Factors that influence the establishment of venture capital firms in Kenya

Abstract

The purpose of this study was to investigate factors that influence the establishment of venture capital firms in Kenya. The research design adopted was descriptive. Data was collected through semi-structured interviews from eight venture capitalists in 2012. Data obtained in the study was analysed through descriptive methods and content analysis. The objectives of the study were to identify the key factors that influence establishment of venture capital firms, challenges encountered as they set up and the sectors of the economy preferred. The results showed that macroeconomic variables specifically, Gross Domestic Product (GDP), interest rates and inflation, performance of the market, funds from investors, expected rate of return and networking among venture capitalists were the key factors considered in the set up of firms. Challenges encountered were. scarce or no protection of investor's property, lack of proper documentation by the entrepreneurs who venture capitalist considered to invest in their firms or business, lack of proper valuation methods to determine the worth of a venture and lack of qualified venture capital personnel. The most preferred sectors invested by the venture capitalists were identified as manufacturing and health care. The study has contributed to the body of knowledge as this is an area where there is scarce literature especially in the emerging markets. Areas for further study include, establishing if there is ail increase in the venture capital funds and the impact on the growth of the economy and to look further into the valuation methods used to determine a venture and determine the best practice for emerging markets.