. The information was presented and discussed as per the objective and research question of the study. The findings of the study indicate that venture capital has an effect on financial performance of SMEs.