The impact of venture capital on growth via innovation and internet technology adoption in indonesia’s micro and small industries

Abstract

One of the major challenges faced by Micro and Small Industries (MSIs) is access to financing. Venture capital serves as a potential solution to address capital constraints by offering both financial and non-financial support. This study aims to examine the effect of venture capital on the growth of MSIs in Indonesia, with innovation and internet technology serving as mediating variables. The research utilized survey data from Statistics Indonesia (2019), comprising a sample of 83,616 MSIs. The analysis employed logistic regression using STATA and the Sobel test to assess mediation effects. The findings indicate that venture capital has a positive, albeit statistically insignificant, direct effect on MSI growth. However, innovation was found to significantly mediate the relationship between venture capital and growth, whereas internet technology did not exhibit a mediating effect. These results suggest that venture capital fosters innovation, which in turn contributes to business growth.