Omar Newell, GUEST COLUMNIST

The Global Entrepreneurship Monitor's (GEM) recent corroboration of a long-held notion that we have become a nation of traders underscores Jamaica's lack of innovation.

Innovation fuels industry and promotes economic and human development. The GEM's report should, therefore, be met with the full commitment of the Government and private sector to provide financing opportunities for young would-be entrepreneurs with innovative ideas.

Gleaner Business writer, Avia Collinder, in her coverage of the launch of the 2011 GEM report, noted the researchers' displeasure with the "penchant for retail among new entrepreneurs". It is my belief that this addiction to retailing is a direct result of the structure of our financial system. On the most basic level, the major primary challenge in curbing our retail lust is the absence of equity financing for new businesses.

Debt is a terrible option for most innovators seeking to convert an idea into a prototype. Even if the banker is convinced that there is a market for the idea, is confident in the start-up's management team, and is sympathetic to the project, the first loan instalment would likely be due long before the prototype goes to production.

SERVICES

The same problem also exists with respect to services. I quickly learned this is true while seeking to raise capital for my own start-up, an idea based on providing services, which various ministers of government, government agencies and bankers confirm is practical and timely and for which exists an identified growing market.

Equity-based financing differs from debt-based options in that the financiers are not seeking repayment in the form of instalments and interest. They are part owners of the business, receive dividends, and as such have vested interests in the success of the businesses.

Equity financing brings more than money. It brings management skills. Common business-school wisdom suggests that most failed businesses collapse because they lack both money and management. Equity investors will generally identify weaknesses in management and assist to fix those before pumping money into a venture. Further, they will generally earn the right to appoint board members to represent their interests.

In the absence of a venture-capital industry, we need a creative way to bring together Jamaicans with money and Jamaicans with ideas.

Various prominent members of the private sector have, from time to time, lamented the need for venture capital in Jamaica. I propose that the Private Sector Organisation of Jamaica, Jamaica Manufacturers' Association, Jamaica Bankers' Association, Jamaica Chamber of Commerce, and the Small Business Association of Jamaica create a joint venture called Start-up Jamaica and join together with the Government of Jamaica to produce an annual start-up conference. This should be approached with the same level of energy the Private Sector Working Group expends in its efforts to drum up support for its tax-reform proposal.

PRIVATE-SECTOR GROUPS' INPUT

The various private-sector groups, through Start-up Jamaica, would lobby members and wealthy Jamaicans at home and abroad to commit investment dollars to the initiative in exchange for equity in projects of their choice. Exit options for the investors would be built into the contracts outlining the terms of the relationship between Start-up Jamaica and the start-ups.

A committee would be established to review the business plans, and individuals or teams that submit workable business plans would be invited to further discuss the business idea with the committee. Special preference should be given to start-ups with the potential and stated intention to become net foreign-exchange earners. If the committee is satisfied, an investment would be made in the venture.

The Government should be asked to support this initiative by providing discounted workspace for these businesses through the Factories Corporation of Jamaica, tax incentives and import waivers for inputs.

Of course, this initiative should not be seen as a replacement for early stage and mid-stage venture capital. The Government should be encouraged to move speedily to create a framework for creating a venture-capital industry - that is capable of supporting innovation-driven ideas which have the potential to effect positive economics. Only through bold action by the public and private sectors will innovation flourish.

Omar Newell, a former business law professor, is a business and intellectual property law consultant practising in Jamaica. Email feedback to columns@gleanerjm.com and omar.newell@gmail.com.