AN ASSESSMENT INTO THE EFFECT OF VENTURE CAPITAL FINANCING ON THE PROFITABILITY OF SME IN NIGERIA

AN ASSESSMENT INTO THE EFFECT OF VENTURE CAPITAL FINANCING ON THE PROFITABILITY OF SME IN NIGERIA

INTRODUCTION

Small and medium-sized businesses (SMEs) are essential to the global economy and national economies. Emerging markets are especially true of this. The advantages of a thriving SME sector include the provision of employment opportunities, the strengthening of industrial links, the encouragement of flexibility and innovation, and the generating of export income. They are seen as an engine for growth in both developed and developing countries (Lerner, 2002; Rangamohan et al, 2007).For instance, in SA, the SME sector accounts for eight out of every ten new jobs (Karungu et al, 2000). The contribution of small businesses to the GDP in the US, Japan, and Germany is greater than 50% in each of those countries. Despite being the main drivers of growth in many established and emerging economies, SMEs have historically had difficulty getting financing.SMEs cannot grow to compete on a global scale, acquire technology, or satisfy their fixed and working capital requirements without adequate financing (Wanjohi and Mugure, 2008). SMEs confront numerous difficulties, such as obtaining financing (Iwisi et al., 2003) and having access to financial management resources (Gem Report, 2003). This is a factor in Nigeria’s small business death rates and delayed development.For formerly underprivileged business owners who lack access to collateral and networks of affluent people who could provide angel funding, access to capital is especially important. To start and grow their businesses, create new goods, hire new employees, or invest in new facilities for manufacturing, SMEs need financing. Many small businesses begin as an idea from one or two people who invest their own funds and presumably ask their friends and family for financial assistance in exchange for a share of the company.

But, if they are prosperous, there comes a point when they require more money in order to grow or develop. Certain SMEs frequently encounter issues since it is considerably more difficult for them to secure financing from banks, capital markets, or other sources of credit (Afua, 2011).

Most businesses that we are aware of started off as SMEs. Even Volkswagen was once just a small car manufacturer in Germany (instead of being a huge small car manufacturer globally), Hewlett-Packard was founded in a small wood shack, Google was founded by a couple of young kids who thought they had a good idea, and Vodafone was once a small spin-off from Racal (Lukacs, 2005).Microsoft may be a software behemoth now, but it began as a dream nurtured by a young student with the assistance of family and friends, in the manner of a typical SME. Bill Gates and his colleagues could only look for investment from more conventional sources after they had a product that would sell. 2009 (Amissah). Lack of proper information and a well-structured financial sector for the mobilization of money have impeded the expansion of SMEs. For the growth of SMEs, the function of finance has been seen as essential Cook and Nixson (2000).