Tue | Sep 25, 2018

DBJ eyes next step for venture capital - start-ups

Published:Friday | September 25, 2015 | 12:00 AM

The Development Bank of Jamaica (DBJ) is mulling over how it can bring venture capital to entrepreneurs and early-stage businesses.

The state agency is currently in talks with the Inter-American Development Bank (IDB) about a possible US$5-million ($600-million) project aimed at fostering "economic and firm growth, job creation, as well as an environment which promotes innovation", according to the multilateral's website.

Representatives from the DBJ and the IDB were not willing to comment on ongoing discussions, but the scope of the project under consideration would likely be a progression from the two-year-old Jamaica Venture Capital Programme.

The title of the project, 'Developing an Entrepreneurial and Early Stage Ecosystem', also suggests that greater focus will be placed on start-ups, which have greater difficulty attracting equity financing than established businesses.

Efforts by the DBJ to develop the country's investment and entrepreneurial ecosystem, so far, have placed Jamaica on the radar in terms of venture capital funding - the Latin America Private Equity and Venture Capital Association (LAVCA) included Jamaica on its scorecard for the first time in 2015.

The country scores low in several areas, especially in relation to restrictions on institutional investors and laws on fund formation. For example, the Pensions Act sets a five per cent asset limit on certain investments, while venture capital is not expressly listed as an asset class.

"A few pension funds have potential interest in entering private equity/venture capital, and as of March 2015, a regulatory reform is being considered that might open doors to such investment in the medium term," said the LAVCA profile on Jamaica.

Four venture capital fund managers are currently in the final stages of pulling together the cash that they will use to invest in companies in Jamaica, with at least one expected to be ready to start investments by year end.

However, those funds will likely focus on financing companies which have past the start-up phase of their operations.

There is currently no special-purpose legal framework for venture capital fund formation.

"Legislation to ease the conditions for setting up limited partnerships might provide a more attractive local framework for fund formation," the LAVCA report went on to say.

legislative amendments

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 in Jamaica. They hope to submit those recommendations early next year.

"Corporate governance require-ments, protection of intellectual property rights, and high levels of perceived corruption should also be improved," said the LAVCA report.

On the other hand, Jamaica's strengths are "straightforward registration and reserve requirements on inward investments and new efforts around entrepreneurship".

More specifically, Jamaica has no exchange controls such as reserve requirements, tiered exchange rates, or limits or delays on remittances and repatriations.

The establishment of several angel networks, such as FirstAngelsJa, bode well for the entrepreneurial climate. Also, the country ranks very high in the starting-a-business indicator in the 2015 World Bank Doing Business Report, ranking 20th out of 175 countries.