European Journal of Accounting, Auditing and Finance Research (EJAAFR)

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Impact Analysis of Venture Finance to Small and Medium Enterprises’ Performance in Tanzania


Venture capital firms (VCF) provide finance to growing companies to run their activities at initial development stage, to help them grow and succeed. Small enterprises (SMEs) in Tanzania constitute growing business however; they lack finance to undertake opportunities from scale operation, effective management and growth. This scarcity of finance undermines business owners to manage their start-ups, expansion and growth. Inherently, SMEs businesses experience low value of tangible assets, high potential value of intangible assets which pose distress to meet the desired collaterals to attract external finances from traditional bank lending sector. SMEs face adverse selection and moral hazard when borrowing from banks and traditional financial institutions. Numerous authors have proved that VC financing is a viable and sustainable financing model to drive SMEs’ growth and performance. The Existence of the relationship between VCF and SMEs in Tanzania has influenced the importance of this study. The purpose of this paper is to analyze the impact of venture capital finance on SMEs’ performance in Tanzania. We reviewed literature on relationship between venture capital providers and SMES help to identify the venture capital performance and its impact to SMEs. The literature on Venture capital providers’ investments in Tanzania is well understood by analysis of traditional investment objectives for SMES. Equivalently, analysis of SMES suffering from exceptional failure rate, insignificant and; irregular finances and ineffective management is increasingly becoming important in Tanzania Mixed and exploratory research approaches were used to assess VC phenomena in Tanzania in search for literature, and talking to expert-narrative approach- in the subject. We used survey questionnaires to collect data from 70 respondents which include SMEs business received VC funds and SMEs never received VC funds.  We used multiple regression analysis and correlation coefficient to analyze data. Descriptive and correlation analysis were used to measure variables and explain trends, characteristics and relationships between VC finance, sales growth, profitability and return on assets. Empirical evidence shows a significance growth in sales turnover, return on assets and Equity of venture-capital-backed SMEs businesses as compared to the non-venture-capital-backed SMEs. Further analysis shows that SMEs.

Keywords: SMEs performance, technical management support services, venture capital auxiliary services, venture capital finance

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