Capacidades y Mejoras Respecto de Herramientas Existentes

Access to finance is one vital managerially difficult decision facing business enterprises in most developing countries including Ghana. Several SMEs have difficulties accessing finance that prevents their growth beyond the early stage. Other SMEs go bankrupt at the initial stage. Ou & Haynes, (2006) and Cook, (2001) state that access to funding has been emphasized as crucial to SMEs’ development. Various studies indicate that small businesses rely much more

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on internal financing than external financing. Financing procedures adopted by SMEs range from internal sources like owners’ savings and/ retained profits (Wu Song, & Zeng, 2008), to external sources which include monetary support from family members, trade credit, business angels and risk capital (Abouzeedan, 2003; Barker, 2007).

According to Lader (1996), access to funding has been recognized as the leading problem facing SMEs. Parker et al., (1995) assert that according to a World Bank survey report, 90% of the small businesses investigated stated that non-availability of credit was a pivotal hindrance to investment. Levy (1993) revealed that non-availability of financial resources to small enterprises as compared to large corporations impeded their development.

In Africa including Ghana, many SME entrepreneurs have few options to access funding other than depending on personal savings or retained earnings and on the benevolence of friends and families to fund their investments. Thus, most financial institutions including banks are reluctant to lend to SMEs due to the high risks linked with their enterprises and the lack of guarantees that are typically required by the banks as a prerequisite to credit (Berger et al., 2006, Vuvor and Ackah, 2011).

The government of Ghana, in 2004 passed a law, Venture Capital Trust Fund Act, 2004 (Act 680) to support the provision of financial resources for the promotion of SMEs and development of the venture capital market. (ibid) It has been a decade since the government established the Venture Capital Fund and there is very little empirical research on venture capital financing in developing countries including Ghana. Hence, this study aims to fill this research gap by exploring how venture capital financing influences the growth and development of SMEs in Ghana. Empirical evidence documented in this investigation will enable readers to gain an in-depth understanding of how the venture capital industry influences the growth and development of young innovative small businesses in Ghana.

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Venture capital is equity investment in firms whose principal goal is to support the launch or early growth of new businesses that do not hitherto have access to the public securities markets or institutional lenders (Gupta and Sapienza, 1992).

Venture capital is defined as “as capital provided by firms who invest alongside management in young companies that are not quoted on the stock market. The objective is a high return on the investment. The young company creates value in partnership with the venture capitalist’s money and professional expertise” (OECD, 1996, p.5).

EVCA (2013) defined venture capital as professional equity that is co-invested with the entrepreneur to fund an early stage (seed and start-up) or expansion venture. Offsetting the high risk, the investor expects a higher than average return on the investment. Venture capital is a subset of private equity.

Venture capitals are equity or equity-linked investments in young, privately held companies, where the investor is a financial intermediary who is typically active as a director, an advisor, or even a manager of the firm (Kortum and Lerner 1998). Megginson (2004) described venture capital as a professionally managed pool of money raised for the sole purpose of making actively managed direct equity investments in rapidly growing private companies.

More strict definitions of venture capital exclude buyouts, mezzanine, and other financial dealings. Equity investments such as common stock, or preferred stock, convertible debentures or other financial instruments are used by venture capitalists when the small business is sold through either a merger or a public equity offering. Venture capitalists obtain their returns on their investment by way of capital gain at this liquidity event (i.e., Initial Public Offering). Sahai (2010) explained that the distinction concerning private equity and venture capital is the phase of the lifecycle of the firm at which each form of capital is focused. VC refers to a subset

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of PE, which is equity investment made to support the pre-launch, launch and early-stage development phases of business (OECD, 2013). Private equity investments are expended in companies during the expansion phase when the firms have established products, markets, and stable cash flows history. In contrast, venture capital investments are expended in the earlier stages of the life-cycle of a firm when the trustworthiness of its business model is still in the process of being acknowledged.

Venture capital financing is usually “the initial capital invested by sources outside the firm and the last to exit”. In the parlance of the market, the ‘front money’ or funds usually are subordinated to all other financial commitments of the enterprise. Aside from common stock financing, the most common forms of alternative equity instruments issued in venture capital investments are convertible debentures, warrants and letter stock options” (Rao,1997, p.11-30). Venture capital financing, means typically high risk and long-term investment in industrial projects with high reward potential, at any stage of execution of the project or its production cycle. Venture capital financing is done via the initiation of an economic activity or an industrial or commercial project or to improve a process or a product in an enterprise associated with both risk and reward(Verma, 1994).