DBJ, JSE collaborate on venture fund
Published:Sunday | May 15, 2011 | 12:00 AM
... Fund manager to be recruited
Avia Collinder, Business Writer
Prime Minister Bruce Golding's new venture capital initiative is targeting for immediate help two to five dozen companies, which, in turn, must commit to taking their operations public, creating a new pool of business for the nascent junior stock market.
The Development Bank of Jamaica (DBJ) has already initiated a survey in collaboration with the Jamaica Stock Exchange (JSE) to identify a cohort of 30 to 60 small and medium companies (SMEs) in which the new venture fund will invest.
On Thursday, DBJ consultant with responsibility for the project, Audrey Richards, said the development bank and the JSE are on the hunt for companies which might need a minimum of J$5 million in funding, but which are overleveraged and cannot take on additional loans.
The targets must also demonstrate they have room to grow capacity.
"These are companies which have the potential for listing on the exchange now, but are in need of capacity building," said Richards.
"The companies must also have the structure for proper governance."
The plan for the Jamaica Venture Capital Programme as laid out in a Ministry Paper last week is for the DBJ to seed the fund, and for companies in which the fund invests to list on the JSE Junior Exchange within two to four years.
Richards said that while the initial fund will be seeded by the DBJ — the full amount was not disclosed — the programme will not be run by the bank.
"We are seeking a private sector fund manager that will do the due diligence and manage the investments. Right now, the DBJ is the promoter and will try to identify the funds, but once the framework is in place, what we hope to spawn is an industry with several players."
Finalising the budget
Funding for the pilot project, for which the budget has not yet been finalised, will be sourced, Richards said, from international development partners with expertise in venture capital financing.
For now, though: "We are looking now at finalising the budget for all the components which include training and education," said Richards.
"We are starting an entire industry from scratch, working with SME groups and financiers to identify what it will take to create it."
It is expected that identifying the initial cohort of companies to support will happen before the end of this financial year.
"The venture capital market will not be for all SMEs, but for those who meet the criteria," said Richards.
"If only one or two person are employed, it might not have the structure required for proper governance. In this case then, what might be needed is another means of financing. We are looking at those which are highly leveraged but cannot take on loans and which also have the governance structure and the potential for capacity building."
According to Richards, the venture capital initiative, which involves developing an industry with several players, will also require legislative changes, a process which might take 18 to 24 months.
"The next step will be to undertake the survey for which we have already started discussions with the stock exchange," said Richards.
"We will also initiate the process of looking at enabling legislation, capacity-building needs, and come up with a budget which we can present to our external development partners."
Golding said on Tuesday that what is envisaged for the new industry is not a single venture capital copany that would hold equity in businesses, but the creation of a framework with appropriate fiscal incentives that would facilitate the establishment of several venture capital funds operated by different entities, mobilising resources from institutional, corporate and individual investors.
"Through its shareholding and directorship, the venture capital fund will bring added capability in overseeing the affairs of the business, and offer valuable linkages with other businesses in which it also has investments," the prime minister said.
Government will not be providing the venture funds, although it has not ruled out putting up some of the seed capital to get it started.
The venture capital project was one of the recommendations of the SME task force, led by Don Wehby, the group chief operating officer of GraceKennedy Limited, to explore alternative financing for SMEs — which, collectively, are considered the largest source of employment locally.