An Analysis of the Impact of Venture Capital Finance on the Performance of Small-Medium Enterprises in Uganda

Abstract

This study delivers a comprehensive understanding of venture capital (VC) financing performance, by highlighting what has worked well. It partially fills some of the gaps in the existing body of research. This research study was aimed at analysing the impact of VC financing on the performance of SMEs in Uganda. The study adopted a mixed-method approach and used a 5-point Likert scale semi-structured questionnaire administered to 68 key venture capital experts selected from the districts of Kampala, Wakiso, Mukono and Jinja in Uganda. The quantitative data was evaluated using a multiple regression model and other inferential tests, with results being generated using Statistical Package for the Social Sciences (SPSS). Sixteen semi-structured interviews were performed to supplement the numerical data and ATLAS-ti was used for purposes of data analysis of the results. The key findings from this study suggest superior performance of VC-financed enterprises following VC financing when compared to non-VC financed enterprises. The empirical evidence of this study disclosed that the VC-financed enterprises realised tremendous growth, specifically the Return on Equity increased by 42.3%; profitability from 30% - 50%; sales revenue by 33.6%; Return on Assets by 44.5%. In addition, 63% of the respondents confirmed a positive impact of government regulatory policy in enhancing the development of the early-stage firms. Considering these results, a higher percentage suggests commendable success and growth of an enterprise. These empirical results confirm that VC financing is a precursor for quicker growth of early-stage enterprises. On this basis, government should encourage the foreign VC firms to increase VC investment in the country to assist in closing the financing gap experienced by small firms. This study makes a vital contribution to the body of knowledge by offering a diversified framework for enterprise success in Uganda, which will be of use to key players in the VC market when evaluating the potential for success of an enterprise. The framework is important to aid the VC stakeholders in customizing adequate funding programs that can propel the realization of early-stage firms with growth potential. The research findings may support venture capitalists (VCs) in choosing SMEs with high growth potential, in order to minimize the financial risks involved in selecting less profitable ventures. Besides, the study will assist policymakers and practitioners to design appropriate policies that are customized to increase and ease access to VC finance, as well as help with adapting government programs, in order to raise awareness among the business fraternity.