Unveiling venture capital’s disruptive power; fuelling innovation and economic growth in high-impact firms in East Africa

Abstract Venture capital (VC) possesses the extraordinary ability to transform start-ups into global leaders, spurring innovation, generating employment, and catalysing economic expansion through increased funding and supportive policy frameworks. Yet, small- and medium-sized enterprises frequently face numerous obstacles that hinder their growth and success. Despite this, the remarkable impact of VC in accelerating the development of high-impact firms is still not fully appreciated. This study examines the impact of VC funding on high-impact firms in East Africa, investigating how VC transforms start-ups from mere funding recipients to industry leaders. In a ground-breaking study utilizing panel data from 61 VC firms spanning from 2015 to 2023, we delved into the transformative influence of VC on innovation and economic growth within high-impact firms in East Africa. The findings reveal a dynamic synergy between VC funding and supportive public policies, which together foster the emergence of innovative start-ups and accelerate the successful commercialization and market expansion of these businesses. This research emphasizes that by understanding the disruptive potential of VC, we can unlock significant innovation and prosperity. The insights provide valuable guidance for policymakers, investors, and entrepreneurs aiming to stimulate economic growth and foster a vibrant entrepreneurial ecosystem. To drive this promising journey towards a prosperous future, the demand for a significant increase in VC supply in the region is critical. Future inquiries are needed to validate the kinds of conclusions that can be drawn from this study, specifically exploring the long-term impact of VC investment on the East African start-up landscape.