Determinants of Financial Performance of Venture Capital Firms in Kenya

Abstract

Globally, entrepreneurs have ideas that require substantial financing to implement but lack the funds to finance these projects. Venture capitalists (VCs) represent one solution to financing high-risk, potentially high-reward projects. VCs typically identify, evaluate and invest in high risk investments that limited partners would otherwise find difficult to invest in directly. In Kenya, the VC industry has been in existence since the 1990s. However, operation volumes are still small in scale as VC firms account for a tiny share of the financial market thereby rising questions on what challenges constrain their growth/ development. Though several factors have been put forward as major determinants of VC activity, there seems to be no agreement among various researchers. This survey on 12 Venture capital firms registered and licensed by CMA to operate in Kenya establishes the factors that determine financial performance of VC firms in Kenya as; portfolio company characteristics, Venture capital characteristics, Investment process, exit process, Portfolio Company management and external environmental factors. There are also some notable strong correlations between the independent variables themselves.