VENTURE CAPITAL FINANCING AND FINANCIAL PERFORMANCE OF TECHNOLOGY START-UP FIRMS IN KENYA
VENTURE CAPITAL FINANCING AND FINANCIAL PERFORMANCE OF TECHNOLOGY START-UP FIRMS IN KENYA
Leonard L. Mwasi - Master’s student, Department of Accounting & Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Technology start-up firms perform an essential part in boosting innovation and job creation in any economy. Africa is seeing a growing number of technology-based start-up firms helping improve sectors such as financial technology, agriculture, e-health, transport and education. However, access to financing remains a major challenge for technology-based startup firms as formal financial institutions are afraid to provide financing, especially to early-stage startups. The purpose of this study was to identify the relationship between venture capital financing and the financial performance of Kenyan technology start-ups. The specific objective of this study were to identify the relationship between equity financing, conditional loans, convertible debentures and the financial performance of Kenyan technology start-up firms. The study used interest rates as the mitigating effect. This study was based on three main theories. Resource-Based Theory, Psychological Theory of Entrepreneurship, Economic Theory of Entrepreneurship. The study will incorporate descriptive research. The survey conducted on technology-based start-up firms operating in Kenya. The study sampled 129 of 191 registered venture capital-funded Kenyan technology start-up firms over a six-year period from 2016 to 2022. The selected 129 technology start-up firms were sampled using stratified random sampling. This study primarily used secondary data from reports, financial statements and publications issued by the target incubation centers. This approach was considered to avoid the difficulty of obtaining information as most start-up firms keep their financial information highly confidential. Statistical packages for Social Sciences was used to support the analysis, as tabular reports, graphs, and trend charts can be created from the software. This study used linear regression analysis to determine the impact of venture capital on the financial performance of technology start-up firms. Normality, multicollinearity, and autocorrelation tests will be performed to assess the distribution and collinearity of the regression model. Data was displayed as charts, graphs, and pie charts. The study was able to access information from 107 technology start-up firms which represent 85% response rate. The variables considered for the study were able to explicate 38.7% of variation on financial performance. The research observed that there was an inversely relationship between equity financing and financial performance of technology start-up firms in Kenya. The research further showed that an increase in factors such as good repayment terms, Interest rates borrowing requirements increases the financial performance of technology start-up firms in Kenya. Financial performance of technology start-up firms was found to be directly affected by, long-term goals of the firm, Need for control and Ratio of conversion. The study further determined a positive correlation between venture capital financing and the financial performance of technology start-up firms in Kenya.
