Factors influencing access to venture capital on growth of small and medium-sized enterprises: a case of selected small and medium-sized enterprises in Nairobi county, Kenya

Abstract

Venture capital, which is quite prevalent in developed countries, has played a big role in enhancing growth of SMEs by providing equity capital in countries where both forms of venture capital participate in financing SME. This study therefore, sought to establish factors influencing access to venture capital on growth of SMES in Kenya. The specific objectives of the study measured the following variables level of literacy, number of lending institutions, demand for collateral, business proposal andentrepreneurial experience. Descriptive design was used in this study because of its appropriateness in establishing relationships between variables and facilitating the collection of information for determining the population parameter. The study was conducted in Nairobi County. A sample size of 114 finance managers was used for the study, where the results of data was analysed and presented in form of tables. Under SME category within Nairobi County majority of the respondent (SMEs), were in wholesale and retail trade representing 17%, followed by SMEs in the category of general services at 14%. SMEs within the hotel industry registered 12% of the study population where as those in the construction industry registered a close 11%. Manufacturing and agriculture, real estate's and health registered 9%, 7% and 6% respectively. Financial Services, and Airline both represented 3%, finally education and NGOs registered both 1%. Correlation analysis indicated that there was very strong positive correlation at (0.7102) between level of Iiteracy and growth of SMEs while, there was a weak but positive correlation between demand for collateral and growth of SMEs at (0.1975). In conclusion the study has demonstrated that use of venture capital can be profitable in Kenya even in an inauspicious political and economic climate. The study recommended training of owners of SMEs in business management, Venture Capitalism into the stock markets, setting of management standards for SMEs, and improved financial, ethical and managerial records for SMEs to improve literacy levels of entrepreneurs. The study recommends the following policy initiatives by the government that will be useful in managing venture capital needs for SME at national policy level: - Easy accessibility to credit through specialized or development oriented banking or financial institutions should be encouraged. This fund should be made available to the SMEs at reduced interest rate.