Determining the venture capital investment framework for MSMEs: the perspectice from venture capital funds in Kenya
Date
2012
Authors
Kamau, Juliana
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The purpose of this study was to develop the venture capital (VC) investment
framework for micro, small and medium enterprises (MSMEs) in Kenya. The
study extended previous works done on the venture capital investment process
(VCIP) from other countries to the Kenyan context. The researcher collected data
in 2010 through in-depth interviews and secondary sources from seven venture
capital funds (VCFs). Data were presented and analyzed using cross case
matrices, figures and content analysis.
The study examined the three phases of the investment process: pre-investment,
investment and post-investment phases. The study explained how VCFs made
their investment decisions from when they generated a deal with an MSME until
the time they exited from the deal.
The key results showed the differences found in the VCIP in Kenya. The results
indicated that MSMEs in Kenya received more benefits at the pre-investment
phase. One noted benefit was that VCFs assisted entrepreneurs to prepare
business plans. VCFs also educated entrepreneurs on the VCIP thus committed
more resources in the pre-investment phase.
The results also showed that micro enterprises did not receive VC because of the
risks involved. This was a key result because the expectation was that VC was
essentially for micro enterprises. However, market and industry data on micro
enterprises were often either inadequate or unavailable thus making it difficult
for VCFs to make decisions on investment opportunities and increasing
investment risks. The results also suggested that lack of VC associations, local
VCFs and inadequate support from the Kenyan government increased the
challenges faced by VCFs that attempted to invest in MSMEs in Kenya.Areas for further research include a study on the entrepreneurs’ perspective, to
suggest ways to improve the VCIP. Further study is also required on why local
investors have not established VCFs in Kenya. A comparative study on the
success of those MSMEs financed by debt capital versus those MSMEs financed
by VC could also be conducted.
Description
Submitted in partial fulfillment of the requirement for the degree of Masters of Commerce