Early stage funding sources and performances for information technology startups in Kenya

Abstract

Approximately 70% to 90% of startups fail due to lack of financing .Various funding sources have impacted significantly on performance of IT Startups in Kenya. In Kenya the ICT sector has outperformed all other segments of the economy, growing by 23%. Lack of finance has been cited as a major contributor to SMEs failure in Kenya. The overall objective of this study was thus to establish the relationship between level of early stage funding from various sources and performance of IT Startups in Kenya. The research design adopted was mixed that is descriptive cross-sectional survey and qualitative case study. The design also enabled the researcher to gain a deep understanding of the area. The population of this study comprised of 122 IT Startups currently engaging in the use of different funding options activities, Bootstrapping, Angel Investors, Venture capitalists, Crowdfunding, Family and friends. In the quantitative study 70 IT SME startups responded to the questionnaire administered. In the qualitative study 2 entrepreneurs participated using the interview guide. Data was collected through closed ended survey questionnaire and open ended interview guide. The online and pick and drop system was used to send questionnaires to some IT startups. Personal interviews were conducted on the 2 managers with the open ended guide. Data analysis was carried out using descriptive, regression and content analysis. The questionnaire used descriptive statistics while the interview guide was carried out using content analysis. At the end of the research, triangulation method was used to facilitate the application and combination of the two research methods in the study of the same phenomenon. The findings in this study revealed that the level of funding from the different sources is positively correlated to the performance of IT startups for example Venture capitalists is the best source because they put in more than just funding they bring in networking and business support and there management style is more hands on. Based on the above findings, the following recommendations are proposed: IT startups should be encouraged to use the various forms of finance for economic development, formulation of policy should correlate with the nature of financial guarantees that can be provided to IT SMEs by both the national and county governments. One of the limitations was some of the sampled IT Startup became non-responsive due to internal nondisclosure policies since the financial data sought was regarded as confidential information. The study recommends the use of the different early stage funding sources as one’s venture has a better chance of performing as there is positive correlation relationship between the funding sources and performance for Information Technology startups in Kenya.