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IDB-funded DBJ project could lead to venture capital for start-ups

Published:Friday | November 20, 2015 | 3:07 PM

The Development Bank of Jamaica (DBJ) has secured US$1.2 million ($144 million) of funding for a project aimed at bringing venture capital to entrepreneurs and early-stage businesses.

Last week, the Inter-American Development Bank (IDB) approved the technical grant to the state agency, which will pony up an additional US$2.3 million towards 'Developing an Entrepreneurial and Early Stage Ecosystem', as the project is called.

More specifically, it aims to address gaps identified through a comprehensive analysis of Jamaica's venture capital ecosystem, such as building the capacity of entrepreneurs, local fund managers and investors.

It also aims to facilitate networking between entrepreneurs and angel investors, institutional investors and fund managers as well as develop measures to attract diaspora investors to

the Jamaican venture capital industry.

Up to 100 existing and potential "urban and rural high-growth SMEs" will benefit from the programme, according to press release issued by the IDB last week.

"The intervention model is based on a public-private partnership where the government, multilaterals, and private sector collaborate to support the consolidation of an incipient entrepreneurial ecosystem and the beginnings of an early-stage financing industry," said the multilateral institution.

The approach replicates the INOVAR programme, which was established by the Financiadora de Estudos e Projectos (FINEP) in 2001 in Brazil, and which was later implemented in other countries in Latin America.

INOVAR had three major components, including fund panels, which assembled a consortium of investors, who jointly analysed and performed due diligence on venture capital funds. Forums which provided training to entrepreneurs on fundraising and preparing business plans which would ultimately place the business owners in front of potential investors was also a main pillar of the programme. So were training programmes for investors on best practices and due diligence.

By 2012, INOVAR had executed 12 calls for proposals and five calls for seed funds, which attracted 220 fund proposals, resulting in over 110 processes of due diligence. From that amount, FINEP selected 24 funds in which it invested a total of US$250 million. The funds raised over US$2 billion.

Through hosting 36 forums over the decade following its inception, INOVAR led to more than 50 companies receiving roughly US$55 million in seed capital and venture capital funding.

The DBJ had previously executed a call for proposals from potential venture capital funds. Consequently, four venture capital fund managers are currently in the final stages of pulling together the cash 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 companies which have already been established rather than early-stage businesses or start-ups, which will be among the foci of this latest collaboration between the DBJ and the IDB.