Determinants of Venture Capital Supply in Sub-Saharan Africa

Olabanji Oni

doi:10.22610/jebs.v9i4.1824

Abstract

The purpose of this paper is to determine the variables that influence venture capital supply in Sub-Sahara Africa. The study developed econometric models and examined a 10-year period (2006 to 2015) pertaining to eight (8) Sub-Sahara African countries namely: Botswana, Ivory Coast, Ghana, Kenya, Mauritius, Nigeria, South Africa and Uganda. The empirical model includes six determinants (initial public offering, market capitalisation, unemployment rate, foreign direct investment inflow, inflation rate and trade openness). Secondary data was utilised for the study. The primary sources of data were the World Bank Development indicators and Preqin data base. All the statistical analyses in the study were performed using E-views version 8. Panel data models of pooled, fixed and random effects were employed. The results suggest that there is a significant positive relationship between initial public offering, market capitalisation and venture capital supply. Second, there is no significant relationship between unemployment rate, foreign direct investment inflows, trade openness and venture capital supply. Based on the empirical findings, this study recommends that Sub-Sahara African governments should attempt to develop their economies by improving infrastructure and corporate governance. There is also a need for African countries to develop the equity market.

Highlights

Venture capital investments are investments made at various phases of the business life cycle including the start-up and expansion phase right up to preparation for exit from the investment via buyout or initial public offering (Solnik & McLeavey, 2009)
This section concludes a study that was undertaken to investigate the determinants of venture capital supply in Sub-Sahara Africa
This paper argues that the determinants of venture capital supply in developing countries are under explored, there is conflicting evidence and in some instances inconclusive evidence on the relationship between the determinants of venture capital and venture capital supply

Summary

Introduction

Venture capital investments are investments made at various phases of the business life cycle including the start-up and expansion phase right up to preparation for exit from the investment via buyout or initial public offering (Solnik & McLeavey, 2009). Venture capital and private equity are identical and used in various studies. There is a difference between formal from informal venture capitalist. Formal venture investment is a company that functions as an asset group and an informal venture capital are angel shareholders who are affluent people considering to finance novel projects that has high probability of growing (Kuratko & Hodgetts, 2007; Nieman, 2006; Chemmanur & Chen, 2006). Over the past ten years, while much of the mature markets have witnessed recession, Africa has received a lot of interest from venture capitalist (AVCA, 2013). Johnson (2010) found that despite the financial crisis experienced in 2008, the venture capital industry experienced an increase in market yield in Africa. There is an increase in investors’ confidence because of the performance of emerging market venture capitalists in Sub-Sahara Africa (Lebus, 2013)

Objectives

Methods

Conclusion