Introduction
Venture Capital is an investment tool that provides both equity capital and managerial assistance to emerging companies. Venture Capital is patient money. The payout can be very long term, but companies must have good prospects for rapid growth an appreciation.
Inter-American Development Bank (IFM Bulletin)
Venture capital comes in many forms and at several stages in a business. Venture capital (VC) can be used to build companies from a business plan to a fully functioning profitable and valuable company. Before VC money is useful, entrepreneurs must develop their own idea and technology. They need a base to accomplish this, which is usually provided by friends and family or a previously successful entrepreneurial activity (their own funds). During the heyday of the first generation Internet investments, incubators provided many of these functions in the US. Outside the U.S the lack of angel capital has forced countries to rely on the traditional government sponsored incubators as well as some private attempts at supporting startups. In today’s society, the allocation and availability of capitals have been a challenge for countless small prospective and actual investors. As such, many persons are not totally aware of the institutions, the addresses and prerequisites for investment capital in order to stimulate productive within their businesses. Hence, this paper is in direct response to a “need to know” where, how, what and when are needed to ascertain venture capital.
Furthermore, before entrepreneurs can even think of new ideas which are based on new technologies, there needs to be a baseline, a set of conditions available in a given market or region which together create an opportunity to create new value. An entrepreneur is not about getting rich, although some have recently thought this was the endgame; it is about creating value from an idea. An entrepreneur needs to believe in an idea, believe that this idea can fundamentally (not incrementally) change the way a given service is delivered or a product is developed. It is this drive to bring ideas to life and translate them into value recognized by third parties that is the ultimate satisfaction for an entrepreneur.
Entrepreneurs rely on angel investors or high net worth individuals or members of a particular diaspora to finance the earliest stages of a company’s development. During this stage, the entrepreneur is developing their technology and business model and ensuring that the company idea or concept actually has the element of being a real business. While some venture capitalists will specialize in this seed stage in emerging nations, it is usually accomplished through the diaspora network or through government or university incubation.
VENTURE CAPITALISTS
Institute for International Entrepreneurship(IIE)
The global economy continues to change rapidly. Each year brings new international trade agreements and international capital flow is increasing at an unprecedented rate. In response to these forces, countries around the world are pursuing privatization and trade liberalization for economic growth and increased foreign investment. Developing countries are investing in manufacturing industries to serve their own domestic needs and for export. Industrialized nations are moving towards information and knowledge-based industries that rely on global linkages. Technologies that strengthen the competitiveness of all of these industries are being developed in every region of the world.
The global flows of information, capital and technology are changing the nature of business transactions, creating markets for new products and services and stimulating a host of new entrepreneurial venture opportunities to serve the needs of this international marketplace. These ventures take advantage of opportunities for international partnerships and alliances for joint marketing, technology transfer, co-investment, joint manufacturing and other business arrangements.
U.S. investors have combined forces with a small company in Jamaica that produces essential oils of pimento (allspice) to upgrade production using modem technology and incorporate U.S. marketing expertise.
The Institute for International Entrepreneurship (IIE) was created to support this process of new venture creation and growth in the global context through practical training programs, research and assistance to entrepreneurial ventures around the world and in the U.S.
Business Opportunity Profiles
IIE works with government economic development agencies and bilateral and multilateral assistance organizations in the identification of new business opportunities that build on an area's indigenous human and material resources to create competitive new international ventures. This work is based on methodologies created by IIE to assess comparative and competitive advantage of a state or country in the context of the global marketplace and identify new, high potential venture opportunities, which can be promoted through the client organizations. These Profiles include market analysis, assessments of personnel, raw materials and technology requirements, financial requirements and pro-forma financial projections.
Under a grant from the U.S. Agency for International Development, HE created a Business Opportunity Profile on the production of essential oils and other flavor concentrates in Jamaica for sale to the food processing industry. A Jamaican entrepreneur who has created a growing business that has received investment from U.S. sources took on the project.
The Informal Sector, the Micro,
Small and Medium-sized Enterprises
and Job Creation in the Jamaica and in Caribbean
Government initiative regarding credit top the small business sector has been to seek externs capital flows and channel these through Approved Lending Agencies (ALAs) and the Community Based Enterprise Programme. However, most firms continue to seek financing from informal sources because collateral and bureaucratic requirements have not been properly addressed. There is need therefore for an efficient and flexible system of credit delivery.
Stated Government policy also identifies other financing strategies:
o Establishment of re-financing and credit guarantee schemes.
o Increased Government facilitation of the disbursement of funds under bilateral agreements.
o Expansion of Government’s ventures capital fund at the National Development Bank for small businesses.
o Facilitating the adaptation of an organisational, credit procedures and skills structure similar to that of commercial banks to suit the small business financial market.
United States Agency for International Development
Strategic Objective 1 (SO1): Improving the Business Environment for Developing
the Small, Medium and Micro Enterprise Sectors
From 1996 to 1999 Jamaica's economy experienced negative GDP growth. For FY 2000, it is expected that GDP growth will be only slightly positive. Consequently, previous gains in reducing poverty and in building social and physical infrastructure conducive to future growth have begun to erode.
Under SO1, USAID works with private and public sector partners to render Jamaica's business environment more conducive to investment, and directly assists small firms to become more competitive and profitable. The strategy focuses on achieving three intermediate results (IRs):
• IR1 reducing key business constraints;
• IR2 improving business skills (and competitiveness) among individual firms: and
• IR3 increasing micro and small enterprise access to private financing
IR3: Increasing Micro and Small Enterprise Access to Private Financing
As with export development, USAID has also had a successful micro-enterprise lending program in Jamaica for years. However, with the financial crisis in 1999, the Workers Bank, which had managed the program, was taken over by the Government, and only recently was the program divested to the Jamaica National Building Society (JNBS).
JNBS is a financially sound, privately owned and operated financial institution. It has branches all over the island, which will allow it to expand the micro-enterprise program island-wide. Over the next several years, we plan to assist JNBS in these efforts with technical assistance and training.
• Providing micro and small business loans for purchasing raw material, making initial salary payments, paying for piecework and/or transporting finished product to retailer/vendors, etc.
• Providing entrepreneurs with access to micro-enterprise lending agencies for business support services;
The Development Bank of Jamaica Limited provides financing for viable projects in agriculture, industry, manufacturing and tourism. Lending is provided through approved financial institutions, including commercial and merchant banks.
The Jamaica Mortgage Bank Limited and the Caribbean Housing Finance Corporation are public sector companies providing finance for the housing sector.
GREATER JAMAICA LOCAL DEVELOPMENT COMPANY
Greater Jamaica Local Development Company, Inc. (LDC), working in conjunction with its parent company the Greater Jamaica Development Corporation (GJDC) will provide financial and related technical assistance to qualifying small businesses and/or entrepreneurs in the LDC's Target Market. The objective of the financing will be to achieve targeted economic community development objectives within the LDC Target Market, including increasing employment, creating new jobs and retaining existing jobs, leveraging private investment, promoting community revitalization and/or stabilization, and promoting new business opportunities. Special emphasis will be given to meeting the needs of women and minority-owned businesses.
VENTURE and/or LOAN FINANCES from:
Personal Savings
Private International Investors Unit Trusts
Dehring, Bunting and Golding Merchant Bank Ltd. 7 Holborn Rd.
Kingston 10
Relatives and Friends
Meyers, Fletchers and Gordon Trust and Finance
Park Place
21 East Street
Kingston Boston Capital Ventures, USA
Euroeast Corporation
Swiss Venture Fund
Centra Business Services EBoy, Silicon Valley, USA
Florida Securities and Venture Finance,USA
Institute for International Entrepreneurship
Venture International
Trafalgar Development Bank
64 Knutsford Blvd.
Kingston 5
Capital and Credit Merchant Bank Ltd.
6 – 8 Grenada Way
Kingston 5
Citimerchant Bank Ltd.
Citibank Building
63 – 67 Knutsford Blvd.
Kingston 5 Business Development Centre
Jamaica Venture Capital Fund Ltd.
Block A: Suite 103 – 106
77 Knutsford Blvd.
Kingston 5
Cassia/Maxfield Community Development Fund (an agency of MIDA)
Shop # 7
1 Beechwood Avenue
Kingston 5
Development Options Ltd.
2 Holborn Road
Kingston 5
Jamaica Venture Capital Fund Ltd.
Block A: Suite 103 – 106
77 Knutsford Blvd.
Kingston 5
Insurance Companies
Partech International Investment, France/USA
Orion Associates S.A.
Inter-American Investment Corporation (IIC)
Evanston Business Investment Corporation-EBIC, USA
Small Business Development Company (SBDC) Venture Partners, USA
Prudent Venture Capital, T&T
First National Venture Capital Company, T&T
Environmental Enterprises Assistance Fund,
1655N Fort Myer Drive, Suite 520
Arlington, VA 22209, USA
Multilateral Investment Fund (MIF), USA
Inter-American Development Bank Group
Petro International
Commercial Banks (eg. Former Workers’ )
Jamaica National Building Society:
JN Micro Credit Company Limited
RES Ltd., Jamaica
National Investment Bank of Jamaica Ltd.
11 Oxford Road
Kingston 5
Credit Unions
Jamaica Agricultural Development Foundation
(For agriculture projects only)
17 Ruthven Road
Kingston 10 Small Business Association
National Development Foundation of Jamaica
22C Old Hope Road
Kingston 5
Self Start Fund Micro Investment Development Agency (MIDA) 4 South Odeon Avenue Shops 3 & 4 - 1 Beechwood Avenue
Kingston 10
Micro Enterprise Financing Limited
12 Duke Street, Kingston
Agency For The Selection & Support of Individuals
Starting Trade (ASSIST)
10 South Avenue
Kingston 10
Self Start Fund
4 South Odeon Avenue
Kingston 10
Micro Enterprise Financing Limited
The Micro Enterprise Financing Limited (MEFL) is a non-profitable organization limited by guarantee, dedicated to assisting in the development of micro enterprises in designated inner-city and other urban communities of Jamaica. MEFL was incorporated in May 7, 2002 and is located at 12 Duke Street, Kingston. The telephone numbers for the office are 948-1224 and 922-6842 as well as a facsimile number being 948-2190.
The general purpose of MEFL is to make micro finance services available to low income, urban, micro entrepreneur with little or no collateral. Loans are made available at micro finance market rates and following standard business practices. MEFL was designed to meet the need of micro entrepreneurs while itself, aiming to become self sustainable by the end of five years of operations.
MEFL is a programme undertaken with the financial support of the Government of Canada provided through the Canadian International Development Agency (CIDA). The programme is jointly supported by the Bank of Nova Scotia Jamaica Limited (BNSJ) and the Kingston Restoration Company (KRC).
Types of business that MEFL supports.
. Vending
. Small Trade - wholesale/retail trading activities
. Food and Drink operations
. Service oriental businesses
. Light manufacturing
. Craft
Loan Financing
1. Working capital;
2. Purchase of stocks/raw materials for growth, production inputs, or peak season;
3. Inventory for retails;
4. Financing for expansion of existing businesses;
5. Financing for diversification of products.
Pre-conditions for Loans Financing
1. Form a group and identify a group name of your choice;
2. Choose a group Leader and a Treasurer;
3. Contact MEFL and give your group name and contact address and phone number to our Field Loan Officer, who will make an appointment to visit you;
4. Be a Jamaica citizen;
5. Own and operate a business for at least six months;
6. Be between 18-60 years old;
7. Have a valid I.D.;
8. Have a TRN (i.e. Taxpayers Registration Number;
9. Provide one passport size photograph ;
10. Provide two (2) character references;
11. Be willing to open a group savings account at a BNSJ for the purpose of making a loan payment to MEFL and to facilitate compulsory savings.
What are the Loan Sizes and Terms?
- 1% per week interest rate;
- loan period can range from 12 to 40 weeks;
- loans are repaid weekly;
- you can borrow each a minimum of $6,000.00- with a group consisting of 4 members, making the total group loan $24,000.00;
- $50.00 per week per group is require for compulsory saving;
- late fee will be charged on accounts where Loan payments are made after the due date
NOTE: Loan amounts start small and grow as the client develops a credit history with the programme. The maximum amounts that any single first time borrow can get is $6,000.00. However, automatic repeat loans for larger amounts if all payments were made on time and the business displays the ability to take on a larger loan are $40,000.00. It should be emphasized that no collateral is needed but the business equipment and machines.
JN Micro Credit Company Limited
JN Micro Credit Company is fully owned by the Jamaica National Building Society.
Pre-conditions for Loan Financing
- The borrow must be 18 years and older;
- Monies will be disbursed based on the borrower’s good character;
- Collateral is a must - example - household items such as component set and TV sets;
- Must be a citizen of Jamaica;
- Own the business for a minimum of one (1) Year, or
- Have live in the same geographic locale for a minimum of one (1) year.
Amounts
The maximum amount a first time borrower is able to get as loan financing is $5,000.00 to $20,000.00. The repayment period is weekly with a loan repayment duration ranging from 19 to 40 weeks.
Despite the fact that entrepreneurs are innovators of thought and-or tangible goods, they are not necessarily endowed with the needed financial resources that are required to transfer initial thoughts into viable entities. As such, venture capital or start-up costs sometimes must be source from external agencies. This start-up costs may be source by way of equity and-or loans. Equity on one hand provides long-term financing. Accompanying this source is shared ownership. Which oftentimes brings with it many stipulations by the financier(s) who may futuristically seek(s) managerial control or are scrupulous individuals? This may see the entrepreneur relinquishing ownership status to venture capitalists because of scheme and-or technicalities. On the other hand, this does not come with monthly financial obligations for the entrepreneur.
However, funds may be source from short and-or long-term loans by the entrepreneur. Commercial banks and-or insurance companies do frequently provide finances by way of loan offerances. These loans, however, are sometimes tied to certain fixed assets, as is the case with mortgage loans to the premises, or by way of soft-loans that are offered on the goodwill of the entrepreneur(s). These, however, take with them much bureaucracy and financial obligations that may stall the start-up process of the venture.
Therefore, the entrepreneur must weigh the cost-benefits of equity or loan financing in the establishment of his/her venture proposal in order to choose the right financing source given the pros and cons of the two (2) mixes. S/he must be reminded of the advantages of not having to meet monthly repayment obligations by way of equity financing as against the sometime burden of loan repayments. However, in equity financing the entrepreneur is reminded that (s) he is exchanging some degree of ownership for money as investment in the venture.
Paul Andrew Bourne, MSc. (candidate), BSc. (Hons) Economics and Demography, Dip. Edu.
Graduate Assistant
The University of the West Indies
Mona Campus
Kingston 7
Kingston, Jamaica
West Indies
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