Venture Capital (VC): The all Important MSMEs Financing Strategy under Neglect in Kenya
Micro, Small and Medium Enterprises (MSMEs) in Afri ca, have been variously reported to suffer lack of financial resources for growth and sustainability, especially because debt financing for financial institutions is generally expensive. That Equity financing through Venture ca pital (VC) is a non-bank source of funds considered to be an important alternative financing for small scale ent erprising yearning to grow. Studies show that VC h as the capacity to reduce problems of information asymmetr y, adverse selection and moral hazard. VC though to uted as the best alternative financial resource for MSMEs worldwide is still less appreciated by entrepreneu rs in Africa in general and Kenya in particular. Empirical stud ies have shown that VCs portend more risk in financ ing MSMEs in earlier development stages, however, with proportionate breath; reasonable return is expected from early stage financing, into their mezzanine, growth and early maturity stages. Study reports therefo re provide that there should be no cause for alarm on the side of the entrepreneur and the Venture Capitalist. Th is paper sought to investigate the level of awareness, appre ciation and acknowleggement among the Kenyan invest ment community about the role Venture Capital financing play in boosting industrial development through MSM Es. The study employed a case study methodology that ut ilized a sample of 106 MSMES out of a target popula tion of 229 MSMES registered in Nairobi Central Business Di strict in Kenya. Data were collected by use of sem i- structured questionnaire and personal interviews. Descriptive statistics including correlation analys is, ANOVA and measures of central tendencies using SPSS versi on 19 were employed to determine the variable assoc iations, relationships and dispersion. The main findings wer e that all entrepreneurship development stakeholder s were largely ignorant of the potentials for VCs to bridg e the MSME financing gap. That venture capitalists were not willing to finance MSMEs in Kenya due to their vola tility, inability to meet the requirements of ventu re capitalists and their inexperience in business financial manage ment. That MSMEs in Kenya were found to be scarcely in partnerships, which denied them reasonable capital base requisite to attract VCs. Despite the fact tha t VC is one of the most relevant and important sources of finan ce for innovative entrepreneurship growth, this stu dy found lack of enterprising culture to drive the promotion , competition, innovation, sector development and industrialization in Kenya.