The International Journal of Business and Social Science has released a report revealing the profitability of venture capital within the political and economic Kenyan climate, following a study on the growth of small and medium enterprises (SMEs) in the country.
SMEs in Kenya have found it hard to access finances for growth and expansion, the Venture capital (CV) report says.
While the study shows that on one hand venture capitals have provided equity capital, it also reveals they are value-adding investors bringing significant benefits with regard to expertise.
According to the study, which surveyed 200 companies, venture capital, prevalent in developed countries, has played a significant role in enhancing growth of the SMEs.
The report showed increase in profitability as significant to business growth. According to the report, the minimum profit before use of venture capital was KSh34, 866. Upon use of venture capital, the minimum profit increased to KSh600, 000 showing an increase in minimum profit of 94 percent.
According to VC Africa, the maximum profit the respondents reported before use of venture capital was KSh38, 567,951, which increased to Ksh 62, 864,152 an increase of 63 percent. The average profit also increased by 69 percent (from Ksh 7,204,653 to Ksh 12, 202,775).
The study also reviewed the growth in profits in relation to different types of businesses. VC Africa said merchandising types of business reported an average growth in profit margin of 18.2 percent, followed by agriculture at 14.4 percent, services 12.8 at percent and manufacturing at 9.3 percent. This reflects growth in profits as a result of the use of venture capital despite the type of businesses.
The report further identified the firms offering grants and other finances to the SMES.
Acacia Fund Limited, which provides risk capital to new or expanding enterprises, Aureos East Africa, which provides private equity and loan facilities, and Kenya Management Company Ltd, which provides equity, related investments in private sector to companies with high growth potential to expand well-run businesses, were identified.
Over the years, more venture companies have put up shop in Kenya especially in the ICT sector including 88MPH, which has currently invested in seven IT startups.
Other examples include the eVa Fund, that invested undisclosed amount in African IT companies including PesaPal, Jumuika, Explainer DC, and Umuntu Media.
The Kenya ICT Board also recently gave grants to upcoming tech innovators to spur the growth of their ideas.
The study also shows venture capital injection enables companies to employ more workforce hence enabling job creation in the country.
The report, compiled by the help of School of Human Resource Development Jomo Kenyatta University of Agriculture and Technology, sought to find out whether venture funding is instrumental in the growth of the SMEs in the country.