Transforming early-stage firms in emerging countries: Unveiling the power of venture capital; a comparative study of South Africa and Kenya

This study examines the transformative role of VC investments in the growth and development of early-stage firms in South Africa and Kenya. While the importance of entrepreneurship in socioeconomic progress is recognized, the availability of sustainable funding for innovative early-stage firms remains a critical issue. VC financing offers a competitive advantage over other funding sources, making it a promising avenue for supporting early-stage firms. This research employs a multi-regression model and survey data from 61 VC firms, encompassing over 327 investment rounds between 2015 and 2022, obtained from cross-country panel data. The results underline the substantial impact of VC investment on the transformation of early-stage firms with growth potential. In addition, this study identifies the negative influence of disruptive government policies and regional programs on the success and survival of high-growth firms. The reluctance of governments to implement supportive regulatory reforms hampers the development of these firms. This study contributes in two main ways. Firstly, it provides one of the first comparative surveys on the positive impact of VC in enhancing the resilience and growth of early-stage firms in Africa, offering valuable insights for policymakers and civil society in attracting increased foreign VC investment. Secondly, it underscores the need for further theoretical and empirical research to understand the role of VC financing in nurturing high-growth firms and innovative entrepreneurship. Bridging this research gap can contribute to the advancement of VC ecosystems in emerging economies and facilitate the replication of successful models observed in developed countries.