Determinants of the Growth of Venture Capital in Nairobi City County, Kenya

Abstract

Venture capital investment is concept that has increasingly attracted an attentions and expansion in the recent past. Many developed countries have so far embraced this increasing the production firms increasing and improving their national income generation and thus spurring economic growth. On the other hand, this is not the case with developing countries. Thus, this study seeks to examine the determinants of venture capital investment among developing economies, in which the case study was Kenya. The study objectives were; to examine the effect of financial innovations on the growth of venture capital in Nairobi city County, Kenya; to assess the influence of corporate governance on the growth of venture capital in Nairobi City County, Kenya; to establish the effect of diversification on the growth of venture capital in Nairobi City County, Kenya. Four theories underpinned the study that is the pecking order theory, portfolio theory and stakeholder theory and resource-based theory. Also, this study employed a descriptive design. The target population for the current study was a total of 33 venture capital firms operating within Nairobi City County. The respondents were a total of 33 fund’s managers, and 76 employees from the firms making a total of 109 respondents. Questionnaires be used in primary data collection. The validity and reliability were ascertained through content validity where a research expert and supervisor were employed for validity while pilot test was conducted to ascertain reliability by calculating Cronbach alpha to measure the internal consistence. The threshold of the Cronbach's bar alpha is 0.7. Data collection was done where questionnaires were distributed to the respondents using the drop and pick method and the respondents were then be allowed a two-week period respond to the questionnaire. Collected data were then be analysed using descriptive statistics, that is, frequencies, percentages, standard deviation, and mean. A Statistical Package for Social Sciences (SPSS) was used for data analysis. Findings were presented using bar charts, graphs, and diagrams for the purpose of easy analysis and interpretation. The study further conducted six diagnostic tests to ascertain normal distribution of data and to check internal consistence. Lastly, the study was done under strict ethical considerations that is an introduction letter was sought from the university, and research permit sought form the national commission for science, technology and innovation and respondent. From the results, three variables financial innovations, corporate governance and diversification depicted a positive and significant influence on the growth of venture capital in Nairobi County, Kenya. This implies that holding the three factors (FI, CG, and D) constant, the growth of venture capital in Kenya improved by 0.542 units at 0.008 level of confidence.