Abstract:
ABSTRACT
Small Medium Enterprises (SMEs) in Kenya face difficulty in accessing formal financing.
This therefore means that there is a capital gap existing in Kenya which particularly affects
the limited opportunities for establishment and development of new business ventures. The
concept of crowdfunding could be a solution to this capital gap. This study sought to analyze
the constraints faced by Kenyan SMEs in using crowdfunding as a source of start-up capital.
The study was based on three theories, the agency theory, the stakeholder theory and the
static trade-off theory. The study adopted a descriptive survey design because the objective of
the study was systematic description of facts surrounding the use of crowdfunding. It targeted
Chief Executive Officers (CEOs) of crowdfunding platforms and entrepreneurs who had used
crowdfunding to finance their business ventures. Self-administered structured questionnaires
were distributed to a sample of 125 entrepreneurs operating small businesses within Nakuru
County. Stratified proportionate sampling coupled with simple random sampling and
snowball sampling were applied in selecting the respondents. Once the data had been
collected it was processed, coded and analyzed using descriptive statistics with the aid of
Statistical Package for Social Sciences (SPSS) computer software tool. The results were
presented using frequency tables, graphs and percentages. The research findings indicated
that, a good percentage of SMEs have embraced crowdfunding with 49% of them having
secured funds through this system. These SMEs highlighted risk of idea stealing, desire by
financial supporters to gain control in the venture, lack of intellectual property rights and
legal issues to be the major constraints that would stop them from tapping into the
crowdfunding. The conclusion drawn from the study was that the constraints surrounding
crowdfunding affect to a larger extent its use as a source of financing. The study also
indicated that as much as SMEs are using crowdfunding, they still prefer the use of the
traditional sources like banks. Based on the results of the study and the conclusions, the
following key recommendations were made: Crowdfunding is a very good alternative to
traditional fundraising. In order to be successful, the campaign has to be carefully designed
upfront and executed with a lot of dedication. Credibility of projects generally increases when
there is a team of multiple project initiators. It is important that they publish updates during
the fundraising period in order to sustain this credibility. Crowdfunding platforms should
facilitate and guide project initiators in such a way that they can easily optimize the success
drivers. Crowdfunding platforms should facilitate and guide project initiators in such a way
that they can easily optimize the success drivers.
