The Impact Of Venture Capital Financing On Small And Medium Enterprises
Chapter One
Preface
Background
Data from the International Finance Corp developing world the private frugality is nearly entirely comprised of SMEs’ and
that „ they are the portunityonlyfor realisticmillionsofpoorpeople employ throughout the world’
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55
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Figure 1 Fiscal Year 2004 blessings in USD
Source 2004 Annual Review Small Business Conditioning
International Finance Corporation( IFC)$ 820 million
Multilateral Investment Guarantee Agency( MIGA)$ 219 million
International Bank for Reconstruction and Development( IBRD)$ 317 million
International Development Association( IDA)$ 141 million
Small and medium- sized enterprises( SMEs) are the backbone of all husbandry and are a crucial source of profitable growth, energy and inflexibility in arising and
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developing husbandry. In Nigeria, the total profitable affair of SMEs is about 50 per cent of gross domestic product( GDP), and this sector employs in excess of 60 per cent of the total labour force( ISSER, 1999). therefore, SMEs form a large proportion of the establishment towel in Nigeria. One of the most important problems defying SMEs concerns the issue of backing.
Backing is necessary to help SMEs set up and expand their operations, develop new products, and invest in new staff or product installations. numerous small businesses start out as an idea from one or two people, who invest their own plutocrat and presumably turn to family and musketeers for fiscal help in return for a share in the business. But if they’re successful, there comes a time when they need farther finances to expand or introduce further. Some SMEs frequently run into problems, because they find it much harder to gain backing from banks, capital requests or other suppliers of credit.
nearly every company we know of began as an SME. Vodafone as we know it moment was formerly a little spin- off from Racal; Hewlett- Packard started in a little wood hut; Google was begun by a couple of youthful kiddies who allowed they had a good idea; indeed Volkswagen at one point was just a little auto maker in Germany( as opposed to being a giant small auto maker encyclopedically)( Lukacs, 2005)
Microsoft may be a software mammoth moment, but it started off in typical SME fashion, as a dream developed by a youthful pupil with the help of family and musketeers. Only when Bill Gates and his associates had a saleable product were they suitable to take it to the business and look for investment from more traditional sources( Amissah, 2009).
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The growth of SMEs has been hampered by the lack of acceptable knowledge and a well structured fiscal request for the rallying of capital. The part of finance has been viewed as a critical element for the development of SMEs( Cook and Nixson, 2000).
lately, colorful finances have been setup to profit SMEs but statistics handed by fund directors show that a disproportionate number of aspirants haven’t been successful at penetrating backing( Boateng, 2010). The need to explore indispensable means of raising capital for business growth can not be over emphasized. One of the innovative ways to raise finances for the growth of SMEs is venture capital.
Adventure capital is an investment in a launch- up or growing SME that’s perceived to have excellent growth prospects. Venture plutocrats raise and manage finances which are a pool of plutocrat raised from both public and private investors. Venture plutocrats identify entrepreneurs with promising new ideas and help with backing and professional operation.
Adventure capital investments give the demanded cash in form of equity for companies to develop technologies and products which, in turn, induce jobs and levies that keep Nigeria competitive. The ideal is to induce sufficient long- term capital earnings from the investors and the adventure plutocrats. Adventure capital assists investors to pierce equity capital to finance expansion of business while maintaining control. The moxie and expansive connections of the adventure plutocrat through its network add value to the company and increase credibility with guests, and eventually, the company gain access to the adventure commercial knowledge in account, budgeting, computer systems, and back- office operations.( Amissah, 2009)
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In adventure capital backing agreement the adventure capital establishment will give backing to enable a business to take over a design and in return the adventure capital company gets an power stake in the business( Boateng, 2010)
Limited data live on adventure capital as an indispensable source for finances for SMEs.
thus a exploration was made to gather inform the SME sector to know about the impact of adventure capital in the growth of its
business.
Statement of the Problem
The SME sector constitutes in excess of 90 of the frugality of the country. The need to give affordable credit over a reasonable period for this sector can not be over emphasized. SMEs, if duly structured and subsidized have the eventuality to grow and forefront accelerated growth of this frugality into a middle income status( Venture Capital Nigeria, 2008)
SMEs still in Nigeria have been faced with liquidity and backing challenges leading to business failures under product Artificial controversies and occasionally closures by nonsupervisory authorities.
Just as it has been a great concern to all and sundry to promote the weal
of SMEs, it has also been a great cause of concern to all, the fact that the vitalsub-sector has fallen short of anticipation. The situation is more disturbing and worrying when compared with what other developing and developed countries have been suitable to achieve with their SMEs.
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Their success is determined by their backing needs and the action of investors. SME backing needs reflect their functional conditions, while the action of investors depends on their threat perception and the attractiveness of indispensable investment( which affects their amenability to invest). Government borrowing, the general profitable climate, vacuity of collateral, quality of SME record keeping, and SME investor relations chops affect the way in which this challenge is managed
also numerousnon-financial constraints inhibit the success of similar enterprises. SME possessors are reticent to be transparent or open up involvement of their businesses to outlanders. They feel to be ignorant of or unconscious to the scores and liabilities they’ve toward capital providers, and the need to acquire or seek support for specialized services like account, operation, marketing, strategy development and establishment of business liaison. operation and support services are perceived to be bring prohibitive andnon-value adding
Unfortunately since there’s a dearth of long term investment finances for SMEs( as a consequence of the banks and securities requests flinching down from the high threat investments in these sectors, it has came imperative for the Government to set up a scheme that will give long term backing for the high threat investment requirements of the SME sector. This has led to the establishment of Venture capital fund under the Venture Capital Trust Fund Act, 2004( Act 680), to give capital to Small and Medium Enterprises( SMEs) and to promote Venture Capital assiduity in Nigeria.( Venture Capital Nigeria, 2008)
Does Elsa Foods know of adventure capital finances? Has it ever applied for backing from Venture Capital organisations? What motivated the organisation to go for adventure 5
capital finances? What benefits have choked from sourcing finances from adventure capital directors? This study seeks to give answers to these questions.
Aim/ Objectives
The main ideal of this exploration is to examine the impact of Venture Capital
Backing on SME ‟ s. The study will be objects
To determine SMEs indispensable sources of backing.
To determine the SMEs proprietor director ‟ s perception o backing.
To determine the impact of Venture Capital Financing in small business conditioning
Exploration Questions
The study addresses the following exploration questions
What are the indispensable sources of backing to SMEs?
What is the SMEs proprietor director ‟ s perc
What’s the impact of Venture Capital Financing on small business conditioning?
Significance of the Study
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