Determinants of Accessibility to venture capital funds: Study of small and medium enterprises in Nairobi county, Kenya

Abstract

Accessibility to finances by the Small and Medium Enterprise (SMEs) in Kenya has been a major challenge. Venture Capital is one of the most convenient and secure source of finance to SMEs yet its accessibility is the greatest challenge to most SMEs in Kenya, therefore there is need to research on the determinants of accessibility to venture capital by SMEs. The main objective of the study was to determine the factors affecting accessibility to venture capital by SMEs in Kenya while the Specific objectives of the study was to determine the effect of Information disclosure, SME Owners awareness level, Quality of financial statements and Owners managerial competence on accessibility to Venture Capital funds by SMEs. This study adopted an explanatory design and the population of study comprised 11,753 SMEs registered and operating in Nairobi CBD, which is located in Nairobi County. The study used stratified random sampling technique to select 387 SMEs for the study and 387 five point Like scale structured questionnaires were distributed to the respondents out of which 279 of them were collected which represented 72% response rate. Qualitative method of data analysis was used in analyzing the questionnaires in order to establish the relationship between the Independent variables and the Dependent Variable. Data was analyzed using descriptive statistics which include means and standard deviation. Inferential statistics which include Pearson correlation and multiple regressions were also used to test hypotheses. The findings indicated information disclosure (β 1 = 0.563, ρ=0.000<0.05), owners’ awareness level (β 2 = 0.131, ρ=0.014<0.05), owners’ managerial competence (β 3 =0.129, ρ=0.005<0.05 and quality financial records (β 4 = 0.159, ρ<0.05) positively significantly affects access to venture capital. The study thus, concluded that information disclosure, owners’ awareness level, owners’ managerial competence and quality financial records play a key role in enhancing access to venture capital. There is need for SMEs to keep a record of financial statements for future reference so that they can easily disclose them when required to. Invoices and receipts also need to be filed. They need to have an understanding of the risks and benefits of venture capital, attend trainings on business management and finally to have a good record keeping so that they can easily make decisions with the aid of the financial statements. This study has also provided the elements or qualities that attract SMEs Venture Capitalists. Future research should attempt to gather information from SMEs in other regions in Kenya to establish if the results of the study hold.