Impact of venture capital financing on small- and medium-sized enterprises’ performance in Uganda

Abstract

Background: Small- and medium-sized enterprises (SMEs) in Africa and Uganda suffer from lack of finance for their survival and growth. This liquidity emergency motivated start-ups struggling to find alternative financing sources different from conventional bank lending. Venture capital financing evolved as viable financial mechanisms to revive SMEs’ performance.Aim: This article analysed the impact of venture capital financing on SMEs’ performance in Uganda. This is the first empirical study that related and brought together the understanding of business entrepreneurs with those of venture capitalists.Setting: The rate of start-up business failure in Africa remains high, triggering an enormous threat to policy-makers and international development partners. Besides, the literature is diminutive, intermittent and fragmented to document venture capital performance.Methods: The study adopted a mixed-method and used survey questionnaires administered to 90 SMEs and complemented with data from semi-structured interviews. We used multiple regression analysis and correlation coefficient for data analysis generated from the Statistical Package for the Social Sciences.Results: Empirical evidence exhibited tremendous growth of venture-capital-backed companies in sales turnover, profitability and return on assets matched to the non-venture-capital-backed firms.Conclusion: This article presented the first extensive empirical study confirming evidence of venture capital financing for the enhancement of SMEs’ performance and development in Uganda regarding revenue growth, profitability and return on assets. This study recommended to policy-makers and the business fraternity to develop policy frameworks tailored to the enhancement of the venture capital landscape growth.

Entrepreneurs’ endogenous attributes necessary for small enterprise success in Vhembe rural areas, South Africa

“…Endogenous factors have not been given ample attention in small business research, even though in some countries they have been found to complement exogenous factors effectively. According to Blume and Sargent (2015), a holistic entrepreneurial activity is that which successfully harnesses both exogenous and endogenous components in its framework, although there is a strong belief that a significant component of SMMEs' failure is attributable to constraints from the exogenous environment, especially finance (Agbenyegah 2013;Agwa-Ejon & Mbohwa 2015;Asongu & Odhiambo 2019;Cant & Wiid 2013;Chimucheka & Rungani 2011;Kato & Tsoka 2020;Moos & Sambo 2018). It becomes particularly worrisome when the majority of SMMEs with access to various forms of exogenous support still fail (Sustainable Development Consortium 2007;Madichie, Mpiti & Rambe 2019;Malebana 2017;Ramukumbasup et al 2011).…”

Government's impact on the venture capital market and small-medium enterprises' survival and growth in East Africa, evidence from Uganda

“…Furthermore, a quick analysis of the VC markets of European Union (EU) countries reveals that from 2007 to 2019 EU governmental agencies provided €16.4 billion of VC funds to EU countries (Invest Europe, 2020; Kallay & Jaki 2020). Nonetheless, little is known about government VC funding in African countries because the contributions of their regimes to the VC industry in Africa is minimal (Deventer & Mlambo, 2008;Deloitte & SAVCA, 2009;Agyeman, 2010;Shanthi et al, 2018: Mboto et al, 2018Kato & Tsoka, 2020;Maurizio, 2020). This paper, therefore, attempts to discover why Africa's VC market has been under-exploited; evidence from Uganda is utilised to facilitate this discovery.…”

“…This paper, therefore, attempts to discover why Africa's VC market has been under-exploited; evidence from Uganda is utilised to facilitate this discovery. Despite the pitfalls observed in the VC industry in Africa, topical literature underwrites VC as the primary funding instrument for early-stage entrepreneurial firms (Baldock, 2016;Biney, 2018;Rosa et al, 2019;Thies et al, 2019;Kato & Tsoka, 2020;Gompers et al, 2020;Lerner & Nanda, 2020;Gaies et al, 2021). Besides, scholars disclose that the surpassing growth of the United States (US) VC markets can be squarely attributed to far-reaching government patronage provided directly by government VC funding (GVCF) and the enactment of supportive regulatory reforms (Gompers & Lerner, 2001;Lerner 2010;Deloitte & NVCA, Owen et al, 2019;Lerner, 2020: Gompers et al, 2020NVCA, 2020).…”

“…While several developing countries are recognised for undertaking policy reforms to stimulate VC market development, occasionally they are unclear about the intervening policy approaches to implement (Lerner et al, 2016;KPMG & EAVCA, 2019). VC is a high-risk equity capital in the form of seed, startup and expansion financing and invested in companies that have already demonstrated business potential but that are not listed on public securities markets or are too underprivileged to access traditional funding sources (Gompers & Lerner, 1999;Chemmanur et al, 2014;Lerner, 2010;Kato & Tsoka, 2020). As such, increasing input from co-investment funds (CIFs) into PVC firms may offer benefits to fix the equity gap, especially in countries with VC scarcities (Baldock & Mason, 2015;Colombo et al, 2016;Kato & Germinah, 2020).…”

“…In Uganda, which is the focus of this research, a handful of government programmes and policy reforms were established between 2015 and 2016 for easy access to VC financing by early-stage entrepreneurial firms. These involved the inauguration of annual VC international conferences, a one-stopover business centre and tax incentives to attract foreign VC investment (Uganda Investment Authority, 2016; Kato & Tsoka, 2020). Baldock (2016), Gompers et al (2020) and Lerner, (2020) also noted that the significant increase of government VC-backed companies is clear evidence of the government's commitment to flourish VC markets.…”