An Assessment Into the Effect of Venture Capital Financing on the Profitability of SMEs in Nigeria
Chapter One
AIMS AND OBJECTIVES OF STUDY
The main aim of the study is to assess the effect of venture capital financing on the profitability of SMEs in Nigeria. Other specific objectives of the study include:
- to determine the extent to which venture capital financing affects profitability of SMEs in Nigeria.
- to determine the factors affecting venture capital financing of small and medium scale enterprises in Nigeria.
- to examine the awareness of the SMEs towards venture capital as a significant source of financing.
- to proffer possible solutions to the problems.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
One of the major challenges of SME is on how to raise adequate funds to enable them operate more effectively and efficiently and contribute to poverty reduction (Memba, 2011). Consequent upon this, Countries of the world have adopted different strategies and reforms to finance and stimulate the activities of SMEs. Also, many progammes were established by the government to help in the area of finance, training, extension and advisory services for the development of SMEs (Orunshola 2003). These progammes and polices notwithstanding , financing challenges still stand on the face of Small and medium scale enterprises, particularly in developing countries. Finance plays a strategic role in the development and management of any business enterprise, because every business action has a financial effect on the firm. A manager’s ability to obtain and use funds effectively is key to the success or failure of his business (Ile, 2001), Friend (1954), argued that, the success of a business is its ability and willingness to maintain production and this is determined by both the past and present financial policies of the firm. Nwachukwu (2005) also argued that, one of the key questions that a prospective entrepreneur must ask is “how to finance an enterprise. Finance being the heart of all enterprises, an entrepreneur must seek out ways of raising funds for a new venture or keep the existing enterprise alive. Lack of proper financial intermediation mechanism that can direct resources into private productive investment has hindered the progress and potentials of SMEs. Inadequate credit and equity capital has also hindered the performance and the expansion of SMEs. Venture capital is a private or institutional source of finance that can provide large amount of capital to SMEs without requiring collateral. (Akintoye,2002). As an organized private or institutional financier, it provides substantial amount of capital mostly through equity purchase and occasionally through debt offering to help growth oriented businesses develop and succeed (Machiraju, 1996). Venture capital plays a strategic role in funding small and medium scale enterprises and high risk ventures especially in developed countries.(Machiraju, 1996). Although in Nigeria, it is a relatively new source of funding that is impacting on the life of entrepreneurs. According to Memba( 2011), it referred to as a modern entrepreneurial financial innovation. It is viewed as the early stage financing of ventures or new enterprises that wants to grow. The prime motive of venture capital is to see to the growth of small enterprises to become big enterprises (Pandy, 2010). Venture capital plays a strategic role in funding small and medium scale enterprises. It has taken roots in a number of developing countries. In Nigeria, It is relatively new and has not impacted so much in the life of entrepreneurs. According to Hisrich and Peters (2009), it is a professionally managed pool of equity capital that is frequently gotten from the resource of wealthy limited partners. Mucherjee (1999), also view venture capital as finance meant for the improvement of an ongoing business with good managerial and high growth potential.Venture capitalists and venture capital firms recognize that many or most new ventures will not succeed if adequate funding is not given to them.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine an assessment into the effect of venture capital financing on the profitability of SME in Nigeria. Selected SMEs in Uyo form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain an assessment into the effect of venture capital financing on the profitability of SME in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an assessment into the effect of venture capital financing on the profitability of SME in Nigeria
Summary
This study was on an assessment into the effect of venture capital financing on the profitability of SME in Nigeria. Four objectives were raised which included: to determine the extent to which venture capital financing affects profitability of SMEs in Nigeria, to determine the factors affecting venture capital financing of small and medium scale enterprises in Nigeria, to examine the awareness of the SMEs towards venture capital as a significant source of financing and to proffer possible solutions to the problems. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected SMEs in Uyo. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Given the discussion above the following conclusions are inferred from this study: Venture capital financing contributes greatly to the growth of SMEs in Uyo. The various results of SMEs performance after the use of venture capital suggest that venture capital acts as a very big leverage necessary for the growth and progress of SMEs in Uyo.
Recommendation
Venture fund managers should periodically assess the books of accounts and the administrative records of the SMEs under their purview to determine the state of debt management ability. This will enhance profitability and performance of small and medium scale enterprises.
References
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