An Investigation Into Venture Capital Financing for Small and Medium-scale Enterprises in Information Technology

Abstract

This study concerned itself with venture capital financing for small and medium-scale enterprises (SMEs) especially those in information technology. These SMEs are very important in the Kenya's industrialization process by the year 2020 despite the fact that lack of

finance continually hamper their development. The introduction of venture capital financing in Kenya has been applauded as a long-term solution to this problem. Evidently, however, SMEs are reluctant to use this form of financing. With this state of affairs in the market for funds,

the study was set out to determine various sources of financing the SMEs as well as reasons behind reluctant acceptance of venture capital financing in Kenya. To achieve this obje~tive, a sample of 50 small and medium-

scale firms~

in information technology situated in Nairobi

was se.lected from those listed in the Kenya business directory and a questionnaire was administered to collect primary data. The resuit shows that most SMEs are familiar with the operation of venture capital though none had used this form of funds as they mostly used personal savings and overdraft. It was found that very few firms have the need to expand, reconstruct, or diversify in order to be xi

listed in a stock market. Most of them felt that venture capitalists may dilute the ownership of the SMEs and therefore had a low attitude towards them. The conclusion reached was that venture capitalists should offer funds in a new business and have no interest in managing the firm, although they should provide the necessary advice. They need to do more than just cajole investors into starting a business. They must also make it easier for people with bright ideas to start companies

which can attract adventurous capitalists