According to data from the International Finance Corporation,  the impact of venture capital financing on small and medium enterprises in the developing world’s private economy is virtually completely made up of SMEs.

because “they are just a feasible opportunity for millions of disadvantaged people all over the world”



9% of total




twenty-one percent




Fifty-five percent




15% of the total


Figure 1: Approvals in US Dollars for the Fiscal Year 2004


Source: Small Business Activities Annual Review, 2004


820 million dollars from the International Finance Corporation (IFC).

219 million dollars from the Multilateral Investment Guarantee Agency (MIGA).

317 million dollars from the International Bank for Reconstruction and Development (IBRD).

$ 141 million from the International Development Association (IDA).

SMEs are the backbone of all economies and a crucial source of economic growth, dynamism, and flexibility in rising and developing nations.




developing countries’ economics

In Nigeria, SMEs account for over half of the country’s gross domestic product (GDP), and they employ more than 60% of the workforce (ISSER, 1999). As a result, SMEs account for a significant amount of Nigeria’s firm tissue. The question of funding is one of the most pressing issues that SMEs face.

Financing is required to assist SMEs in establishing and expanding their operations, developing new goods, and investing in additional personnel or manufacturing facilities. Many small businesses begin with an idea from one or two people who invest their own money and, in exchange for a part of the company, turn to family and friends for financial assistance. However, if they are successful, there will be consequences.

In a venture capital financing arrangement, a venture capital firm will offer funding to enable a business to execute a project in exchange for a share of the company’s ownership (Boateng, 2010)

There is little information on venture capital as a source of finance for SMEs.

As a result, a study was conducted to enlighten the SME sector about the influence of venture capital on its growth.



The small and medium-sized business sector accounts for more than 90% of the country’s GDP. The need of providing cheap finance for this sector over a fair time period cannot be overstated. If properly formed and capitalized, SMEs have the ability to flourish and spearhead the economy’s rapid transition to middle-income status (Venture Capital Nigeria, 2008)

SMEs in Nigeria continue to confront liquidity and funding issues, which have resulted in production failures, industrial disputes, and regulatory authority closures.


Similarly, promoting the wellbeing of all has been a major concern for everyone.


The fact that a critical sub-sector has fallen short of expectations has been a major source of anxiety for everyone.

Their ability to succeed is governed by their financial requirements as well as the actions of investors. Investors’ actions are influenced by their risk perception and the attractiveness of other investments, whereas SME financing needs reflect their operational requirements (which affects their willingness to invest). The way this difficulty is managed is influenced by government borrowing, the general economic climate, the availability of collateral, the quality of SME record keeping, and SME investor relations skills.

Furthermore, various non-financial limitations obstruct the success of such businesses. SME owners are hesitant to be transparent or allow others to participate in their operations. They appear to be unaware of or unconcerned about their commitments and responsibilities to capital providers, as well as the necessity to acquire or seek technical assistance.

Unfortunately, due to a scarcity of long-term investment funds for SMEs (due to banks and securities markets’ aversion to high-risk investments in these sectors), it has become necessary for the government to establish a scheme that will provide long-term funding for the SME sector’s high-risk investment needs. As a result, a Venture Funding Trust Fund was established under the Venture Capital Trust Fund Act, 2004 (Act 680) to give capital to SMEs and promote the Venture Capital industry in Nigeria. (2008, Venture Capital Nigeria)

Are there any venture capital funds that Elsa Foods is aware of? Has it ever applied for funding from Venture Capital organisations? What motivated the organisation to go for venture


The primary goal of this study is to look into the influence of venture capital.

Financing for small and medium-sized businesses. The study will have the following goals:


Alternative funding sources for SMEs to be identified.

To find out how SMEs owners and managers feel about funding.

To find out how Venture Capital Financing affects small business activity.


The following research questions are addressed in the study:

What other financial options are available to SMEs?

What is the owner manager’s percentage of SMEs?

What effect does venture capital financing have on small business operations?


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