Venture Capital Financing and Financial Performance of Technology Start-Up Firms in Kenya
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Date
2023
Authors
Mwasi, Leonard L.
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Technology start-up firms perform an
essential part in boosting innovation and job
creation in any economy. Africa is seeing a
growing number of technology-based start-up
firms helping improve sectors such as
financial technology, agriculture, e-health,
transport and education. However, access to
financing remains a major challenge for
technology-based startup firms as formal
financial institutions are afraid to provide
financing, especially to early-stage startups.
The purpose of this study was to identify the
relationship between venture capital financing
and the financial performance of Kenyan
technology start-ups. The specific objective of
this study were to identify the relationship
between equity financing, conditional loans,
convertible debentures and the financial
performance of Kenyan technology start-up
firms. The study used interest rates as the
mitigating effect. This study was based on
three main theories. Resource-Based Theory,
Psychological Theory of Entrepreneurship,
Economic Theory of Entrepreneurship. The
study will incorporate descriptive research.
The survey conducted on technology-based
start-up firms operating in Kenya. The study
sampled 129 of 191 registered venture capitalfunded Kenyan technology start-up firms over
a six-year period from 2016 to 2022. The
selected 129 technology start-up firms were
sampled using stratified random sampling.
This study primarily used secondary data
from reports, financial statements and
publications issued by the target incubation
centers. This approach was considered to
avoid the difficulty of obtaining information
as most start-up firms keep their financial
information highly confidential. Statistical
packages for Social Sciences was used to
support the analysis, as tabular reports,
graphs, and trend charts can be created from
the software. This study used linear regression
analysis to determine the impact of venture
capital on the financial performance of
technology start-up firms. Normality,
multicollinearity, and autocorrelation tests
will be performed to assess the distribution
and collinearity of the regression model. Data
was displayed as charts, graphs, and pie
charts. The study was able to access
information from 107 technology start-up
firms which represent 85% response rate. The
variables considered for the study were able
to explicate 38.7% of variation on financial
performance. The research observed that there
was an inversely relationship between equity
financing and financial performance of
technology start-up firms in Kenya. The
research further showed that an increase in
factors such as good repayment terms, Interest
rates borrowing requirements increases the
financial performance of technology start-up
firms in Kenya. Financial performance of
technology start-up firms was found to be
directly affected by, long-term goals of the
firm, Need for control and Ratio of
conversion. The study further determined a
positive correlation between venture capital
financing and the financial performance of
technology start-up firms in Kenya
Description
Article
Keywords
Venture capital financing, Financial performance and Technology startup firms
Citation
Mwasi, L. L., & Aluoch, M. O. (2023). Venture capital financing and financial performance of technology start-up firms in Kenya. International Academic Journal of Economics and Finance, 3(10), 1-25.