Private Equity (Venture Capital) Role in Diversification

Private Equity (Venture Capital)

Role in Diversification

Introduction VC /PE industry in Botswana Impact of PE Economic growth via PE/VC. Benefits of the industry Conclusion

Contents

VPB

• 3914 active private companies registered(2008)

• 23 local public companies on BSE

• Significant economic activity independent of public markets.

• However limited channels for risk capital flows to support this activity

• PE/VC investment driven by Public sector

• Interventionist and development focused

• Early stage focus• Additionality

• Investors primarily, CEDA, BDC

• Generalist public sector investors

• Alignment of GDP growth sectors and capital flows required.

PE in Botswana

• Estimated shortfall in capital for alternative assets (demand side) ± P3 Bn

• Total supply side –P350m?• BDC• CEDA• Angel Investors• Foreign capital targeting larger scale transactions• BPOPF and DPF (Limited)

• Growth in demand:• Maturity in traditional industries and establishment of new

industries.• Extensive corporate leverage• Broadening of economic base away from Government• Growth/Expansion capital beyond the borders• M&A and consolidations

• PE can reverse capital outflows to remain in-country as investments owned locally.

PE in Botswana

PE and Economic Growth

Why PE (micro)

• Strength and Quality of Partnership• Dynamism and innovation• Focus on growth• Employment creation (Adam Smith)• Corporate Governance• Risk takers

• Provides a formal channel for institutional capital to flow to sectors defined as risky

• Transitions business:• Economies of scale

• (organically / M&A network of investments)

• Market maker• Develops market for the purchase and sale of businesses• Enable business to transit to public markets

• PE provides for growth optimisation through Capital Accumulation and Innovation (Endogenous) in emerging markets

• Attractive PE industry attracts foreign capital• New skill sets• Global linkages with local industry• New technologies and methodlogies available to local

companies

Why PE (macro)

• Contractual savings industry still in its infancy

• ± P60 Bn in retirement and contractual savings

• Industry growth limited by:• skills, • scale opportunities• leverage

• Minimal allocation to PE• Allocation of Growth oriented return

seeking capital• Asset allocation policy review

• Focus on local and regional investments

• CGT waived on BSE gains. Review?

PE Growth factors

• South African PE AUM R162.2 Bn• Nigerian PE AUM at 1% of total pension fund assets• Kenya’s technology industry growth fuelling growth in VC

(primarily foreign corporate venture capital)• International benchmark. PE as a percentage of GDP ±1%• Pension Fund Allocation on average ±4%• SA and Namibia leading institutionalisation of PE through

legislative allocation policies (Reg 28 and 29)• Nigerian PENCOM allows PFAs to allocate maximum 5% to PE.

The PE fund must be registered in Nigeria and 75% must be invested in Nigeria.

• Nigerian Pension fund assets growing at US$250M per month

• Growing recognition that a growing PE market drives Foreign capital Inflows

• Introduces new skill sets• New industries

Regional PE

Conclusion

• Diversification requires resources• Productive, Innovative and competitive

• Botswana PE industry needs to be innovative as it grows• Closer fusion between Public markets and the Private Capital

market in order to optimise growth.• Funds are longer term in tenure (>10yr) cycle

• Botswana funds and fund managers have to take cognisance of local needs and local context

• Funds need to drive infrastructure growth, successful industry sectors and cross border oriented industries (Scale).

• Policy framework should be for establishing scale within industry sectors.

• Policy framework should drive scaleable capital formation opportunities.

THANK YOU1st Floor, Block B, BIFM Building

Plot 50676, Fairgrounds Office Park, Gaborone Botswana

Tel +267 (3181012), Fax +267 (3181038)www.venture-p.com