Effects of Entrepreneurial and Firm Characteristics on Access to Venture Capital by Small and Medium Enterprises in Nairobi City County, Kenya
Muchira, Bancy Wawira
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Small and medium Enterprises are vital for economic growth especially in the developing countries. However, empirical evidence shows that most of these enterprises fail due to poor/lack of access to finance. Access to venture capital by the small and medium enterprises could be a plausible alternative but unfortunately research has pointed out that majority of the enterprises do not access venture capital financing, which is considered an important option for small and medium enterprises trying to grow. This study therefore sought to investigate the effect of entrepreneurial and firm characteristics on access to venture capital by small and medium enterprises in Kenya. The study was guided by the following specific objectives; To determine the effect of entrepreneur‟s innovativeness on access to venture capital, to establish the effect of entrepreneur‟s managerial competency on access to venture capital, to determine the effect of firm‟s age on access to venture capital, to establish the effect of firm‟s sector of operation on access to venture capital, to determine the mediating effect of firms performance on the relationship between entrepreneurial and firm characteristic and access to venture capital and lastly to determine the moderating effect of risk reduction strategies on the relationship between entrepreneurial and firm characteristics on access to venture capital by Small and medium size enterprises in Kenya. Agency theory underpinned the study. The study adopted the explanatory non experimental research design and positivism philosophy guided the study. Target population of the study was 334 Small and medium size enterprises ranked by KPMG between 2008 and 2017 in their annual survey. Proportionate random sampling technique was used to select the firms. Primary data was collected by semi structured questionnaire, using drop and pick method. Both descriptive statistics and inferential statistics were used to analyze the data. Nested multinomial logit model was used to establish the effect of entrepreneurial and firm characteristic on access to venture capital financing. The results reveal that; the influence of an entrepreneur‟s innovativeness on access to venture capital financing is statistically significant. Secondly, managerial competency had positive influence and was statistically significant to access to venture capital financing among SMEs. Third, the results show that SMEs in the service industry benefits more from venture capital as opposed to those in the non-service industry. Fourthly, the results show that a firm‟s age has a positive though statistically insignificant influence on access to venture capital financing. Fifth, there is no mediating relationship between a firm‟s performance on the relationship between entrepreneurial and firm characteristic and access to venture capital financing. Finally, there exists a moderating relationship between entrepreneurial and firm characteristic on access to venture capital financing. From the findings, a number of recommendations can be made. First, SMEs should continue investing in enhancing entrepreneurial innovativeness as it increases the propensity of their enterprises from accessing venture capital financing. Secondly, given that managerial competency positively affects SMEs access of venture capital financing, firms should invest in human capital of their management through various strategies. For instance, investing in training gives employees the opportunity to develop new skills and accumulate the knowledge they need in order to achieve specific organizational and personal goals with the priority being to train managers so that they can be able to cope with the challenges which hinder business success.