Analysis of the effectiveness of venture capital on growth of small and medium enterprises in kenya: a case of Nanyuki town, Laikipia County.

Abstract

Small and medium enterprises (SMEs) play important roles in the economic growth and sustainable development of any economy (Ariyo, 2005). According to the International Finance Corporation (IFC) (2010), the formal SME sector contributes 33 per cent to gross domestic product (GDP) and accounts for about 45 per cent of total employment in developing countries. Despite their significance and the increased efforts by the government of Kenya and other stakeholders to ensure the success of small scale enterprises, past statistics indicate that they exhibit high birthrates and high death rates with 40% of the startups failing by year two and at least 60% closing their doors by year four (Kenya National Bureau of Statistics, 2007; Fina Bank Report, 2007). As James (2003) argues that smaller firms lack finance, managerial and technical skills which inhibit their effectiveness, this study will therefore seek to analyze the effectiveness of venture capital on small and medium enterprises (SMEs) in Nanyuki town Laikipia County. The study was guided by four specific objectives which are: to find out how effective venture capital is on increase in assets, increase in sales of SMEs, increase in number of employees and establish how venture capital has influenced the increase of start- up/new businesses in Nanyuki town. This study followed the theory of entrepreneurial bustle by Joseph Schumpeter (1983) where he discovered the reality of an evolution from being entrepreneurial to a traditionally managed organization. It adopted a descriptive research design. Stratified sampling method was used to draw samples from the selected active SMEs in Nanyuki town. The data was collected using questionnaires given to the sample owners and employees of the selected SMEs. Data was analyzed using Statistical Predictive Analytical Software (PASW). Descriptive statistic was used, that is mean, and standard deviation. Cross tabulation was also carried out to determine the relationship between variables. The output were presented in tables and figures.