11 local entities step up for venture funds

11 local entities step up for venture funds

Companies willing to invest $50-$300m in each fund

BY STEVEN JACKSON Business reporter jacksons@jamaicaobserver.com

Wednesday, August 13, 2014

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ELEVEN companies are so far considering taking equity positions in the formation of venture capital funds facilitated through the state-owned Development Bank of Jamaica (DBJ).

The move aims to officially introduce an additional avenue of funding for start-ups via at least one fund capitalised at roughly US$20 million. The eleven companies are part of a panel which will evaluate projects and deals from which to consider investing.

"We are prepared to work with prospective venture capital fund managers that bring deals that make sense to us," stated Jeffery Hall, head of Jamaica Producers Group (JP), in a phone interview with the Jamaica Observer yesterday about JP's interest. "The overall premise is that a high level of venture capital investing is helpful to the overall economy."

The companies include JP, Jamaica Money Market Brokers, Pan Jamaican Investment Trust, ICD group, GK Capital Management, Capital Options Ltd, JN Fund Managers, Sagicor Group, Mussons Group, NCB Capital Markets and ATL Pension Fund.

JP, like the other companies, will evaluate prospective projects and determine whether to invest in the fund. JP's stake in the fund would depend on the fund's strategy and projects presented. But it recommends that the fund pool be not less than US$20 million from which to start.

It also wants the fund manager to invest at least two per cent within the fund.

"They have to have some skin involved," Hall said.

The DBJ, along with the members of the panel, will assess proposals from fund managers who wish to invest in Jamaican companies as part of their investment strategy, stated Audrey Richards from the DBJ in a mailed response to Business Observer queries.

"The expectation is that the target value of funds managed by these fund managers will be a minimum of some US$20 million, based on the economies of scale required to operate a sustainable fund," she added.

The amount each company is willing to invest in each venture fund ranges from US$450,000 ($50 million) to US$3 million, except Mussons Group and JP, which did not specify their maximum level of participation. They did however express a preference for investing a fund not less than US$20 million.

"We would like to see a venture capital industry created in Jamaica and have agreed to join the committee seeking to encourage the creation of the industry," said Keith Collister, chairman of the ATL Pension Fund, another interested entity. "We have expressed a purely indicative interest in a number of venture capital fund themes.

"Any fund proposal once it is actually submitted by the relevant investment group would have to go through a rigorous review and be approved by our investment committee before we could invest."

The panel is keen on investing in businesses within agri-business, energy, information technology and communication, animation, creative industries, nutraceuticals/pharmaceuticals, logistics, tourism, infrastructure, and real estate, according to the DBJ in its 'Call for Proposals from Local and International Venture Captial and Private Equity Funds' dated July 31.

Few companies highlighted the manufacturing sector as an area of special interest.

"We welcome this initiative, as it should support the dynamism and competitiveness of the local economy, by giving financing to businesses for which regulated financial institutions may not be the natural source of financing (either due to high the risk profile of the underlying companies or regulatory constraints)," said Kerry-Ann Stimpson marketing manager at JMMB, in a mailed response to Business Observer queries. "Given the expected improvement in the macroeconomic and business facilitation framework that is being pursued under Jamaica's medium-term economic programme, we consider that now is an appropriate time for the country to meaningfully pursue the growth opportunities as they arise.

"Any participation by JMMB in the Fund would reflect an expectation that the fund would generate positive risk-adjusted returns over time and, therefore, incrementally improve JMMB's value to the benefit of our investors."

The DBJ will invite applicants to pitch their proposals to the panel in October and announce the results some 10 days later in November.

"The panel through the DBJ which administers the Jamaica Venture Capital Programme (JVCP) is seeking to select one or more private equity or venture capital funds targeting projects in Jamaica," stated the DBJ in the document. "Applicants are invited to present proposals to the panel in accordance with the requirements described in this call for proposal."

The DBJ aims to get two venture capital funds started by 2016 and already secured the backing of the Inter-American Development Bank (IDB) which invested US$150,000 ($14 million) to match DBJ's US$128,000 for a project focused on the establishment of a 'venture capital (VC) ecosystem'.

The fund will focus on removing the barriers faced by investors wanting to pool their funds and invest in small- and medium-sized enterprises (SMEs).

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