Factors Affecting Venture Capital Financing In Kenya

Abstract

This study is a survey of the Venture Capital firms and their related target enterprises in Kenya to determine the factors affecting the Venture capital industry in the country. The objectives of the study were to:- i) Identify the factors that venture capitalists consider when funding enterprises in Kenya. ii) Identify the factors that affect venture capital as a funding source in Kenya. iii) Identify the characteristics of the various enterprises that venture capitalists find attractive in order to determine if certain venture capitalists cluster around enterprises with certain characteristics and therefore if the choice of the venture capitalist plays a part in the successful application for funding. Primary data was obtained using questionnaires, which are attached as Appendix A. The target enterprises were identified through a search at the Nairobi Stock Exchange, the Capital Markets Authority and the registrar of Companies at the Attorney General's Office. The questionnaires were sent to all identified companies, as shown in table 1, but a number did not respond. The respondents also helped identify the target enterprises, of which 14 were interviewed as indicated in table 2. The data was analysed using SPSS, which provided tabular data with frequencies. The data was manipulated to bring out the relevant factors as shown in the data analysis section. The analysis was then interpreted to show the relationships, trends and factors that emerged as key in the Venture capital industry in Kenya. In conclusion, the study reveals that Venture capital in Kenya is still in the infant stage with no formal structures and that Venture capital companies are risk averse in their approach to the market. Two major trends are identifiable, the first being that certain Venture capital companies cluster around certain type of financing instruments and certain industry segments. This indicates that the financing decision is a highly personal one, leading us to conclude that there is information inefficiency in the Venture capital industry in Kenya.