Teams of software engineers working together in a collaborative manner to execute a software development process complete most software development work. Whilst there is much literature examining the software process and how to improve the software process, less attention has been paid to the issues of team working and specifically the impact of team dynamics on the software development process. Teamwork is more effective with the existence of positive team dynamic, as it encourages a better working environment with satisfied, fulfilled employees who will in turn be more productive. However, achieving and maintaining positive team dynamics in Very Small Entities (VSEs) is particularly challenging given the unique characteristics of VSE and limited resources in particular. This paper discusses the dynamics of software development teams (structure, process, communication, learning and sharing) and its impact on Software Process Improvement (SPI) in software VSEs based on empirical data collected in a groups of software VSEs. This paper shows that VSEs have a high level of team dynamics although their SPI initiatives are conducted on a small scale and in an informal and indirect manner. The results also indicated that this situation occurs due to the following factors in a team: working and social relationship, willingness to share, having a good interpersonal skill, and work closely with each other.