Seed Capital and Performance: Reflections and Way Forward for Micro, Small and Medium Enterprises in Kenya

Abstract

The study aimed at investigating the effect of seed capital on performance of micro, small and medium enterprises by reviewing related extant conceptual, theoretical and extant empirical literature. The study underpinning theories were; resource-based view, pecking order theory and theory of asymmetric information. The study employed literature review methodology. Based on the review of empirical research, it was concluded that seed capital contributes into developing a particular financing environment; where MSMEs can obtain angel capital from angel investors as well as equity capital from shareholders and crowdfunding, at the seed stage. More so, seed capital has an effect on performance of MSMEs supporting studies that found a positive effect. The seed capital, MSME uses to start a business, commonly comes from angel investors, owners’ equity and crowdfunding. The paper recommends that MSMEs; first, need to obtain financing, obtain shared expertise and technical expertise from angel investors, should guarantee complete control through use of equity capital to preserve control and independence as they provide for reinvesting part of their profits.