While reading the Sunday edition of an online Jamaica newspaper, ‘The Jamaica Observer’, I came across an interesting headline and article: ‘Chris Williams: Region not ready for private equity funds’.
Statements that caught my attention were:
“Private equity and the whole venture fund concept have not worked and I don’t think the region is ready for it”
What does Chris Williams mean when he says it has not worked?
Within the past 4 or 5 years, have there been any serious attempts to implement Venture Capital in Jamaica or the Caribbean?
To the best of my knowledge there has been no true Venture Capital in Jamaica up until as late 2008. In the USA there are thousands of Venture Capital funds available to entrepreneurs and start-up companies.
“There is the argument that private equity and venture capital can go after the small enterprises but it can’t work”
Chris Williams is correct in this statement from a uninformed standpoint. One of the latest waves in Venture Capital within the States and parts of Europe is early stage Venture Capital funding. It could be considered a hybrid between Angel Capital and Venture Capital. However, it is mainly geared towards what we know in Jamaica as ICT projects.
Early stage can be as little as US$5,000 to US$50,000 towards a project in order to build a working prototype, and gain traction based on an idea. In some cases an idea or business plan is accepted even if it is written on a napkin.
The objective is to have projects chosen for early-stage Venture Capital funding provided with funding in exchange for 4% to 10% or higher equity stakes. This style of Venture Capital funding (VC) has taken off within the United States and parts of Europe.
Of course, a lack of intellectual capital or limited intellectual capacity as it pertains to Venture Capital, appears to be the norm in Jamaica.
However, this is rapidly changing with the staging of the Kingston Venture Capital Conference & Expo 2009 recently held at the Jamaica Trade & Invest Training Room.
Venture Capital (VC) early stage firms within the ICT investment area such as Ycombinator, TechStars and Dreamit Ventures are but a few of the early stage VC firms leading the early stage investment in what could be considered small ICT enterprise.
Kingston Venture Capital is the tip of the spear for the domestic market in Jamaica as it relates to early stage investment with an emphasis on Web2.0 projects.
“You call the entrepreneurs and they don’t have up to date financials and they haven’t been building out a discipline of doing financials over the year”. “They have no board, no formal management structures and it is all kind of family-run”.
With several financial companies within the states doing an excellent job with their board, formal management structure and up-to-date financial statements, they have certainly made a mess of Wall Street.
I use corporate companies in the USA as an example of what is considered to be the professional way to manage a business in respect to structure.
Last time I checked federal bail-out money was used to the tune of billions of USD as bonus money to executives, even when they were no more than beggars to Uncle Sam and the tax payers of their country.
Anyone with a basic understanding of Venture Capital will tell you that when a VC invests, there are strings attached. It is not the same as a small business loan where you may be handed over a lump sum of money for you to play with.
VCs tend to get more hands-on involvement with the projects they invest in. This may also lead to the VC introducing his or her own management team to handle the allotted investment and company they are investing in.
This process would clean up any inefficiency that may exist within the entrepreneur’s team and lack of experience that may exist in managing large investments and taking the project to the next level.
Venture Capital over the long run
Studies have shown that within the last 10 years in the States, Venture Capital investments created approximately 17% on returns while traditional financial platforms such as S&P 500 and the NASDAQ provided approximately 1% to 2% respectively over the same period.
Chris Williams, National Commercial Bank (NCB) Capital Markets Managing Director, may be excellent at what he does, but his statements on Venture Capital for the Jamaican and regional market, as far as I am concerned, are completely false and lack authority or any real substance on the subject matter.