0

Venture Fund Seeks Further $5m Finance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government-sponsored venture capital fund is seeking a further $5 million funding injection from the Christie administration over the next three years, as it moves to focus on equity investments and ‘quality over quantity’.

Edward Rolle, a corporate restructuring specialist at Baker Tilly Gomez, the accounting firm that acts as the Bahamas Entrepreneurial Venture Fund’s administrator, told Tribune Business he and the Board were “100 per cent” confident the Government would approve the further financing.

Explaining that the funding was part of a three-year plan that would take the Fund through to 2015, Mr Rolle said it was likely to be released in three-four tranches. The first $1 million tranche is anticipated by the first week of December 2012.

The Baker Tilly Gomez executive explained that more funding was required for the Fund to assist “10 good projects in the pipeline”, and help some of its existing 57-strong start-up portfolio, who were looking to come back for their second round of financing.

Although not quite a recapitalisation, Mr Rolle said the Fund had effectively used up the $4 million it had received from the Government during its first seven-eight years in existence.

But he told Tribune Business that the 60 per cent success rate of firms the Fund had financed vastly exceeded the 10 per cent norm for the US venture capital industry, adding that without its support many start-ups/entrepreneurs would not have made their ideas reality.

And, looking to the immediate term, Mr Rolle said he and the Fund’s Board wanted to “behave more like a venture capital fund” and focus on taking 20-35 per cent equity stakes in the companies they financed.

Confirming that the Fund was in discussions with the Ministry of Finance over both the financing and its 2012-2015 business plan, Mr Rolle said: “We’re looking for about $5 million, and it’s progressing well.

“It’ll come in tranches. The first tranche should be in hand by the end of November or first week in December. It’s [the financing] one of the points up for discussion, and we should get confirmation by Monday. We’re looking for about $1 million in the first tranche.”

Disclosing that the Fund’s financing would likely be released in three-four slices, Mr Rolle added: “We have a lot of good business ideas in the pipeline now that we can move on, and with the equity financing in particular.

“We’ve got about 10 good ones, a cross-section, with technology ones being the highest. We have some medical, a dental laboratory, then we have six in the technology business, and one company looking to do solar energy. Between medical and technology, those are the ones that we are receiving now that we are looking at.”

The Baker Tilly Gomez executive added that the Fund was now receiving “more sophisticated projects” that it “can take a serious look at”.

To date, the Bahamas Entrepreneurial Venture Fund has financed 57 different Bahamian start-ups and entrepreneurs. Some 43 have received debt financing, worth a collective $2.2 million, while the remaining 14 have seen it take equity stakes in their business valued at a total $1.7 million.

The Fund can provide no more than $100,000 in debt financing to a business, while its maximum equity investment is set at $200,000.

“In the upcoming year we’re hoping to focus more on the equity-type projects, and work with fewer than we normally do. The survival of those projects we help will be longer by focusing on less,” Mr Rolle told Tribune Business.

“We’re trying to move away from debt financing. We’re trying to behave more like a venture capital firm by taking 20-35 per cent stakes for five years.”

Firms financed by the Bahamas Entrepreneurial Venture Fund have a 60 per cent success rate, something that Mr Rolle said compared favourably to the US industry, having learnt at an Association of Venture Capitalists meeting that the norm was about 10 per cent.

“When you look at new businesses coming into the market, if there’s a 30 per cent success rate that’s high,” he said, adding that two to three Bahamian entrepreneurs had received financing over the past 12 months.

Conceding that the Fund had been limited in what it could finance due to its original $4 million being almost exhausted, Mr Rolle told Tribune Business: “We were pretty slow the last year with lending because of the constraints, the funding constraints.

“We spent most of the time trying to assist the existing portfolio. Some of the businesses have already turned the corner, and come in for another round of funding to expand. Most of the firms that received debt financing are back on schedule with payments also. Many are refinancing and making their loan payments.”

Suggesting that the Fund had “now turned the corner”, Mr Rolle said it had played a key role in financing start-ups and entrepreneurs who otherwise would not have raised the necessary funding, especially during a recession when traditional lenders were becoming even more risk averse.

“It’s really helped the economy. They wouldn’t have got it through the banks. The banks are basically a bit harder on start-ups with no money, no adequate funding,” Mr Rolle said, adding that the Fund would “not rule out” further debt finance support going forward.

But, with the focus on equity investments, the Fund’s strategy is to have its directors sit on the Boards of start-ups they finance, providing the necessary guidance and technical assistance/structure “needed for survival”.

In doing so, the Fund aims to mitigate the risk associated with starting a business, something Mr Rolle described as “very vital” in the current economic environment.

Comments

BaystreetTrader 4 years, 7 months ago

A 60% success rate does not tell me anything about the actual performance of the Bahamas Venture Capital Fund. If the fund has invest more in the 40% of companies that failed than in the 60% of the companies that are successful, it would be at a lost. Therefore, the real question here is, what has been the return on the $4m that the fund has already used? Is it 2%, 3% or -10%? That is how the private industry measures it, not by the success rate of their investments. As Mr. Rolle said, the industry average is 10%, and these Venture Capital firms make money, how is that? That is because the 10% that is successful returns are normally in the hundredths , if not thousandth percent ranges. However, Mr. Rolle should be worried if he believes in mean reversion.

Another question I would like Neil to ask is, "How many companies have fully repaid the debt portion that they borrowed and how many equity investments has the Fund sold since inception? A Venture Capital Fund makes money on its equity investments when they are sold to a 3rd party. The simple statistic of 60% success rate does little to explain how the Fund has actually performed since inception.

0

concernedcitizen 4 years, 6 months ago

another slush fund to be metted out to loyal supporters , just a mini developement bank ,,,,,,,,,,,,,,no money ever returns ,,,

0

Sign in to comment