Sat | Sep 22, 2018

Four venture capital funds finalising financing

Published:Wednesday | June 17, 2015 | 12:00 AM
Audrey Richards, project consultant for the DBJ Jamaica Venture Capital Programme.

Four venture capital fund managers have made it through the rounds of wooing investors and are now in the final stages of pulling together the cash that they will use to invest in companies in Jamaica.

"One or two should be in a position to start investments towards the end of this year," Audrey Richards told Wednesday Business.

According to the project consultant on the venture capital programme being spearheaded by the Development Bank of Jamaica, the fund managers are mostly targeting a minimum of US$20 million ($2.3 billion) for buying equity positions in businesses.

Two of the fund managers are local, while they all managed to get commitments from institutional investors in Jamaica, Richards said.

This follows last October's prequalification of eight proposals that were submitted to an investor panel set up under the Jamaica Venture Capital Programme (JVCP) for review.

financial backers

Four of them got the nod, with financial backing from some of the 11 corporate investors which made up the panel that included: ATL Pension Fund, GK Capital Management, Capital Options, ICD Group, JMMB Group, Jamaica Producers Group, JN Fund Managers, Musson Group, NCB Capital Markets, Pan-Jamaican Investment Trust, and Sagicor Group Jamaica.

"Most of them will be 10-year funds," said Richards, regarding the types of venture capital funds being pursued. "They typically invest three to five years in different companies. After five years, that's when the divestment would begin, presumably after they would have added value to the companies."

Venture capital funds' exit strategy takes different forms - some may opt to sell back their stake to the original owners, while others might seek to sell their shares through listing on the stock market.

But whichever route they take, venture capitalists will have to use more than 30-year-old laws to establish themselves or access tax incentives - that is, they have to apply to become an approved venture capital company incorporated in Jamaica.

Also, to get tax relief under the 1982 provision of the Income Tax Act - under Section 36 - at least 80 per cent of the property owned by the approved venture capital company must be in cash, shares, bonds or debentures.

A working group, including the tax authorities and the finance ministry, is pulling together recommendations for the necessary legislative amendments to make it easier and more attractive to establish a venture capital fund. They hope to submit those recommendations early next year, according to Richards.

"In the meantime, over the next few weeks, we will be setting up a clear process, so that anyone who wants to apply can do so seamlessly," she told Wednesday Business.

The JVCP will also continue to provide training - it is hosting executive training throughout next week - and expects to issue a call for proposal, similar to the one which identified the four fund managers that are finalising funding now, by early next year.

"As a development bank, we are interested in what areas of the market are not getting capital," said Richards of the ongoing efforts to develop a venture capital ecosystem in Jamaica.