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COURSE NAME: ENTREPRENUERSHIP

COURSE CODE: BHEC403

ASSIGNMENT NO: 2 DUE DATE: 31/10/23

ASSIGNMENT TITLE: Discuss the sources of finance for entrepreneurship in the context of
the following: (a) Equity financing (25) (b) Venture capital (25) (c) Franchising (25) (d)
Angel investors (25)

MARKER’S COMMENTS:

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OVERALL MARK: _____________ MARKER’S NAME: ________________________

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MARKER’S SIGNATURE: ______________________________ DATE: ___________

Equity financing is the sale of company shares in order to raise capital. Investors who
purchase the shares are also purchasing ownership rights to the company. Venture capital is a
type of private equity financing that is provided to start-ups and small businesses that are
believed to have high growth potential. Franchising is a business model that allows a
company to license its brand, intellectual property and business model to an individual or
group to operate a location of the business. Angel investors are wealth; individuals who
purchase stakes in businesses that they believe possess the potential to generate higher returns
in the future. These sources of finance for entrepreneurship will be discussed in detail in the
following essay.

Definition of terms:

Muraya (2014) notes that entrepreneurship is the manifest ability and willingness of
individuals, on their own, in teams within and outside existing organizations, to perceive and
create new economic opportunities (new products, new production methods, new
organisational schemes and new product-market combinations) and to introduce their ideas in
the market, in the face of uncertainty and other obstacles, by making decisions on location,
form and the use of resources and institutions.

Makoni (2017) notes that Equity financing, refers to the process of raising capital by offering
shares in a company to investors. Makoni (2014) defines equity financing as "the process of
obtaining capital from investors who purchase shares in a business".

Madhuku (2017) franchising can be defined as "a contractual relationship between a

franchisor (a person or company that grants a license to a third party for the conducting of a
business under the franchisor's trade name and business system) and a franchisee (a person or
company who acquires a license from a franchisor to conduct a business under the
franchisor's trade name and system)".

Kanyangarara (2018), angel investors are typically "wealthy individuals who provide start-up
capital for a business in exchange for an ownership stake or convertible debt". Munemo
(2014), provides a slightly different definition of angel investors as he defines angel investors
as "individuals or companies who provide early-stage financing to small and medium-sized
enterprises (SMEs), typically in exchange for convertible debt or an equity stake".

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Madhuku (2016), venture capital is "a form of equity financing provided to small businesses
that are deemed to have high growth potential and a strong management team".

The sources of finance for entrepreneurship in the context of Equity financing is in contrast to
debt financing, which involves borrowing money from lenders, and is typically secured
against assets or future cash flows. Equity financing is often seen as a more flexible form of
financing, as it does not require the company to make regular repayments, and it can provide
access to a wider range of investors. However, it also means that the company gives up some
ownership and control, and there is a risk that the company could be diluted if more shares
are issued in the future.

Mukono (2015) notes that equity financing can be either private or public. Private equity
financing refers to obtaining capital from private investors, such as venture capitalists, while
public equity financing refers to obtaining capital from the public through the sale of shares
on a stock exchange. Both types of equity financing have their own advantages and
disadvantages, and the choice of which type to use will depend on the individual
circumstances of the business.

Entrepreneurship financing in Zimbabwe has mainly relied on self-financing and informal

sources of financing, such as savings, loans from relatives and friends, and borrowing from
private financial institutions (Nyoka & Sibanda, 2015). In addition, some entrepreneurs have
managed to secure venture capital from individual investors, business angels, government
support, and donor-funded entrepreneurship initiatives (Zongo, 2016).

According to Mapfumo (2014) equity financing refers to a form of investment in which an

investor receives a portion of ownership in the company in exchange for providing capital to
the company. This can be in the form of venture capital, where the investor takes an active
role in the business, or private equity, where the investor takes a more passive role.

Mangezi & Kaseke (2018) posit that it has written extensively about equity financing, with a
particular focus on the challenges and opportunities for small and medium-sized enterprises
(SMEs). In his book, "Equity financing for SMEs: A framework for emerging economies",
Gamu outlines the benefits and challenges of equity financing for SMEs, as well as the
various sources of equity finance that are available. In particular, he highlights the potential
for equity crowd funding to provide SMEs with access to a wider range of investors, while
also providing transparency and accountability.

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Zongo (2016) is of the notion that one of the key benefits of equity financing, according to
Zimbabwean scholars, is that it allows entrepreneurs to access capital without having to take
on debt. In addition, equity financing gives entrepreneurs access to expertise and experience
from investors who can provide guidance and support in growing the business. However, one
of the potential drawbacks of equity financing is that it can dilute the ownership of the
entrepreneur and can lead to conflicts of interest between the entrepreneur and the investor

Tevera (2014) is of the opinion that one of the issues that have been highlighted by scholars
is the difficulty in obtaining equity financing for start-ups in Zimbabwe. This is partly due to
the lack of a developed venture capital industry in the country, as well as the high risk
associated with investing in start-ups. In addition, the lack of reliable information on the
performance of businesses, as well as the lack of transparency and poor governance in some
companies, has made it difficult for investors to make informed decisions.

Nyoka (2015) is of the notion that in response to these challenges, some scholars have
proposed the development of a more enabling environment for entrepreneurs to access equity
financing. This could include the establishment of venture capital funds, the promotion of
angel investment networks, and the provision of incentives for investors. In addition, scholars
have suggested the need for better training for entrepreneurs on how to access and manage
equity financing. This could include training on how to pitch to investors, how to negotiate
terms, and how to manage relationships with investors.

Mangezi & Kaseke (2018) notes that another issue that has been highlighted is the need for
entrepreneurs to be more aware of the importance of intellectual property protection when
seeking equity financing. In Zimbabwe, there is a lack of awareness of the need to protect
intellectual property, and this can lead to entrepreneurs losing control of their businesses or
being forced to give up a larger share of their business than they intended. To address this
issue, it has been suggested that there is a need for more education and awareness-raising on
the importance of intellectual property protection among entrepreneurs.

Chinembiri (2017) posits that Equity financing can be a very valuable source of capital for
entrepreneurs in Zimbabwe. It can provide several benefits, including access to larger
amounts of capital than what would be available through debt financing, the ability to retain
control of the business, as equity financing does not require entrepreneurs to repay the
investment in a set time period, access to expertise and networks that can help to grow the

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business, and flexibility in terms of repayment, as equity investors are often more willing to
be patient and wait for a return on their investment

Zongo (2016) notes that equity financing was particularly helpful for entrepreneurs who were
seeking to start or expand their businesses. In particular, Zongo found that equity financing
was helpful for entrepreneurs in obtaining the necessary capital for expansion, and that it also
allowed them to avoid the high interest rates associated with debt financing. In addition, the
study found that equity financing was particularly helpful for entrepreneurs in improving
their knowledge and skills, as well as in developing their networks.

Mangezi & Kaseke (2018) argue that equity financing was particularly beneficial for
Zimbabwean entrepreneurs. The study found that equity financing helped to improve the
overall financial performance of businesses, as well as their ability to access new markets. In
addition, the study found that equity financing helped to increase the number of employees in
businesses, as well as their level of education and training. Finally, the study found that
equity financing was associated with a higher level of innovation in businesses.

Chinembiri (2017) notes that equity financing had a positive impact on the performance of
businesses. The study looked at a number of factors, including sales, profitability, growth,
productivity, and job creation. Chinembiri's study found that businesses that received equity
financing were more likely to experience positive outcomes in all of these areas.

According to Mupemhi (2015) venture capital had a significant impact on the growth of small
businesses. The study found that venture capital was associated with higher sales, higher
profitability, and a greater ability to obtain bank loans. In addition, the study found that
venture capital helped to improve the overall efficiency of businesses.

Munyokani (2014) notes that venture capital had a positive impact on the growth of
businesses in Zimbabwe. He found that venture capital helped businesses to access new
markets, improve their marketing strategies, and develop new products and services.
Munyokani's findings were corroborated by Madhuku (2015), who found that venture capital
was associated with increased revenues and profitability. Madhuku also found that businesses
that received venture capital were more likely to have a higher level of customer satisfaction.

Makumbe (2016) is of the notion that venture capital played a key role in helping businesses
to develop new products and services, improve their marketing strategies, and access new

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markets. Makumbe also found that venture capital helped businesses to become more
efficient and to improve their overall performance.

The impact of venture capital on a range of other factors, such as innovation, technology
adoption, and corporate governance. For example, a study by Mbwirire (2018) found that
venture capital had a positive impact on the adoption of new technologies by businesses in
Zimbabwe. Mbwirire's study also found that businesses that received venture capital had
better corporate governance practices. Other studies have explored the impact of venture
capital on job creation, environmental sustainability, and other factors.

Venture capital can have a positive impact on businesses in Zimbabwe, particularly in terms
of improving their performance, competitiveness, and innovation. However, it is important to
note that not all businesses are able to access venture capital, and that there are a number of
challenges that need to be addressed in order to make venture capital more accessible to
entrepreneurs in Zimbabwe. These challenges include a lack of access to information about
venture capital, a lack of understanding of the venture capital process, and a lack of qualified
personnel to support the venture capital process.

Mutsvairo & Mashingaidze (2015) notes that franchising had a positive impact on job
creation in the hospitality industry in Zimbabwe. The study found that franchisees were able
to create more jobs than non-franchised businesses, and that the quality of these jobs was also
higher. The study also found that franchising was associated with improved access to
markets, as well as increased innovation and product development.

Kadzere-Chitepo (2016) found that franchising had a positive impact on female entrepreneurs
in Zimbabwe. The study found that franchising provided female entrepreneurs with access to
resources and support that they would not otherwise have had access to, such as training and
mentorship. This helped female entrepreneurs to develop and grow their businesses, and in
some cases, even become successful franchisees themselves.

Chagonda & Mundenge (2014) found that a lack of awareness about franchising was a key
barrier to its adoption by SMEs in Zimbabwe. The study also found that lack of access to
capital and inadequate infrastructure was also major challenges. The study recommends that
government and private sector organisations should work together to promote and support
franchising in Zimbabwe, in order to overcome these challenges and facilitate its adoption by
SMEs. Franchising has the potential to be a valuable tool for SME development in

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Zimbabwe. However, there are a number of challenges that need to be addressed in order to
realise this potential. These include improving awareness about franchising, increasing access
to capital, and improving infrastructure.

According to Gondo (2017) angel investors, also known as private investors or seed investors
are individuals who provide financial support to start-ups and early-stage businesses. In
Zimbabwe, there is limited research on the role of angel investors in supporting
entrepreurship. However, Yirimayi & Misheck Gondo (2017) found that angel investors
could play an important role in the development of SMEs in Zimbabwe, particularly in
sectors such as ICT, agriculture, and manufacturing. The study also found that angel investors
could provide not only financial support, but also mentorship and business development
support.

Despite the potential benefits of angel investment, the Yirimayi & Gondo (2017) study also
found that a number of barriers exist that limits the role of angel investors in supporting
SMEs in Zimbabwe. These include lack of a formal angel investment network, limited
regulatory support, and lack of awareness about the role of angel investors. The study
recommends that government and private sector organisations should work together to
address these barriers and create an enabling environment for angel investment in Zimbabwe.

A study by Arcand & Anna Salomäki (2019) found that angel investors could play an
important role in supporting innovation and technology transfer in developing countries.
Similarly, a study by Sarkodie et al (2016) found that angel investors could provide not only
financial support, but also access to valuable networks and knowledge that can help
entrepreneurs succeed.

These studies suggest that angel investors have the potential to play an important role in
supporting entrepreneurship and innovation in Zimbabwe and other African countries.
However, there is still a need for more research on the specific role of angel investors in
Zimbabwe, as well as the challenges and opportunities that exist for angel investors in the
country.

It is also worth noting that while angel investors can provide valuable support to
entrepreneurship especially SMEs, they also have their own motivations and expectations.
For example, a study by Ting et al (2017) found that angel investors in Malaysia were
primarily motivated by the potential for financial returns, as well as the opportunity to

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support and mentor entrepreneurs. These motivations may also apply to angel investors in
Zimbabwe.

Chitiyo & Njirich (2015) note that angel investors could play a role in supporting ICT start-
ups, but that there were a number of challenges that needed to be addressed, including a lack
of awareness about angel investment, a lack of a structured angel investment market, and a
lack of government support.

In conclusion, Equity financing is the sale of company shares in order to raise capital.
Investors who purchase the shares are also purchasing ownership rights to the company.
Venture capital is a type of private equity financing that is provided to start-ups and small
businesses that are believed to have high growth potential. Franchising is a business model
that allows a company to license its brand, intellectual property and business model to an
individual or group to operate a location of the business. Angel investors are wealth;
individuals who purchase stakes in businesses that they believe possess the potential to
generate higher returns in the future. These sources of finance for entrepreneurship have
been discussed in the above essay.

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REFERENCES

Makoni, S. (2014). "The role of private equity in developing small- and medium-sized
businesses in Zimbabwe: An empirical investigation". The African Finance Journal, 16(2),
21-36.

Kanyangarara, M. (2016). "The role of venture capital in financing SMEs in Zimbabwe". In

M. A. Makoni (Ed.), Handbook of research on private equity and venture capital in emerging
markets (pp. 353-373). Edward Elgar Publishing.

Gappah, S. (2015). "Angel investment, venture capital and private equity in Zimbabwe: An
economic perspective". Economic & Business Review, 1(2), pp. 49-58.

Chee, S. M. (2014). "The role of venture capital in entrepreneurial finance: An analysis of

industry evidence". The International Journal of Entrepreneurship and Small Business, 21(3),
317-332.

Makoni, A. (2017). "A review of the angel investment market in Zimbabwe".

Schneider, J. (2014). "Sources of financing for early-stage ventures". In D. L. Mosher (Ed.),

Handbook of research on technology start-ups and new ventures (pp. 13-30). IGI Global.