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

Abstract

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.

Keywords:

• Venture capital
• early-stage firms
• economic growth
• entrepreneurship in emerging countries
• South Africa
• Kenya

JEL Classifcation:

• G2
• G24
• L26J

REVIEWING EDITOR:

• Eric Liguori, Florida State University, United States

SUBJECTS:

• Entrepreneurial Finance
• Entrepreneurship and Small Business Management
• Management of Technology & Innovation

1. Introduction

In the realm of economic growth, small and medium enterprises (SMEs) play a pivotal role as dynamic engines of progress. They account for 90% of businesses and over 50% of employment worldwide (IFC, 2018). Renowned scholars have long hailed them as crucial drivers of competition, economic growth, and job creation, especially in emerging economies (Abisuga-Oyekunle ET AL., 2020; IFC, 2018; Kindström et al., 2024; World Bank, 2019). Despite their immense potential, however, SMEs face significant challenges in accessing sustainable finance, human capital, and technological resources. These limitations pose substantial threats to their expansion and hinder their ability to reach their full potential (Andrade-Rojas et al., 2024; Egu & Chiloane-Tsoka, 2023). Moreover, the survival and success of SMEs hinge on their ability to secure sustained financing during their early stages of growth (Kindström et al., 2024).

Venture capital (VC) financing offers a fascinating alternative for start-up firms that lack the historical financial statements or tangible assets required by traditional financial institutions (Cummings & MacIntosh, 2003; Hamman et al., 2021; Lerner, 2010; Megersa, 2020; SAVCA, 2021; World Bank, 2019). Access to sustained financing is crucial for startup firms to fuel their innovation, productivity, growth and development, and the commercialization of the entrepreneurship sector at large (Ahlstrom & Bruton, 2006; Brusche, 2016; Kortum & Lerner, 2001; Ramalho, 2010). In addition, sustained financing provides the necessary resources for high-growth firms (HGFs) to invest in research and development (R&D), hire skilled employees, enter new markets, and navigate uncertainties. Moreover, it enables HGFs to seize growth opportunities, stay competitive, and create economic value, thereby contributing to overall economic development.

Consequently, scaling up VC supply coupled with strategic guidance, and market access in Southern and East Africa can significantly transform these SMEs from start-up to scale-up. This allows SMEs to innovate, grow, and potentially become household names, making VC investment a powerful catalyst for SMEs in emerging economies. Of late, unlocking growth potential and fostering high-growth firms has become a focal point for researchers, policymakers, and investors. Researchers such as Demir et al., 2017) delve into this area, while policymakers seek effective strategies for job creation. Meanwhile, investors eagerly allocate resources to thriving SMEs, as emphasized by (e.g.; Coad & Srhoj, 2020; Brown et al., 2020; Decker et al., 2016; Friar & Meyer, 2003; Gu et al., 2018; Kato & Germinah, 2022; Lerner, 2009; Micceri, 1989). This demonstrates the demand for a multi-faceted approach in the journey to transform the SME sector.

This study seeks to understand how VC can effectively transform early-stage firms and contribute to innovation, job creation, and economic growth in the entrepreneurial ecosystems of Kenya and South Africa.

Earlier studies on VC have provided valuable insights from various perspectives. In particular, Moreira et al. (2024) conducted a comparative study of the internationalization of SMEs in Africa and Latin America. Lerner and Nanda (2020) examined the role of VC in entrepreneurship development, focusing primarily on advanced economies. Similarly, Cumming et al. (2018) explored the digitalization of the venture capital industry in Europe. A study by Kato and Chiloane-Tsoka (2022) evaluated the impact of venture capital on nurturing entrepreneurship development in East Africa, using a regression model. The empirical analysis conducted by Lampadarios et al. (2017) focused on the success factors of SMEs since the early 1990s, stressing the need for further empirical research to establish a more cohesive and comprehensive understanding of the factors that contribute to the success of SMEs.

While these studies contribute to an understanding of transforming early-stage firms in emerging countries, there is still a significant gap in the literature regarding the power of VC investment in transforming early-stage firms in Africa, specifically in the context of startups to scale. Furthermore, while the findings of Gompers et al. (2020) are compelling, there is an undeniable need for this study to fill this gap and provide insights into the transformative potential of VC in early-stage firms in emerging economies, with a specific focus on Kenya and South Africa. This area remains largely ­uninvestigated, despite its importance in driving innovation, job creation, and economic growth in emerging economies.

Despite previous efforts to examine the power of VC on the transformation of early-stage firms, there are still significant gaps and unanswered questions in the literature. One notable limitation is the lack of a suitable funding source for high-growth entrepreneurship (Amornsiripanitch et al., 2016; Barney & Zajac, 1994; Bravo-Biosca et al., 2016), leaving the question of whether VC investment positively influences the progress of HGFs unresolved. Moreover, previous studies have focused predominantly on high-technology sectors, such as those seen in Silicon Valley, the Cambridge area, and Montpellier, which are considered the primary generators of potential HGFs (Sipola, 2021). This biased funding approach neglects the manufacturing and service sectors, which constitute a substantial portion of SMEs and have the potential for rapid entrepreneurial growth (Snyman et al., 2014). Moreover, the literature fails to recognize the opportunities they present for economic development. Therefore, it is imperative to address these gaps and limitations to gain a more comprehensive understanding of the impact of VC investment on high-growth entrepreneurship across a wider range of sectors in the economy.

The motivation for this study stems from the lack of a comprehensive analysis of this subject by earlier scholars, as their conclusions have often been broad and lacking in practical value for encouraging the development of HGFs.

How does venture capital contribute to the transformation of early-stage firms in emerging countries like South Africa and Kenya?

This study makes two significant contributions: firstly, Policy Guidance. Research on transforming early-stage firms in emerging countries, specifically in South Africa and Kenya, provides valuable insights for policymakers when developing targeted policies and initiatives that support the growth of these firms and create an enabling environment for VC investment. Secondly, Investor Decision-Making: the study informs investors interested in emerging markets, helping them to understand the transformative power of VC in early-stage firms. This knowledge could guide their investment decisions and strategies, maximizing their impact in supporting the growth and development of these firms in emerging countries.

The structure of this paper is as follows: Section 2 provides a comprehensive review of the existing literature and establishes the theoretical framework for the study. Section 3 outlines the research design and describes the data used in the analysis. In Section 4, data analysis using various approaches and inferences is presented. Section 5 highlights the primary findings and emphasizes the strengths and contributions of the study. Section 6 concludes the paper by summarizing the key findings, discussing their implications for VC literature, addressing any limitations, and proposing directions for future research. In addition, the policy implications derived from these findings are explored. This structure ensures a coherent presentation of the research process and facilitates a thorough understanding of the study’s outcomes and broader implications.

2. Literature review and hypotheses

2.1. Transformative role of VC investment in early-stage firms

In the world of economic growth, SMEs as dynamic engines of progress have long been recognized by influential scholars as catalysts for change. However, despite their remarkable potential, SMEs face significant challenges in the form of limited access to vital financing resources, human capital and technological resources, which hinders their expansion and prevents them from reaching their full potential (Andrade-Rojas et al., 2024; Egu & Chiloane-Tsoka, 2023; Nicholls Nixon & Maxheimer, 2022; Okpala, 2012; Poland, 1995; Sazvar & Yahyazadehfar, 2019; Shane, 2009). This obstacle presents a barrier to growth opportunities for countless small businesses worldwide.

Venture capital (VC) is recognized as a powerful catalyst for the growth and transformation of early-stage firms, particularly in emerging economies (Kato, 2023; Lerner & Nanda, 2023) This literature review aims to delve into the expansive body of research on this topic, shedding light on the multilayered positive impacts of VC. The researchers assess the work of several scholars and industry experts, including the mechanisms through which VC influences firm development, innovation, and economic growth. Finally, this comprehensive review serves as a solid foundation for the formulation of the study’s hypotheses, thereby ensuring a robust and insightful analysis of the transformative role of VC in emerging economies.

2.2. Global models of venture capital success

In the global VC landscape, certain countries have developed vibrant ecosystems and achieved notable success in VC investments, innovation, and economic growth. These successes serve as models for emerging economies such as South Africa and Kenya (Lerner, 2010; Lerner and Nanda (2023); National Venture capita Association (Brown et al., 2022). The US, particularly through Silicon Valley in California, is at the forefront of this list. Silicon Valley has nurtured numerous successful companies, including Google, Facebook and Amazon, attributing their achievements in part to VC investments that provided essential capital, expertise, and networks for growth (Cummings & MacIntosh, 2003; Gompers et al., 2020). The US and its Silicon Valley model have become a global benchmark for integrating VC in the entrepreneurial ecosystem, showcasing its power to foster innovation, job creation and economic development (Mason & Brown, 2013; Standaert et al., 2021; Standaert et al., 2022; Carree & Thurik, 2010; Virtanen, 2001; Wang, 2016) VC firms not only offer financial resources but also expertise and networking opportunities, playing a vital role in the growth and success of iconic companies. This model offers valuable lessons for emerging economies by emphasizing the importance of building supportive ecosystems that encourage VC investments and nurture early-stage firms (Anderson, 2023).

In Africa, the VC landscape is still evolving, but notable success has been observed in South Africa’s Silicon Cape and Kenya’s Silicon Savannah ecosystems. The Silicon Cape in Cape Town has fostered the growth of successful companies such as JUMO, Yoco, SweepSouth, Aerobotics and Luno, operating in the fintech, payment solutions, on-demand services, data analytics, and cryptocurrency sectors. In Kenya, Safaricom’s M-Pesa, Twiga Foods, Sendy and Cellulant have made significant strides in mobile money, supply chain optimization, logistics, and digital payments (AVCA, 2023; Partech, 2023). These success stories demonstrate the potential of VC investments in driving innovation, job creation, and economic growth in emerging economies, highlighting the transformative power of VC in Africa.

2.3. Contribution of VC to survival and success of HGFs in emerging economies

The role of VC financing in the survival and success of high-growth firms (HGFs) in Southern and East Africa is a topic of significant interest and importance. Several studies have explored this area, shedding light on the potential opportunities, challenges and future research directions. The seminal works of Cummings and MacIntosh (2003), Tykvová (2018), Lerner and Nanda (2020), Wentao and Qian (2018), Wentao et al. (2018), Zhao et al. (2015), Crunchbase (2022), Ernst and Young (2022), and Kato and Chiloane-Tsoka (2022) have laid the foundation for subsequent research in this field. VC financing offers several opportunities for HGFs in both developed and emerging countries. To begin with, VC investments can provide crucial financial resources to fuel the growth and expansion of HGFs. This funding supports product development, market-entry, and scaling operations, which are vital for survival and success. Furthermore, VCs often bring industry expertise, networks and mentorship to the table, offering strategic guidance and connections that can enhance the capabilities and competitiveness of HGFs (Gompers et al., 2020; Kato, 2023; Wentao & Qian, 2018; Crunchbase, 2022; Ernst & Young, 2022).

Studies have shown that countries supporting innovation-driven entrepreneurs and HGFs have achieved superior entrepreneurship development, as seen in the US Silicon Valley and the Yozma model in Israel (Lerner, 2010; Long et al., 2022). VC-backed HGFs tend to have higher growth rates, increased innovation and improved access to networks and resources (Gorman & Sahlman, 1989; Sipola, 2021). Positive relationships have been observed between VC firm services and venture-funded firm performance, including higher cash flow and sales growth (Jain & Kini, 2000; Sapienza, 1992).

In South Africa, success stories can be found in various sectors including technology, fintech, renewable energy, and e-commerce. Companies such as JUMO, Yoco, and SweepSouth have received significant VC funding and have achieved remarkable growth, contributing to job creation and economic development. Similarly, in Kenya, the success of companies such as M-Kopa Solar, Cellulant, and Twiga Foods can be attributed to innovative business models that address specific market needs, such as M-Kopa Solar’s pay-as-you-go model. Access to VC funding, coupled with market expansion and strategic collaboration, plays a pivotal role in the success of these companies, leading to job creation, economic development, and positive social change in emerging nations (Lerner & Nanda, 2020).

Research conducted in South Africa and Kenya has highlighted the positive impact of VC funding on the survival rate and scalability of HGFs. According to Snyman et al., 2014). VC-backed firms in South Africa had higher survival rates than non-VC-backed firms, suggesting that VC investment provides HGFs with the financial stability and support required during the early stages of business development. Muturi and Njeru (2019), revealed that VC-backed firms in Kenya experienced higher revenue growth and were more likely to expand into new markets than non-VC-backed firms. This indicates that VC financing not only provides capital, but also enables HGFs to access valuable networks, industry expertise, and the strategic guidance necessary for scaling their operations.

Although some studies provide valuable insights, there are still gaps in the literature that need to be addressed. The situation regarding VC investment and its contribution to business survival and growth in Africa differs from that in the US and Europe. A more in-depth analysis of specific sectors and industries is needed if we are to understand the unique opportunities and challenges faced by HGFs in South Africa and Kenya (Manigart et al., 2002; Brusche, 2016). Limited access to VC funding remains a significant hurdle, particularly for early-stage and non-traditional ventures in Africa, hindering the ability of businesses to secure necessary capital.

African markets are still in the early stages of development and lack a well-established exit market and experienced investors. Samila and Sorenson (2011) argue that there has been little empirical investigation into VC claims as a stimulus for economic growth. They question assumptions about the necessity of VC funding for the existence of VC-funded firms and the value created by employees in these firms when compared to non-VC-funded firms. While these studies holds great promise, it was conducted 13 years ago and focused on North America, leaving a gap for future research in Southern and East Africa.

From a different standpoint, some scholars have offered mixed conclusions, suggesting that mishandled government VC (GVC) may crowd out private VC (PVC) and encourage unproductive entrepreneurship (Lerner, 2010; Long et al., 2022). This finding highlights the importance of finding a balance in government interventions to ensure the positive impact of VC funding. Furthermore, the lack of a developed exit market, such as initial public offerings or acquisitions, can limit potential returns for VC investors and create challenges for HGFs seeking liquidity events (Humphrey-Jenner & Suchard, 2013; Jiang et al., 2014; Kortum & Lerner, 2001). However, the VC market in South and East Africa is still young and constrained, and it has not played its role fully when compared to mature markets in developed countries (Ahlstrom & Bruton, 2006; Ernst & Young, 2016). This highlights the need for continued efforts to address these challenges and to foster a more robust and supportive VC ecosystem in the region. This study was intended to offer novel data that could provide a more nuanced understanding of the impact of VC on HGFs and to provide insights for policymakers, entrepreneurs and investors to support and foster the growth of HGFs in emerging economies.

The literature reviewed earlier establishes the hypothesis (H1) VC financing has a positive impact on the survival and success of high-growth firms in emerging economies.

2.4. Role of venture capital in entrepreneurship development and economic growth

Venture capitalists (VCs) play a crucial role in driving entrepreneurship and economic growth in emerging economies. They serve as sources of capital, expertise and networks for entrepreneurs, enabling them to overcome barriers and seize opportunities. Research has highlighted the importance of VCs in supporting entrepreneurship development. VCs provide entrepreneurs with not only financial resources but also strategic guidance and mentorship. They often bring industry expertise and networks that can help entrepreneurs to navigate the challenges of starting and scaling up their ventures. This support is particularly valuable in emerging economies, where entrepreneurs may face limited access to capital and a less-developed entrepreneurial ecosystem.

Furthermore, the role of VCs extends beyond individual ventures. They contribute to the development of a broader entrepreneurial ecosystem by fostering collaboration, knowledge sharing, and the creation of supportive institutions. Muturi and Njeru (2019), emphasized the role of VCs in building networks and ecosystems that enable entrepreneurs to access resources, markets and talent. Firstly, more research is needed to understand the specific strategies and approaches employed by VCs to support entrepreneurship in emerging economies. These strategies may vary depending on the developmental stage, cultural context and sector-specific dynamics. Secondly, the impact of VCs on the broader entrepreneurial ecosystem deserves further exploration. This includes examining the development of supportive institutions, networks and infrastructures that facilitate entrepreneurship. Understanding the role of VCs in shaping the ecosystem can inform policy recommendations to create an enabling environment for entrepreneurship in emerging economies. Finally, there is a need for research that explores the role of VCs in promoting inclusive entrepreneurship and addressing social and environmental challenges. VCs have the potential to support ventures with a positive impact on society and the environment. Examining the strategies and practices employed by VCs can shed light on how they contribute to sustainable and inclusive economic development.

The literature indicates that VC plays a crucial role in driving the survival, success, job creation, innovation and overall economic growth of HGFs in emerging economies. However, there are gaps and areas for further research. This study addresses these gaps by focusing on the specific contexts of South Africa and Kenya, exploring the unique opportunities and barriers faced by HGFs, and examining the role of VC in supporting entrepreneurship development and economic growth. By exploring these aspects, this study aims to contribute to the existing body of knowledge, to fill literature gaps and provide insights for policymakers, practitioners and researchers. However, it is important to acknowledge the limitations of earlier studies, such as their reliance on self-reported data and the challenges of measuring the long-term impact of VC investments. Future research should consider longitudinal studies, comparative analyses across emerging economies, and a deeper examination of the social and environmental dimensions of VC investments.

3. Materials and methods

3.1. Research design and approach

In this section, we outline the approaches used to harness the positive impact of VC on transforming early-stage firms in Kenya and South Africa. It provides a concise overview of a comparative case study design and a mixed-method approach to gain a clear understanding of the research process, including data collection and analysis. Various data collection methods and analysis techniques were employed to ensure the replicability of the study and to allow readers to assess the validity and reliability of the findings.

3.2. Sample and population

Several steps were taken in the context of the sample and population to ensure the validity and reliability of the study. Multiple datasets were used, including SAVCA, SARS and AfVCA, which maintain records of the performance of PVC firms in the Southern and East African regions (SAVCA, SARS, AfVCA). This approach has been widely employed in VC studies in the US (Gompers & Lerner, 2000; Lerner & Nanda, 2020; Kato & Chiloane-Tsoka, 2022). The data obtained from these reputable professional agencies have been cross-checked for consistency and have proven to be more reliable than commercial databases. Supplementary data were collected from the websites of individual VC firms to gather additional information. The datasets include annual performance data from 2015 to 2021, with a focus on PVC firms involved in the VC industry, including later-stage private equity arrangements.

To address the primary objective of the study, a lime survey was administered to 257 PVC firms in Southern and East Africa. However, there were some difficulties in the data-collection process. Specifically, 38% of the initial sample had failed email deliveries and 11% indicated company policies prohibiting anonymous link clicks. Therefore, these cases were excluded from the analysis. The sample size was reduced by eliminating these cases. The remaining responses were reviewed carefully to ensure the appropriateness and validity of the data. Inappropriate responses such as incomplete or inconsistent answers were eliminated from the final sample. Ultimately, this resulted in a final sample size of 61 respondents, representing 327 VC-funded firms. Despite encountering various challenges during the data collection process, the study achieved a response rate of 51%, which is considered reliable and dependable when compared with similar previous studies (Fenton-O’Creevy, 1996). Although achieving higher response rates in lime surveys is difficult, this study relied on existing research to support the results and ensure the validity and reliability of the findings. In a study by Watanabe et al. (1995), 1150 online survey questionnaires were distributed. However, of this number, only 396 were completed and returned, indicating a lower response rate. After further scrutiny and the exclusion of incomplete responses, 365 questionnaires were deemed suitable for data analysis. This resulted in a final response rate of 31.7%.

3.3. Measurement of variables

In terms of the measurement of variables, a framework was established to measure how venture capital (VC) can help transform early-stage firms in South Africa and Kenya The variables were categorized into independent, dependent, and control variables.

The hypotheses are shown in Table 1, regarding the performance variables that were used to estimate the outcomes. We separate these traits into independent, dependent, and control variables to examine the connections between them and VC investment, entrepreneurship, survival, and the success of HGFs in emerging economies. The following describes the study factors that affect each of the two hypotheses, H1 and H2.

Table 1. Study variables and hypotheses: The impact of VC on entrepreneurship development and economic growth in emerging economies.

Research Questions/hypotheses	Increasing access to VC can contribute to the survival and success of HGFs in emerging economies	VC investors’ involvement in VC-funded firms can lead to improved entrepreneurship development and economic growth
	Research hypothesis (H¹)	Research hypothesis (H^2)
Independent variables	VC investors’ involvement in VC-backed firms	VC investors’ involvement in VC-backed firms:
	VC’s experience	Government and Regional Programs (GVC)
	VCist’s presence on the Board of Directors (BOD) of HGFs	VC investors’ experience:
	Private VC	VC investors’ presence on the BOD
Dependent variables	New employment	Unstructured financial markets
	Scaling-up HGFs	Entrepreneurs’ willingness to seek VC financing
		VC investors’ presence on the BOD
Control variables	Geographical Location	Geographical Location
	No of years in business	Number of years in business
	VC policy	Government VC & entrepreneurship policy
	Development of stock markets	Development of stock markets
The method used to test hypotheses	Multiple regression (ANOVA)	Multiple regression (ANOVA)
The method used to test hypotheses	Multiple regression (ANOVA)	Correctional coefficient

Source: Researcher’s compilation (2023).

Research Hypothesis (H1): Increasing access to VC can contribute to the survival and success of high-growth firms (HGFs) in emerging economies.

The independent variables hypothesized to influence this relationship included VC investors’ knowledge transfer to VC-backed firms, government and regional programs (GVC), VC investors’ experience, and VC investors’ presence on the Board of Directors (BOD) of HGFs. The dependent variables included the survival rate and success of the HGFs, the creation of new employment opportunities, and the development of stock markets. Control variables such as geographical location, number of years in business, and government contributions to the VC market are considered to account for potential confounding factors. Multiple regression analysis using ANOVA was used to test this hypothesis.

Research Hypothesis (H2): VC investors’ involvement in VC-funded firms can lead to improved entrepreneurship development and economic growth.

The independent variables hypothesized to influence this relationship included VC investors’ knowledge transfer to VC-backed firms, government and regional programs (GVC), VC investors’ experience, and VC investors’ presence on the BOD of HGFs. The dependent variables included stock market reputation, the increasing number of VC-funded firms, the innovation capacity of the HGFs, and the presence of VC investors on the BOD. Control variables such as geographical location, number of years in business and government contributions to the VC market were considered. Multiple regression analysis using ANOVA was used to test this hypothesis.

The inclusion of control variables helps to account for potential confounding factors, providing a more robust analysis. The researcher’s choice of these variables aligns with earlier studies by Delmar and Shane (2006), although our study goes beyond traditional measures of growth such as sales and employment growth. The results of the analysis contribute to the understanding of how VC can drive the development, success and reputation of early-stage firms and the overall entrepreneurial ecosystem.

To test our hypotheses, the researcher constructed a regression model for each dependent variable to assess its impact. We compared the performance of VC firms by focusing on the growth of their portfolio companies before VC investment. In each regression model, the coefficient (β) represents the estimated impact of each independent variable on the corresponding dependent variable while controlling for the effects of the control variables. The error term (ε) represents the unexplained variation in the dependent variable.

Below are the regression models

1. Regression Model for Dependent Variable: Survival rate and success of the HGFs

Survival rate and success of the HGFs = β0 + β1(VC investors’ knowledge transfer to VC-backed firms) + β2(Government and regional programs) + β3(VC investors’ experience) + β4(VC investors’ presence on the BOD) + β5(VC investment) + β6(Private VC investment) + β7(Geographical Location) + β8(Number of years in business) + β9(Government’s contribution to the VC market) + β10(Government VC & entrepreneurship policy) + β11(Development of stock markets) + ε1

1. Regression Model for Dependent Variable: Entrepreneurship and economic growth

Entrepreneurship and economic growth = β0 + β1(VC investors’ presence on the BOD) + β2(VC’s superior skills) + β3(VC investment) + β4(VC investors’ presence on the BOD) + β5(VC investment) + β6(Geographical Location) + β8(Number of years in business) + β + ε2

By estimating the coefficients and assessing their significance, researchers can determine the strength and direction of the relationships between independent and dependent variables. Regression models allow for a quantitative analysis of the independent variables on the dependent variables, providing insights into the role of VC and other factors in entrepreneurship development and economic growth.

In addition to the quantitative data, the researcher conducted semi-structured interviews with 12 participants with VC to augment our findings. Participants were purposefully selected to participate in the recorded hybrid structured interviews. These interviews provided an opportunity for the researcher to delve more deeply into matters unique to the interviewees’ experiences, allowing for a rich and detailed account of the core of the study. We followed the concept of saturation to guide the interview process. Saturation occurs when the complete range of constructs that make up the theory is fully represented by the data, particularly when the researcher begins to hear the same comments repeatedly (Starks & Brown Trinidad, 2007). Verbatim transcription was done to capture the participants’ words accurately. To ensure the quality of the interview data, we returned the transcribed data to the participants for quality assurance and agreement (Creswell, 2013).

3.4. Ethics approval and informed consent to participate

This field study was authorized by the College of Economic and Management Sciences’ Ethical Research Committee, which guarantees that ethical guidelines are followed for research involving human subjects. Participants received written informed consent forms that described the main goal of the study, its methodology, potential hazards, its anonymity policies, and the rights of the respondents. Because the study collected data via participant online survey forms, there constituted a written authorization. The fact that the participants had to compete and submit the survey questions indicated that they were willing to answer the art questions. Participants were reassured that they could leave the study at any time without fear of consequences and that their participation in it was completely voluntary.

4. Results and discussion

4.1. Descriptive statistics and normality test

To ensure the appropriate choice of statistical data analysis techniques, testing for normality is a crucial step in analyzing continuous data. In the normality of the data, it is important to examine the values of skewness and kurtosis. According to previous literature, acceptable values for skewness and kurtosis fall between –2 and +2 (George & Mallery, 2010). Similarly, Byrne (2010) has also suggested that data can be considered normal if skewness ranges from –2 to +2 and kurtosis ranges from –7 to +7. Additionally, recent studies such as (Kim, 2013; Mishra et al., 2019) have also underscored the normality scale of –2 to < +4. As a result, this study adopted a scale of kurtosis ranging from –2 to < +4. This wider range enhances the ability to capture the characteristics of a normal data distribution more effectively. Parametric tests are used when data follows a normal distribution, while nonparametric methods are employed for non-normal data, ensuring accurate group comparisons.

Statistical analysis was performed to assess the normality of data distribution using various parameters (Table 5). Most factors fell within the normal distribution based on their kurtosis values. Variables such as ‘Productivity & Innovation’, ‘Promote SMEs growth’, and ‘Demand for supportive policies’ showed positive kurtosis (leptokurtic) with heavier tails. Conversely, variables such as ‘Entrepreneurship Commercialization’, ‘Scarce VC’, and ‘Location, Startup Size, and Sector’ displayed negative kurtosis (platykurtic) with lighter tails. The majority of variables had means of between 2.8 and 4.3, and moderate variability (SD within 1 to 1.5 range), indicating consistent responses among participants. In the context of checking for normality, there was evidence to suggest that data followed a normal distribution within an acceptable range (typically –2 to +4). This, in turn, supported the use of parametric tests (such as OLR, ANOVA, and correlation coefficients), which assume normality.

Table 5. Using VIF to test for data collinerity.

Model		Unstandardized coefficients		Standardized coefficients	t	Sig	Collinearity statistics
		B	Std. Error	Beta			Tolerance	VIF
1	(Constant)	2.380	.788		3.021	.004
	9. VC investment	.093	.167	.070	.557	.580	.751	1.332
	11. VC’s role on the board	.480	.149	.419	3.212	.002	.692	1.445
	16. Government and regional programs support innovative firms	−.144	.067	−.241	−2.158	.035	.945	1.058
	15. VC primary funding for start-ups	−.152	.117	−.152	−1.298	.200	.865	1.156

^a Dependent Variable: 24. VC leads to firms’ growth & financial performance.

Source: Primary data (2022).

4.2. Multi-regression analysis

In this section, we present the results of our data analysis and discuss the findings. Using a multiple regression model, we examined the power of VC in the transformation of early stage firms to contribute to their survival and success, job creation and innovation, and to improve entrepreneurship development and economic growth. We focused specifically on independent variables to test hypotheses H1 and H2. The results of this model were extensively analyzed, presented, and discussed. Our analysis was guided by the alternate hypothesis (Hα), which assumed a significant difference between the group mean and the overall mean of the dependent variable.

Hypthesis (H1): Increasing access to VC can contribute to the survival and success of HGFs in emerging economies.

The findings provide evidence supporting the positive impact of enhanced access to VC on the survival and success of HGFs, underscoring the crucial role VC plays in fostering growth and sustainability in emerging economies.

The regression analysis presented in Table 2 provides insights into the relationship between various predictors and the dependent variable, the survival and success of HGFs. The model’s summary statistics indicate that the regression model has a moderate level of fit, with an R-squared value of .351, suggesting that approximately 35.1% of the variability in the survival and success of HGFs can be explained by the predictors included in the model. The adjusted R-squared value of .304 takes into account the number of predictors in the model, providing a more conservative estimate of the model’s explanatory power. The standard error of the estimate, which measures the average distance between the actual and predicted values, was .417. This indicates the average level of error in predicting the survival rate and success of HGFs, based on the included predictors. A Durbin-Watson statistic of 2.384 suggests that there is no significant autocorrelation in the model’s residuals.

Table 2. Descriptive statistics & Kurtosis analysis.

Variables	N	Minimum	Maximum	Mean	Std. Deviation	Kurtosis
	Statistic	Statistic	Statistic	Statistic	Statistic	Statistic	Std. Error
Years of experience	61	1	5	4.07	0.964	0.588	0.604
Economic growth	61	2	5	4.18	0.847	0.82	0.604
Productivity & innovation	61	1	5	4.05	0.717	5.257	0.604
Survival & success of SMEs	61	1	5	4.08	0.954	2.257	0.604
Entrepreneurial growth	61	1	5	3.57	1.231	−0.518	0.604
Promote SMEs’ growth	61	1	5	4.28	1.019	2.199	0.604
Venture capitalists’ skills	61	1	5	2.98	1.088	−0.489	0.604
Entrepreneurship commercialization	61	1	5	2.85	1.289	−1.139	0.604
Mentorship & aligned equity tickets.	61	1	5	2.98	1.147	−0.538	0.604
New VC Policies	61	1	5	4.05	1.117	0.93	0.604
Government and regional programs	61	2	5	3.97	0.875	0.053	0.604
Public policy instruments	61	1	5	4.28	0.859	3.204	0.604
VC Supply to HGFs	61	1	5	4.28	0.859	3.204	0.604
VCs provide technical services	61	1	5	4.28	0.859	3.204	0.604
New innovative products	61	1	5	4.28	0.859	3.204	0.604
New jobs	61	2	5	3.89	1.097	−1.019	0.604
Value-addition	61	1	5	3.51	1.362	−1.067	0.604
SME performance & growth.	61	1	5	3	1.169	−0.572	0.604
VC leads to industrial Dev’t	61	1	5	4.28	0.859	3.204	0.604
SMEs drivers of economic growth	61	1	5	3.36	1.265	−1.17	0.604
VC Industry in Africa is very infant	61	1	5	2.8	1.249	−0.844	0.604
Low VC uptake in Africa	61	1	5	4.08	0.954	2.257	0.604
Location, startup size and sector	61	1	5	2.8	1.236	−0.968	0.604
Lack of VC rules and regulations	61	1	7	3.43	1.511	−0.794	0.604
Demand for supportive policies	61	1	5	4.3	0.803	4.099	0.604
VC’s successful exits in the market	61	1	5	3.57	1.231	−0.518	0.604
SMEs lack access to finance	61	1	5	4.3	0.803	4.099	0.604
Selective VC investment is an obstacle	61	1	5	3.57	1.231	−0.518	0.604
Undeveloped equity capital markets	61	−3	8	3.3	1.735	2.032	0.604
Scarce VC	61	1	5	3.38	1.518	−1.213	0.604
Valid N (Listwise)	61

Source: Primary data (2023).

As shown in Table 3, the regression ANOVA provides information on the overall significance of the regression model. The table shows that the regression model as a whole was statistically significant, with a significant F-value of 7.430 and a p-value of less than .001. This suggests that the predictors included in the model collectively have a significant impact on the survival and success of HGFs. The predictors in this study included PVC funding, government and regional programs, VC investment, and the role of VCs on the board. Previous studies (Kato, 2023) have provided similar results that support the impact of VC on the survival rate and success of HGFs. Overall, the regression analysis presented in Tables 5 and 6 indicates that the included predictors had a statistically significant impact on the survival rate and success of HGFs.

Table 3. Regression model summary^b.

Model	R	R Square	Adjusted R Square	Std. Error of the Estimate	Durbin-Watson
1	.592^a	.351	.304	.417	2.384

^a Predictors: (Constant), 15. PVC funding, 16. Government and regional programmes, 9. VC investment, 11. VCs’ role on the BOD.

^b Dependent Variable: 24. Survival & Success of HGFs.

Source: Primary data (2022).

Table 6. Pearson correlation coefficients.

		VC’s skills	Entrepreneurship commercialization	VC viable for SMEs	Productivity & innovation	Econ & entrepreneurship growth	New jobs
Venture capitalists’ skills	Pearson correlation	1	.664* *	.264*	.108	.075	−.085
	Sig. (2-tailed)		<.001	.040	.408	.565	.513
	N	61	61	61	61	61	61
Entrepreneurship commercialization	Pearson correlation	.664**	1	.461**	.315*	.206	−.036
	Sig. (2-tailed)	<.001		<.001	.014	.112	.784
	N	61	61	61	61	61	61
VC Viable for SMEs	Pearson correlation	.264*	.461**	1	.249	.244	.004
	Sig. (2-tailed)	.040	<.001		.053	.058	.976
	N	61	61	61	61	61	61
Productivity & Amp; innovation	Pearson correlation	.108	.315*	.249	1	.279*	.177
	Sig. (2-tailed)	.408	.014	.053		.029	.173
	N	61	61	61	61	61	61
Econ & entrepreneurship growth	Pearson Correlation	.075	.206	.244	.279*	1	.197
	Sig. (2-tailed)	.565	.112	.058	.029		.128
	N	61	61	61	61	61	61
New jobs	Pearson Correlation	−.085	−.036	.004	.177	.197	1
	Sig. (2-tailed)	.513	.784	.976	.173	.128
	N	61	61	61	61	61	61

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

Source: Primary data (2023).

In Table 4, data analysis was conducted to assess collinearity among predictor variables in relation to hypothesis Ha (5) to ensure that the predictor variables in the model were not strongly interrelated, which could potentially affect the reliability of the results. Using variance inflation factor (VIF) figures, the results indicated the absence of severe collinearity issues. Variables such as ‘VC investment’, ‘VCs’ role on the board’, ‘Government and regional programs supporting innovative firms’ and ‘VC primary funding for start-ups’ exhibit VIF values around 1.445, 1.058, 1.156, and 1.156 respectively, alongside acceptable tolerance values. Consequently, these variables can be included in the analysis linking increased VC access to the survival and success of HGFs in emerging economies.

Table 4. Regression ANOVA^a.

Model		Sum of Squares	df	Mean Square	F	Sig
1	Regression	5.169	4	1.292	7.430	<.001^b
	Residual	9.565	55	.174
	Total	14.733	59

^a Dependent Variable: 24. Survival and success of HGFs.

^b Predictors: (Constant), 15. PVC funding, 16. Government and regional, 9. VC investment, 11. VC’s role on the board.

Source: Primary data (2022).

These findings provide support for the hypothesis, highlighting how increasing access to VC can contribute to the survival and success of HGFs in emerging economies, as no collinearity concerns were noted among the related variables. Nonetheless, it is important to consider other factors, such as sample size and additional diagnostic tests, to gain a comprehensive understanding of this relationship.

Hypothesis (H2): VC investors’ involvement in VC-funded firms can lead to improved entrepreneurship development and economic growth.

In Table 6, we present correlation coefficients that shed light on the relationships between VC investors’ involvement in VC-funded firms and the net effect on economic growth and entrepreneurship. These correlations offer valuable insights into the potential impact of venture capital on these outcomes.

Based on the correlation coefficients provided in Table 6, we can observe the following significant correlations:

These results suggest a strong positive correlation (0.664**) between venture capitalists’ skills and the commercialization of entrepreneurship. This endorses the hypothesis that VCs’ with higher skills are more likely to support and invest in entrepreneurial ventures, leading to increased commercialization of innovative ideas and products. In addition, we find a positive correlation (0.264*) between VCs’ skills and the viability of VC for SMEs. This indicates that venture capitalists with higher skills are better equipped to identify and support viable SMEs, which can contribute to their growth and success.

Moreover, the results for entrepreneurship commercialization and VC viability for SMEs also demonstrate a significant positive correlation (0.461**). This underscores the notion that when entrepreneurship is effectively commercialized, it can enhance the viability of VC for SMEs. Yet, a significant positive correlation between productivity and innovation and both economic growth and entrepreneurship cannot be understated. The correlation coefficients range from 0.249 to 0.315*. This indicates that higher levels of productivity and innovation are associated with economic growth and foster entrepreneurial activities. It is important to note that these correlations provide evidence of a relationship between venture capital financing and economic growth/entrepreneurship. In a nutshell, these results adequately support Ha2, implying that scaling-up access to VC finance for SMEs can contribute considerably to economic and entreperneurship growth.

While Pearson correlation coefficients are widely used, they have limitations. Thus, the study engaged additional statistical linear analyses including a multiple regression analysis and ANOVA to establish causal relationships and understand the broader context in which venture capital operates. In effect, we conducted a three-way ANOVA regression model. The purpose of this model was to investigate the potential interaction effect among three independent variables: VC investment, VCs’ superior skills, and VCs’ role in the BOD of portfolio companies. Our primary focus was on a continuous dependent variable that represented entrepreneurship development and economic growth.

Table 7 presents the results of the regression analysis. The model showed that the correlation coefficient (R) was 0.589, indicating a moderately positive relationship between the independent and dependent variables. The coefficient of determination (R Square) was 0.346, suggesting that 34.6% of the variation in entrepreneurial development and economic growth can be explained by the three predictors in the model. The adjusted R Square, which considers the number of predictors and sample size, was 0.303. This indicates that approximately 30.3% of the variation in the dependent variable can be attributed to independent variables in the model. The standard error of the estimate was 0.295, which represents the average distance between the observed and predicted values of the dependent variable. The F-statistic of 7.950 is significant at p < 0.001, indicating that the regression model as a whole is statistically significant in explaining the variation in entrepreneurial development and economic growth.

Table 7. Regression model summary^b.

Model	R	R Square	Adjusted R Square	Std. error of the estimate	Change statistics				Durbin-Watson
					F Change	df1	df2	Sig. F Change
1	.589^a	.346	.303	.295	7.950	3	45	<.001	2.680

a Predictors: (Constant), 15. VC investment, 8.  VCs’ superior skills, 11. VCs’ role (BOD seat) on the Board.

b Dependent Variable: 9: Entrepreneurial dev’t and economic growth.

Moving on to Table 8, the 3-way analysis of variance (ANOVA) provides further insights into the relationship between the predictors and the dependent variable. The regression component of the ANOVA shows that, collectively, the predictors collectively account for 69.3% of the variation in entrepreneurial development and economic growth, with a significant F-statistic of 7.950 (p < 0.001). The residual component of the ANOVA represents unexplained variation in the dependent variable, with a sum of squares of 3.922. The total sum of squares was 6.000, indicating that the predictors explained a substantial portion of the variation in the dependent variable. In conclusion, the results of the regression analysis and ANOVA suggest that VC investment, VCs’ superior skills, and the role of VCs on the board of directors have a significant impact on entrepreneurial development and economic growth. These findings highlight VC investors’ crucial role in driving and fostering entrepreneurship and economic progress.

Table 8. A 3-way Analysis of Variance (ANOVA ANOVA)^a.

Model		Sum of Squares	df	Mean Square	F	Sig
1	Regression	2.078	3	.693	7.950	<.001^b
	Residual	3.922	45	.087
	Total	6.000	48

a Dependent Variable: 9. Entrepreneurial dev’t and economic growth.

b Predictors: (Constant), 15.  VC investment, 8. VCs’ superior skills, 11. VCs’ role (BOD seat) on the Board.

Source: Primary data (2022).

Although the results obtained from the regression analysis are encouraging, it is important to note that the causal relationship between VC investment and entrepreneurship development remains an open question. To address multicollinearity, we conducted an assessment using the variance inflation factor (VIF). The VIF measures the correlation, and strength of the correlation, between the predictor variables in a regression model (see Table 7). This analysis confirmed that our predictor variables were not excessively correlated with each other and helped to ensure the reliability of our results.

The results in Table 9 provide insights into the coefficient outputs for collinearity. In the first model, the constant term had a coefficient of 1.560 with a standard error of 0.604, indicating a significant positive effect (t = 2.584, p = 0.013). In the case of the predictor variables, VCs’ superior skills (Variable 8) had a coefficient of 0.258 and a standard error of 0.111, suggesting a positive relationship with the dependent variable. The standardized coefficient (beta) was 0.298, indicating a moderate effect size. The t value was 2.334, which was statistically significant (p = 0.024). The collinearity statistics show a tolerance value of 0.890 and a VIF of 1.124, indicating that there was no excessive correlation with other predictor variables.

Table 9. Coefficient output for collinearity.

Model		Unstandardized coefficients		Standardized coefficients	t	Sig	Collinearity statistics
		B	Std. Error	Beta			Tolerance	VIF
1	(Constant)	1.560	.604		2.584	.013
	8. VCs’ superior skills represent distinctive capabilities.	.258	.111	.298	2.334	.024	.890	1.124
	11. VCs’ role (BOD seat) on the Board	.363	.117	.418	3.093	.003	.797	1.255
	15. VC investment	−.007	.092	−.010	−.075	.941	.888	1.126

Source: Primary data (2022).

Similarly, the VCs’ role on the Board (Variable 11) has a coefficient of 0.363 with a standard error of 0.117, indicating a positive relationship. The standardized coefficient (beta) was 0.418, suggesting a moderate effect size. The t-value was 3.093, which was statistically significant (p = 0.003). The collinearity statistics show a tolerance value of 0.797 and a VIF of 1.255, indicating no excessive correlation with other predictor variables. Finally, VC investment (Variable 15) has a coefficient of –0.007, with a standard error of 0.092, suggesting a negligible negative relationship. The standardized coefficient (beta) was − –0.010, indicating a minimal effect size. The t-value was − –0.075, which was not statistically significant (p = 0.941). The collinearity statistics show a tolerance value of 0.888 and a VIF of 1.126, indicating no excessive correlation with other predictor variables.

4.3. Interview analysis results

In our mixed-method approach, we conducted semi-structured interviews with VC investors from the Southern and East African regions to gain deeper insight into the statistical data collected from the survey. We interviewed 12 VC investors, purposefully selected from South Africa, Kenya. All VC investors acknowledged the crucial role of VC-funded companies in job creation, firm commercialization and government taxes. They reported that portfolio companies offer approximately five new jobs, highlighting the positive impact of VC-backed companies on employment opportunities. These findings align with those of previous studies that emphasize the contribution of VC-funded companies to economic growth and innovation. The interview results further reinforced statistical figures that demonstrate the contribution of VC-funded companies to entrepreneurship development in emerging economies.

Regarding the impact of VCs on firm growth and financial performance, approximately 75% of VC investors revealed promising results for their VC-funded companies. These companies have contributed to the creation of new employment opportunities, provided access to VC and private equity funding, and facilitated technological knowledge transfers to high-growth firms. These factors have played a crucial role in promoting high-growth entrepreneurship and small-business development in these regions. While the sample of VC investors interviewed was skewed towards Southern Africa, the total VC investment in both regions was equally competitive. The interview results also highlight the funding challenges faced by HGFs in both regions owing to the limited number of VC firms in Africa. This observation aligns with findings from developed economies, where government intervention and support have played a significant role in closing the financing gap for early stage firms.

The interviews shed light on the replication of successful VC ecosystems in Southern and East African regions, such as Silicon Cape in South Africa and Silicon Savannah in Nairobi. These examples demonstrate the potential for prosperity in the VC industry in these regions, although it is still at an early stage compared to countries such as the US, Canada, Israel and China. The importance of the VC industry in fostering high-growth entrepreneurial companies has led governments worldwide to establish programs to promote this type of financing. However, the impact of VC investments on the survival and prosperity of investee companies in Africa requires further exploration. The interview results provide qualitative support for the statistical findings, emphasizing the positive impact of VC-funded companies on job creation, economic growth, and innovation. The interviews also highlighted the challenges faced by HGFs in accessing financing and the potential for government intervention to bridge the funding gap. The replication of successful VC ecosystems in the region further demonstrates the potential for growth and development in the VC industry in Southern and East Africa.

5. Discussion

The results of this study provide valuable insights into the transformative power of VC in early stage firms, particularly in emerging economies. Our findings highlight the significant contribution of VC-funded companies in terms of their survival, success and impact on entrepreneurship and economic development. Through a combination of quantitative analysis and semi-structured interviews, we gained a comprehensive understanding of the role of VC in these economies.

The analysis of quantitative data revealed that VC-funded companies in Southern and East Africa have a positive impact on various aspects, including job creation and the growth and success of HGFs. Specifically, our statistical findings demonstrate that portfolio companies create approximately five new jobs on average, underscoring the significant role of VC-backed companies in generating employment opportunities. These findings are further supported by the insights gathered from our interviews with VC investors, who consistently acknowledge the crucial role of VC-funded companies in job creation. By combining the quantitative and qualitative data, we strengthened the validity of our findings. The alignment between these two sources of information reinforces the positive impact of VC investments on entrepreneurship development in emerging economies. Our study builds on the existing literature by providing a more comprehensive understanding of the role of VC in these economies, considering the specific context and challenges they face (Manigart et al., 2002; Amornsiripanitch et al., 2016; Barney & Zajac, 1994; Bravo-Biosca et al., 2016).

Previous studies have provided evidence supporting our findings regarding the role of VC in job creation. For example, Easterly and Rebelo (1993) and Ahlstrom and Bruton (2006) highlighted the importance of financial capital in enhancing local employment. In addition, Springer (2018) analyzed the employment growth of entrepreneurial ventures backed by different types of VC firms, including private and government-owned firms. Findings were that VC-backed companies experienced higher employment growth than non-venture-backed companies. A study by Brown et al. (2022), Gallo and Verdoliva (2022) examined the employment dynamics of over 67,000 US companies that received VC investment and further emphasized the positive relationship between VC investment and job creation. These studies, along with our statistical findings, underscore the significant role of VC-backed companies in generating employment opportunities.

Moreover, our findings highlight the broader implications of VC investments. VC-funded companies not only contribute to job creation but also play a vital role in fostering the growth and success of HGFs, thereby driving entrepreneurship and economic growth in regions such as South Africa and Kenya. This underscores the potential strength of VC in generating innovation and creating an environment that is conducive to the emergence of more HGFs. Thus, our study sheds light on the transformative power of VC in emerging economies. The positive impacts on job creation, the survival and success of HGFs, and the overall contribution to entrepreneurship and economic development are evident. Our findings have significant implications for policymakers, investors, and stakeholders interested in fostering entrepreneurship and economic growth.

Furthermore, the analysis of the coefficients in Table 4 suggests that the role of VC investors VCs’ rol on the BOD, and government, and regional program support has stronger and statistically significant impacts on the survival and success rate of HGFs. VC investment also has a statistically significant impact, although this is relatively weak. Primary VC funding for start-ups does not show a significant relationship with the dependent variable. Further analysis and consideration of other factors is recommended to gain a comprehensive understanding of the relationships between these predictors and the dependent variable. However, we observe that the beta variables for government and regional support programs are negative (–0.241), and VC is a primary funding source (–0.152) (Gorman & Sahlman, 1989; Kunkel & Hofer, 1990). A negative beta coefficient indicates a decrease in the dependent variable for a unit change in the independent variable. We can conclude that growing misguided government and regional support programs negatively impact the survival and financial performance of HGFs by 24.1%. We can also argue that 15.1% of VC as a primary source of financing for early stage firms in the Southern and East African regions can be explained by misguided government funding models, which sometimes lead to a crowding out of the PVC industry. The study’s critical findings emphasize the negative impact of government and regional program support for innovative firms on their survival and growth, as evidenced by a negative coefficient of –0.144. This raises concerns regarding the effectiveness of government initiatives in fostering the sustainability of innovative firms. These findings shed light on the intricate relationship between government support, VC funding, and growth of innovative firms in emerging economies.

Our study contributes to the existing literature by highlighting the critical findings that demonstrate the negative impact of government and regional program support on the survival and growth of innovative firms. The negative coefficients of –0.144 and –0.241 underscore concerns regarding the effectiveness of government initiatives in fostering the sustainability of these firms. These findings align with those of previous studies that emphasize the detrimental effects of financial constraints on firm innovation. However, it is important to acknowledge that some studies present alternative perspectives, suggesting that government support has a positive impact on firm innovation. While government programs may have unintended consequences, Lerner (2010) and Long et al. (2022) argue that VC funding remains a significant factor. Despite these contrasting findings, our study provides robust evidence supporting the notion of a complex relationship between government support, VC funding, and the growth of innovative firms in emerging economies. Further research is required to reconcile these differing perspectives and to gain a comprehensive understanding of the role of government support in fostering innovation.

Previous studies claim that the reason government involvement and support programs in South Africa and Kenya may have a more detrimental effect on the survival and success of HGFs than in countries such as Israel, the UK and the US can be attributed to factors such as ineffective implementation and execution of programs, a challenging regulatory environment, limited access to capital, and the absence of a strong entrepreneurial culture. These factors can hinder the growth and competitiveness of HGFs in South Africa and Kenya, whereas countries with successful government support programs have established well-designed frameworks, supportive regulatory environments, abundant VC funding, and thriving entrepreneurial cultures.

Furthermore, quantitative analysis revealed that VC-funded companies make significant contributions to the survival and success rates of HGFs. Approximately 75% of VC investors reported promising results from their investments in VC-funded companies, underscoring the positive outcomes associated with VC investments. These companies have not only generated new employment opportunities but have also provided access to VC and private equity funding that would otherwise have been unavailable from traditional financial institutions. The interview results further corroborate these findings, emphasizing the pivotal role of VC investment in facilitating high-growth entrepreneurship and fostering the development of small businesses. The convergence of quantitative and qualitative data highlights the substantial contribution of VC investment to the growth and success of firms operating in emerging economies.

However, the interviews also shed light on the challenges faced by HGFs in accessing VC funding. The limited number of VC firms in Africa presents a significant financing challenge for HGFs, impeding their growth and potential. This finding aligns with the quantitative analysis, which indicates that VC investment in the region is still in its early stages compared to that in developed economies. The interview results underscore the necessity for government intervention and support to bridge the financing gap for early stage firms with growth potential.

6. Conclusion

This study measures the impact of VC investment on the development of HGFs and economic growth in South Africa and Kenya. The primary findings are summarized as follows. Firstly, the results confirm the significant positive impact of VC investment on the survival and success of HGFs. The expansion of VC-funded companies is evident in terms of increased productivity, employment creation, and international market presence. However, the performance was more prominent among HGFs located in the Southern region than among those in the East African region. VC investors play a crucial role in driving productivity through their contributions to innovation. Encouraging VC investment in new HGFs and early stage entrepreneurial firms is essential to stimulating economic growth.

In addition, the results of this study confirm that VC investors play a vital role in supporting portfolio companies during periods of financial distress by increasing access to external equity financing. This support enables potentially lucrative new business opportunities and expansion firms to enhance their productivity, growth and competitive advantage, thereby contributing to macroeconomic development. Furthermore, this study reveals that disruptive government policies and regional programs negatively impact the success and survival of HGFs. The reluctance of governments to create supportive regulatory reforms that encourage high-growth entrepreneurship in the Southern and East African regions hinders their development. While efforts have been made in South Africa and Kenya to design friendly policies to attract foreign investors, they still fall short when compared with countries such as the US, Canada and the UK. Adequate support from governments and VC investors is crucial for promoting the prosperity of HGFs and contributing to economic development in these regions.

Moreover, this study confirms that enhancing access to VC investment can facilitate entrepreneurship development, firm survival and growth, thereby creating employment opportunities and driving economic development in emerging economies. However, the current state of VC development in emerging African economies, including South Africa and Kenya, is not encouraging, as the concept is still relatively unknown and investment activities are scarce. This is partly due to a lack of well-trained entrepreneurs and resistance from family owned enterprises to partnerships with VC investors. This negative entrepreneurial spirit contradicts the Resource-Based View (RBV) theory of the firm, as VCs are denied the opportunity to showcase their superior skills. Therefore, reaching a definitive conclusion on the impact of the presence of VCs on the boards of VC-funded firms in terms of encouraging firm growth and financial performance is challenging.

In summary, this study highlights the significantly positive impact of VC investment on the survival and success of HGFs in South Africa and Kenya. This emphasizes the importance of supportive government policies, regional programs and adequate support from VC investors to foster an enabling environment for VC investment and to promote the growth and economic development of these regions. Enhancing access to VC investments can facilitate entrepreneurship development, create employment opportunities, and contribute to the economic growth of emerging economies. However, further efforts are needed to raise awareness and overcome barriers to VC development in emerging African economies to fully harness their potential to drive entrepreneurial growth and economic prosperity.

7. Limitations and future research directions

Our study, supported by previous research, provides significant insights into the role of VC in job creation, survival and success of high-growth firms (HGFs), and promotion of entrepreneurship and economic development. Our statistical findings, along with those of Alperovych et al., 2020; NVCA (2009), Tykvová (2018) and Brown et al. (2022), highlight the positive impact of VC-backed companies on generating employment opportunities and fostering the growth of HGFs. These results answer our research hypotheses and demonstrate the significant contributions of VC in these areas.

The implications of this study are significant. Policymakers and investors can use these findings to develop strategies that support VC investments and create an enabling environment for entrepreneurship and economic growth. By understanding the positive relationship between VC and job creation, decision-makers can prioritize initiatives that facilitate access to VC funding for early-stage firms. Moreover, our findings emphasize the vital role of VC in the survival and success of HGFs, highlighting the need for continued support and resources to nurture such ventures. The promotion of VC investment can lead to the formation of more HGFs, drive innovation, and contribute to economic development.

However, it is important to acknowledge the limitations of this study. Our study focuses specifically on the Southern and East African regions, and the findings may not be fully generalizable to other emerging economies. Context-specific factors of these regions, such as regulatory environments and access to capital, may influence the outcomes. Furthermore, our study relied on quantitative analysis and qualitative interviews, which provide valuable insights but may not capture the full complexity of the relationship between VC and entrepreneurship.

Future research could build upon our findings and address these limitations. Comparative studies across emerging economies should provide a broader understanding of the role of VC in job creation and economic development. Exploring the specific mechanisms through which VC investment affects the survival of HGFs and their success can offer deeper insights. Also, investigating the role of government policies and support programs in facilitating VC investment and fostering entrepreneurship is valuable. Hence, our study contributes to the existing literature by providing evidence of the significant role of VC in job creation, growth of HGFs, and promotion of entrepreneurship and economic development. The research implications highlight the importance of supporting VC investment while acknowledging its limitations and suggesting potential future research directions. By further exploring these areas, scholars and practitioners can continue to advance our understanding and leverage the power of VC to drive economic growth and innovation in emerging economies.

Authors’ contribution

Dr. Ahmed I. Kato is a Postdoctoral Research Fellow at the University of South Africa in the College of Economic and Management Science. His research focuses on entrepreneurial finance, venture capital, sustainable entrepreneurship, sustainable finance, and supply chain management in developing economies.

Ahmed as a corresponding author, spearheaded the conceptualization and research design, as well as the data collection, analysis, and interpretation. He took the lead in drafting the article and provided a first-level review to ensure the article’s intellectual rigor. Additionally, Ahmed is accountable for all aspects of the article.

Professor Evelyn Germinah Chiloane-Tsoka is a highly regarded researcher and a professor of Entrepreneurship at the University of South Africa. Her research emphasis is on the advancement of women entrepreneurs, and she has become an eminent authority in this area. Her academic journey commenced with a Master’s thesis investigating the challenges confronted by women in leadership roles in South Africa. Prof. Chiloane-Tsoka was engaged in the conceptualization of the research and delivered a comprehensive review of the article to meet the journal’s criteria and intellectual standards. Consequently, she approved the article for publication and takes full responsibility for all aspects of the article.

Acknowledgements

This research received no specific grants from any funding agency in the public, commercial, or not-for-profit sectors.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data available on reasonable request from the corresponding author.

Additional information

Notes on contributors

Ahmed Idi Kato

Ahmed Idi Kato is a Postdoctoral researcher at the University of South Africa specializing in venture capital, sustainable finance, entrepreneurship, and SME development. With a strong publication record, he excels in research and mentorship. Dr Kato’s grants management expertise and collaborative skills drive impactful initiatives in women’s entrepreneurship and sustainability.

Germinah Evelyn Chiloane-Tsoka

Germinah Evelyn Chiloane-Tsoka, an esteemed researcher and Entrepreneurship professor at the University of South Africa, focuses on empowering women entrepreneurs. Her research on government policies and women entrepreneurship has impacted policymaking, leading to eight publications. She mentors young academics, operates an Entrepreneurship Hub, and collaborates globally, showcasing her dedication to advancing women’s entrepreneurship and academic excellence.