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DBJ, IDB creating 'ecosystem' for private-equity market

Published:Friday | February 8, 2013 | 12:00 AM
A side view of the Development Bank of Jamaica building at Oxford Road, New Kingston. - File

Jamaica's last serious effort at venture capital participation was two decades ago, but now the Government is ready to make another try at developing a private-equity market to back business ventures.

Development Bank of Jamaica (DBJ) says it hopes to create the "ecosystem" that will allow private equity and venture-capital operations to thrive.

The state bank will work with the Inter-American Development Bank to devise the structure. DBJ is putting US$128,000 into the project and IDB, US$150,000.

The so-called Jamaica Venture Capital Programme, which was first launched last year, is expected to lead to the development of a venture capital park populated by private-sector companies.

Formal venture-capital pro-grammes have been sparse in Jamaica. The Planning Institute of Jamaica (PIOJ) says that apart from the Jamaica Venture Fund (JVF) which mobilised capital through a number of corporate entities and financial institutions two decades ago, there are no certifications of Approved Venture Capital Companies under Section 36 of the Income Tax Act.

The Jamaican Government, whose stake was held by investment bank NIBJ, sold its interest in JVF to Jamaica Money Market Brokers principals in the 1990s. NIBJ was merged with DBJ some six years ago, which suggests that the development bank should have some institutional memory of venture-capital operations.

Two- to five-year plan

DBJ said a strategic plan for the venture capital project would be finalised by July 2013, and the project executed in three phases: a market analysis to identify opportunities and financing gaps; putting the strategic plan into play; and a communication campaign on equity financing.

The strategic plan "will be ready by July to provide a road map for implementation of the development programme over the next two to five years," said Audrey Richards, project consultant for the Jamaica Venture Capital Programme.

PIOJ research notes that the primary source of funding for many start-ups in Jamaica is capital available through the entre-preneur's own funds or that of friends and family.

Additionally, while "angel investors" have always been active, "Funding through this source has depended to a great extent on access to these investors by entrepreneurs, which is a function of their level of social capital and ability to network", the PIOJ notes in its Growth Inducement Strategies report.

Deficiencies identified by the planning agency include a lack of an 'equity culture' and lack of trust between providers and users of capital; lack of venture-capital and private-equity fund management expertise; and lack of investor knowledge of the venture-capital asset class, with little or no involvement of institutional funds, including pension funds.

DBJ will draw on the experiences of venture-capital markets around the world as well as the expertise of the IDB, which has executed other venture-capital projects in the region, to develop Jamaica's industry, said DBJ managing director at last Friday's contract signing between the IDB and DBJ.

DBJ Chairman Joseph M. Matalon notes that "there is no shortage of capital in Jamaica" while pointing to the levels of investments in Government securities. Investments in GOJ bonds amount to J$887 billion and J$4 billion in Treasuries.

"So what the country needs are new asset classes and investment opportunities. The venture-capital asset class provides such an opportunity for diversification through investment in the productive sectors, and the DBJ stands ready to assist," Matalon said.