The private equity fund managers of the Jamaica Actus Small and Medium Enterprises Fund (JASMEF) is still prospecting for partners to raise new capital with plans to expand the reach of the investment facility throughout Jamaica and the wider Caribbean.

Started in June 2022 with seed funding of US$15 million from the VM Investments Limited (VMIL) and the Development Bank of Jamaica (DBJ), JASMEF focuses specifically on high-growth small and medium-sized enterprises looking for “patient capital” to expand their operations.

“We support businesses with capital injection from about a minimum of US$500,000 and we go up 10 per cent of the fund or US$1.5 million,” Dwight Jackson, assistant vice-president (AVP) of corporate finance at VMIL, told Jamaica Observer, adding that the fund is sector agnostic or has no preference for companies within a particular industry or sector.

“We’re still in a fund-raising mode and we still expect to grow the fund to about US$50 million, so at some point if we are successful, companies will be able to borrow up to $5 million.”

So far, JASMEF has acquired a stake in into Corporate Area-based microcredit institution WILCO Finance for an undisclosed amount. It is eyeing other such opportunities with a growing pipeline of businesses awaiting approval for private equity funding.

However, Jackson noted that a lot of SMEs looking for funding are not always investment-ready, causing some delay for the fund managers to finalise the transactions. One such problem he pointed out was the inability of SMEs to meet the due diligence requirements established that guide the application process.

“The pipeline for JASMEF has always been growing. The due diligence framework is in a lot of ways demanding [because] the requirements are significant and so that has hindered the rate at which JASMEF would have been able to place the funds that have been committed to [SMEs],” Jackson explained.

“We have had some discussions, and we’ve kind of found ways to tweak the due diligence framework and so a lot of those deals that have been in that pipeline since its inception…we expect to close. We’re looking at a minimum five closures this year,” he added.

Disclosing that a number of the deals are from various sectors, Jackson further stated that some of the companies are referred to as “expansion businesses”, which have operations overseas and are planning to set up shop in Jamaica. While he did not reveal the ratio of local companies to expansion businesses, he said that a special purpose vehicle has been created to help the overseas-based outfits.

“It will be exciting times to see what those expansion businesses look like, especially the impact they will have for the sectors that they appear in,” the

Another challenge, the VMIL AVP shared, was the reluctance of entrepreneurs to yield some ownership of their businesses in exchange for the capital. Pointing to the Jamaica Stock Exchange’s Junior Market as an example, Jackson said that most business owners only want to cede about 20 per cent of their business and it has become an uphill battle to offer up more equity in their companies because they have their own valuations.

One of the reasons for this is that SMEs do not always have audited financials and sometimes cannot afford to do so because “that cost is too prohibitive”.

“So those are the things that prolong the transaction gestation period,” Jackson said, adding, however, that JASMEF is willing to work with the enterprises and provide training once there is reciprocal willingness on the part of the proprietors.

Additionally, he said that aside from capital injection, the fund’s proposition educates the entrepreneurs on the support it provides, based on the DBJ model, to improve governance through the creation of board of directors and committees, as well as improving marketing and digital adoption.

He also shared that JASMEF educates the business owners about the difference between a bank loan and private equity.

“What we’ve found is that, based on some research that we’ve done…there is effectively what we call a missing middle for SMEs. They have not been afforded the capital needed for expansion, so what they’ve been afforded in general is bank loans and those typically range from two to five years maximum, and there are strong cash flow demands,” Jackson explained.

As a result, growth is limited because the businesses have to pay back principal and interest on a monthly or quarterly basis “and so it’s not ideal for the capital that you’d want to expand…in terms of capital intensive projects.”

JASMEF has already begun looking outside Jamaica for opportunities to invest in SMEs, but Jackson highlighted that it must first exhaust the seed funding in Jamaica and raise new funding in order to meet its obligations to the DBJ and World Bank.

“We haven’t [reached] out to…a lot of Caribbean companies. We’ve identified two opportunities but when you compare that with the general pipeline, that’s very small in the grand scheme of things. We expect that as we complete the Jamaican transactions, which we have committed to the DBJ and World Bank that the first US$15 million will be deployed in Jamaica, then we will look to focus on the wider Caribbean.”

When asked if the name of JASMEF, being a Jamaican fund, would be a limiting factor to expand the footprint of the investment into the Caribbean, he said it would not be a factor. But he explained that the fund managers could change the name to reflect a larger Caribbean operation.