Determinants of investment in the informal venture capital market in Kenya
The objective of this study was to investigate the determinants of investment in the informal venture capital market in Kenya. Thus the study sought to determine the factors that contribute most significantly to the decisions by business angel investors to invest in small businesses in Kenya. In addition, the study examined the profile of the business angel investors and the relationship between the determinants and the investors’ decision to invest. The study was predominantly exploratory and employed the use of the questionnaire as the main research tool for the primary respondents and structured interviews for some of the target respondents. The target of the study was business angels also called angel investors, who had actually invested in businesses in Kenya or were prospective investors in Kenyan businesses. The business angels were identified through various methods in an attempt to survey as many respondents as possible. Besides the questionnaire respondents, the study also interviewed respondents in the financial services, SME sectors as well as public institutions that would provide further insights about the environment for business angel investing in Kenya. The results obtained from the study support much of the literature reviewed on the factors that business angels consider as they make investment decisions, the typical profiles of investors and public sector interventions that support the environment for business angel financing. One of the factors identified as statistically significant with the decision of business angels to invest in businesses is return on investment. The results obtained from the study also point to the need for entrepreneurs to be aware of different profiles of investors so they can approach those who are better matched with them. It is also important for entrepreneurs to be aware of the factors that business angels consider as they make their investment decisions. Finally, several recommendations are made on possible interventions that might be considered at policy and macro level to support the growth of business angel investing in the country. Key among this is capacity building of the entrepreneurs in terms of developing their skills for good business management as well as capacity building of the business angels specifically around training the investors on the investment process. Stakeholders interviewed suggested government might be the ideal partner to support the capacity building component until the angel financing initiative can survive on its own.