Problem statement

In East Africa, Kenya has positioned itself as the economic hub of the region; this has mainly been attributed to its relatively stable regulatory frameworks, sophisticated business environment, a functional electronic banking system, large and enlightened human capital, and a dominant private sector-led economy. Consequently, Kenya has attracted numerous equity investors and venture capital investors in the last decade, making it the third country, after South Africa and Nigeria regarding capital venture and private equity transactions in Sub Saharan Africa. Between 2013 and 2015 alone more than $750 million venture capital fund have been invested across 60 percent of start-up businesses in Kenya(Divakran, McGinnis & Schneiderrking, 2018).

Entrepreneurial scholars, policymakers and economists have widely shared the optimism of the vital role of venture capital investment in the growth of start-ups (for example, Bygave and Timmons, 1986; Amit, Brander and Zott, 1988; Florida and Kenny 1998). Venture capital has been demonstrated to contribute to the graduation of many enterprises from small, to medium and finally to macro enterprises. Studies have linked venture capital investment to increased productivity of the beneficiary firms. The great achievement of venture capitalist has been primarily linked to their role in connecting a set of entities such as investment banks, government agencies, universities, and large corporations. The intricate set of an overlapping network allows them to gain access to market information including risks related to enterprise development, this ensures the elimination of information asymmetry and consequently, survival of new businesses.

Despite the proven crucial role of venture capital investment on the promotion of enterprise development, it has not been spared from criticism. Scholars have suggested that the investment only benefits a small number of companies and start-ups that receive the funding, leaving out the broader economy (Aldrich, 2008; and Kovảcs and Vajay, 2015). There are no studies in sub-Saharan Africa and notably Kenya that try to test this hypothesis. This study, therefore, seeks to empirically examine the effect of venture capital investment on economic growth in Kenya.

General objective

The general objective of the study is to determine the effect of venture capital investment on Economic growth and innovation in Kenya

Specific objectives

1. To investigate the effect of venture capital investment on Economic growth in Kenya
2. To examine the effect of venture capital investment on innovation in Kenya

References

Aldrich, H.E. (2008), Research Communications, Chapel Hill, NC: University of North Carolina.

Amit, R., J. Brander and C. Zott (1998). Why do Venture Capital Firms Exist? Theory and           Canadian Evidence. Journal of Business Venturing, 13, 441-466

Bygrave, W.D. and J.A. Timmons (1986), ‘Venture Capital’s Role in Financing Innovation for  Economic Growth,’ Journal of Business Venturing, 1, 161-76.

Divakaran, S., McGinnis, P., & Schneiderrking. (2018). Survey of the Kenyan Private Equity and Venture Capital Landscape. (Policy Research Working paper 8598)

Florida, R. L., and M. Kenny (1988). Venture Capital-financed Innovation and Technological                  Change in the USA. Research Policy, 17, 119-137

Kovảc, T., and Vajay, J. (2015). Effects of State-owned and Hybrid Venture Capital Funds in Hungary, procedia economics and finance, 30, 430-435.

 
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