CAPITAL GEARING, ENTREPRENEURIAL COMPETENCIES AND UPTAKE OF VENTURE CAPITAL BY SMALL AND MEDIUM ENTERPRISES: A CASE OF SELECTED VENTURE CAPITAL BENEFICIARIES OF KENYA COMMERCIAL BANK
Abstract
Purpose of the Study: The main objective of this research study was to establish the influence of capital gearing, entrepreneurial competencies and uptake of venture capital by small and medium enterprises: a case of selected venture capital beneficiaries of Kenya Commercial Bank. Specific objectives were to determine how capital gearing affects uptake of venture capital by SMEs and to establish how entrepreneurial competencies of owner/manager affects uptake of venture capital by SMEs. Venture capital is financing that private investors provide to businesses, in the start-up and early growth phases, which they believe have long term, high growth potential. These are deals predominantly funded by equity. Venture capitalists are important source of equity that can invest in any form of business, regardless of size, depending on their assessment and postulation of the success of the business. The study was anchored on resource view-based theory, institution theory and pecking order theory.
Statement of the Problem: Despite having increased significantly over the past few years across the world, recourse to venture capital in Kenya is still relatively modest compared with other markets like United States and Europe. As per a local KPMG report for the fourth quarter of 2016 it was stated that private equity firms raised $250 million (25.95 billion KES) in 2016.
Research Methodology: The study employed descriptive research design with a target population of 300 SMEs who have benefited from venture capital in Kenya through KCB Lions’ Den and KCB 2Jiajiri. Ninety respondents, randomly selected, we sampled. Questionnaires was used as the main data collection tool and before primary research, piloting was carried out to build up reliability and validity of instruments. Data gathered from correctly filled questionnaires was coded, tabulated and analyzed using Statistical Package for Social Sciences (SPSS) Version 24. Descriptive statistics which included mean and standard deviation and inferential statistics which include Pearson correlation and regression coefficient was used to capture the characteristics of the variables under study and analyses the relationship between capital gearing, entrepreneurial competencies and uptake of venture capital.
Results: The study established that that capital gearing significantly influences the uptake of venture capital by SMEs in Kenya.
Conclusion: The study concluded that the amount of debt a SME has relative to its equity influences uptake of venture capital decisions the study also established that that entrepreneurial competencies of owner/manager is a significant determinant for the uptake of venture capital by SMEs in Kenya and the study concludes that entrepreneurial competencies of owner/manager contributes significantly to the uptake of venture capital.
Recommendation: The study recommends that SMEs with high capital gearing should attract a large amount of debt that is relative to their equity. SME owners and managers should know that the gearing ratio is the measure of financial risk and expresses the amount of an organization’s debt in terms of equity. SMEs with a gearing ratio of 2.0 would have twice as much debt as equity. Another recommendation for SME owners and managers is that venture capitalist does not only assist in provision of funds but also in the internal operations of the businesses, especially policy formulation.
Key Words: Organizational Factors; Capital Gearing; Entrepreneurial Competencies; Venture Capital; Venture Capital Beneficiaries; Kenya Commercial Bank
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