ANALYSIS OF FACTORS THAT INHIBIT THE GROWTH OF VENTURE CAPITAL MARKET IN KENYA: A CASE OF NAIROBI COUNTY

Abstract

Venture capital financing continues to play a major economic role in Kenya especially towards the attainment of the vision 2030 which aims at making Kenya a middle-income country. It is a type of financing that involves buying a viable idea and converting it into a marketable product. The major beneficiaries of venture capital are the Small Medium Entrepreneurs (SMEs). Some of the specific roles that SMEs playinclude creation of employment and reaching out to markets which have been ignored by big firms. Despite their economic contribution to the country, the SMEs continue to suffer a serious blow especially in trying to access funds from the formal and informal sources of financing. This therefore calls for the SMEs to identify alternative means of financing their businesses and VC becomes the best option. However, the growth of VC in Kenya is wanting and this informed the need for this study to examine factors that inhibit the growth of VC. The variables used in the study include: availability of alternative sources of financing, information gap, level of risk and government policies. The researcher used both structured and unstructured questionnaires and interviews to collect data. The study was conducted in Nairobi County on businesses that have been financed by venture capital firms. The sample populationcomprised of 106 entrepreneurs however, response was received from only 90 entrepreneurs. Tables and graphs were used to present the data which wasthen analyzed using SSPS software. The findings show that venture capital financing has not been fully utilized by entrepreneurs due to over-reliance on formal financing sources e.g. bank loans being most preferable means of financing. The study also revealed that there is minimal information dissemination about VC. According to the study, most entrepreneurs fear loss of control of their businesses to the financing firms and therefore shy away from VC. The study also revealed that the government plays a major role in most business growth; however, the venture capital market has not been given the special attention that it oughtto get from the government. The researcher therefore suggests that for venture capital market to grow to its full potential, proper policies need to be put in place to ensure that VC becomes attractive and accessible to more entrepreneurs.