Effects of Access to Venture Capital on Financial Performance of Small and Medium Sized Enterprises in Mombasa County

Abstract

The objective of this study was to establish the effect of access to venture capital on the financial performance of small and medium sized enterprises in Mombasa County. The study also sought to establish the effect of age and size of the small and medium sized enterprises as well as the gender and level of education of the managers on financial performance. The study employed a descriptive research design. The target population was the 100 small and medium sized enterprises in Mombasa County for the year 2013. Purposive sampling was used to select the sample of study by which a sample of 40 small and medium sized enterprises was selected. The study made use of primary data which was collected by the use of a questionnaire. Descriptive analysis was used to describe the data collected using percentages while regression analysis was used to examine the effect of access to venture capital, age of the business, size of the business, gender of the business manager and manager’s education level on returns on assets. The regression model was evaluated using the coefficient of determination R2 while the overall significance of the regression results was tested using F statistic at a 5% level of significance. The significance of the independent variables was tested using t-test at 5% significance level. It was found that 20 of the 32 respondents representing 62.5% had access to venture capital financing. The result of regression analysis indicated that access to venture capital had a positive effect on return on assets. The result of t-test indicated that the effect was not significant at the 5% level. The age of the business was found to have a negative effect on returns on assets but the result of t-test indicated that the effect was not significant. Size of the business was found to have a positive but insignificant effect on return on assets. Gender of the business manager had a negative effect on return on asset; however the t-test indicated that the effect was not significant. Education level of the manager was found to have a positive effect which was also found to be insignificant after conducting a t-test. The regression model had a coefficient of determination R2of 16.2%. This indicated that the independent variables explained 16.2% of the variation in return on assets. The F-test for the significance of overall regression indicated that the regression was not significant at 5% level. The study concluded that access to venture capital had a positive but statistically insignificant effect of financial performance. It also concluded that size of the business and education level of the manager had positive though insignificant effect on financial performance while age of the business and gender of the manager had a negative but statistically insignificant effect on financial performance. The study recommends that since access to venture capital had a positive effect on financial performance entrepreneurs may expect that funding their business with venture capital fund will have a positive but not statistically significant effect on financial performance.