2. CONTENTS OF THE PRESENTATION
3. I N T R O D U C T I O N 4. 5. DEFINING SMEs 6. FACET GROUP 7.
ADAPPPT IN A NUTSHELL
- Adapppt was created in March 2003 by FACET,
- Fair Trade Assistance and SMO
- Co-financed by the Netherlands Ministry of Foreign Affairs
(Development Co-operation) and private sponsors
- Promote awareness of CSR in developing countries
- Strengthen the capacity of SMEs to gain access to global
markets in which CSR plays an increasingly important role
- Establish partnerships between SMEs in North and South
8. O B J E C T I V E S 9. CONCLUSIONS AVCA MARRAKECH, 2004
- Low return on VC investments in Africa
- Difficult to raise second-generation funds
- Lack of access to credit for enterprises
- Public support for Private Equity investors and a legal
framework are non-existent
10.
- PRIVATE EQUITY & VENTURE CAPITAL
- AS A MEANS TO PROMOTE SUSTAINABLE ENTREPRENEURSHIP IN
AFRICA
- A Survey of 25 Venture Capital Organisations Active in
Africa
11. RESEARCH QUESTIONS
- What is the contribution of VC funds to sustainable development
in Africa?
- What are main bottlenecks faced by these funds and how can
stakeholders solve these bottlenecks?
- Is it possible to integrate CSR principles in doing business
with VC firms in Africa and how?
- Is there a demand for a special Business Development Services
(BDS) Fund and/or program for the Venture Capital sector in Africa,
based on CSR principles?
12.
- Netherlands FMO, RoValue, SOVEC
- and Venture Capital for Africa
- United Kingdom Actis, Aureos
10 SURVEYED VC COMPANIES IN THE NORTH 13.
- Ghana Aureos West-Africa and Fidelity
- South Africa Actis-SA, Aureos-SA, Business Partners,
- Endeavour, Enterprise Support, Horizon Equity,
- IDC, IFC, Kingdom Zephyr, Khula Ent. Finance,
- Tunisia TunInvest Finance Group
- Zimbabwe Batanal Capital Finance,
- Venture Capital Company Zimbabwe
15 SURVEYED VC COMPANIES IN THE SOUTH 14.
- People e.g. living wages, workers rights to organise,workers
safety, workers training and education, andbalanced child labour
policies in compliance with UNchild rights.
- Planet e.g. efficient use of natural resources, control
ofpollution and waste recycling.
- Profit a reasonable added value to all the
companysstakeholders,including shareholders, management,permanent
and seasonal workers.
BASIC PRINCIPLES OF CSR(SUSTAINABLE ENTREPRENEURSHIP) 15.
- BDS Services for SMEs to help them develop and perform
- better in all their business activities.
- Business plan development, training and mentoring
ofentrepreneurs, financial, legal and tax support,
- managerial coaching, access to information,
BUSINESS DEVELOPMENT SERVICES (TECHNICAL ASSISTANCE) 16. R E S U
L T S 17. VENTURE CAPITAL HAS A POSITIVE IMPACT ONECONOMIC
DEVELOPMENT IN AFRICA, IN TERMS OF SUSTAINED ECONOMIC GROWTH AND
EMPLOYMENT
- Only one VC firm has actually measured its impact on
sustainable development (the Acacia Fund in East Africa by Aureos
Capital)
- Impact for all the stakeholders at all levels is strong and
positive.
- Aureos Capital East Africa created 2,815 jobs from 1997 to 2003
with a total investment of 12 million ( 4,263 per job)
- Business Partners created 700.000 jobs between 1981 and 2004
with a total investment of 754 million ( 1,077 per job)
1. 18. Main focus of venture capitalists and fund managersis on
net internal rate of return Realised IRR for Selected Venture
Capital Firms In USD: 9 -14 % 1994 Kingdom Zephyr Technology Fund
IPO In SAR: 40 % 1980 Horizon Equity Different Funds TFG, Maghreb
Funds In USD: 5 -93 %average 24.6 1995 FMO Range during 24 years of
investments of quasi-equity In SAR: 10 -16 % 1981 Business Partners
Portfolio legacy funds, 11investments, In : -/- 7 -159 %average
31.0 1996 Aureos Southern Africa (ex-CDC) Portfolio legacy funds In
: 0 -15% 1996 Aureos African Investments (excl SA)Explanation Net
IRRStartedFund 19.
- Access to Venture Capital for SMEs very limited
- Small number of VC firms aim to serve the market segment for
early stage investments and even less actually succeed in doing
so.
- Relative high transaction costs
- Unattractive risk-return ratio
Huge gap between the supply and demandof Venture Capital in the
market segmentbetween 20,000 and 500,000 20.
- Financial management of the VC and PE funds
- Capacity of the local entrepreneur of the portfolio
company
- Lack of macro- and socio-economic stability
- Lack of affordable business development services,
- insufficient transfer of know-how and poor quality of
market
MAIN BOTTLENECKS FOR VENTURE CAPITAL AND PRIVATE EQUITY FIRMS IN
AFRICA 2. 21.
- Lack of well-researched market information. Being well-informed
and able to mitigate risks are important success factors, in Africa
as elsewhere.
- Risks are higher in Africa than they are in Europe or the USA,
but in reality not as high as one thinks.
- VC Funds expect a gross internal rate of return of more than
20% over 5-8 years (like in Europe and USA)
There is a gap between the perceived risks and the real risks of
investing in Africa, which tends to exaggerate the risks associated
with Africa. 22.
- Mutually reinforcing process between commercial success in the
short run and sustainable(commercial, social and
environmental)results in the long run
- Only a few PE & VC companies are aware or have an explicit
strategy to this effect. No tools or indicators to measure
impact
- DFIs and Venture Capital Funds with 100% public funding comply
with legal rules regarding governance and transparency. No
pro-active strategy for investment selection based on CSR
IT IS POSSIBLE TO INTEGRATE CSR PRINCIPLES WITHOUT SACRIFICING
PROFITABILITY, WHEN INVESTING VENTURE CAPITAL IN AFRICA 3. 23.
- There is often a large gap between these investors in the North
and the fund managersand SME entrepreneursin the South, who are
mainly focused on financial performance criteria
- CSR is often seen as something that is imposed on governments
and entrepreneurs in developing countries. Many SMEs in Africa
already practise some kind of tacit social responsibility
IT IS POSSIBLE TO INTEGRATE CSR PRINCIPLES WITHOUT SACRIFICING
PROFITABILITY, WHEN INVESTING VENTURE CAPITAL IN AFRICAcontinued 3.
24.
- Business Development Services (BDS) offer crucial added value
to investors and entrepreneurs in the process of establishing
successful venture capital investment.
- Importance and success of BDS is demonstrated by the examples
of Business Partners with its cost-efficient mentorship programand
tight business model
THERE IS A DEMAND FOR A BUSINESS DEVELOPMENT SERVICES (BDS)
PROGRAM FOR THE VENTURE CAPITAL SECTOR IN AFRICA BASED ON CSR
PRINCIPLES 4. 25.
- New IFC initiative, in cooperation with Business Partners
International. Project to establish SME Solution Centres, for low
threshold finance and BDS for SMEs. The pilot is being rolled out
in Madagascar, Kenya and a West-African country. (integrate
developmental and commercial goals)
- Almost half of the VC Funds provide BDS, but there is still an
unsatisfied demand. Mainly for market segments of start-ups, early
stage and growth investments between roughly 25,000 and 0.5
million.
THERE IS A DEMAND FOR A BUSINESS DEVELOPMENT SERVICES (BDS)
PROGRAM FOR THE VENTURE CAPITAL SECTOR IN AFRICA BASED ON CSR
PRINCIPLEScontinued 4. 26. R E C O M M E N D A T I O N S 27.
- Make CSR more practical and applicable for all stakeholders,
develop appropriate indicators and stimulate awareness of
sustainable entrepreneurship in Private Equity and Venture Capital
firms
- Promote mutual understanding between investors North and fund
managers and (potential) investee companies in the South regarding
CSR
Recommendations on promoting CSR in Venture Capital and Private
Equity firms 28.
- New financial products and procedures and a different mind-set
are necessary when investing according to CSR criteria and rules;
this implies awareness raising, information and capacity building
for all stakeholders.
- National Governments should establish a healthy investment
climate that is attractive to CSR investments by legal reforms and
tax incentives, developing alternative financial sources and
capital markets, apply CSR criteria in privatisation processes and
stimulating Public Private Partnerships
Recommendations on promoting CSR in Venture Capital and Private
Equity firms 29.
- Multinational companies can play an important role in
facilitating the access to venture capital for SMEs by cofunding VC
funds in related business sectors and linking up with SMEs in
supply chains set up from a CSR perspective
- (Inter-)national banks and other financial institutions can put
their CSR strategy in practice by investing a certain percentage of
their profit in VC Funds that focus on CSR-related investment in
SMEs
- Macro-economic policies in developed countries can also play a
role in reducing the risk involved in VC investments in Africa. For
instance, access to markets in Europe, the USA and Asia, can be
made easier by lowering trade barriers.
Recommendations on access to Venture Capital and Private Equity
for SMEs 30.
- Stimulate the development of a BDS programme aimed at
increasing the access of SMEs to Venture Capital from a
CSR-perspective. This could take the form of a self-sustaining
facility that offers BDS to entrepreneurs, through a system of
matching grants, vouchers or other financial instruments
- Special BDS program could be funded institutions like the IFC,
public development assistance funds, large International banks and
pension funds, local banks, large foundations and NGOs
Recommendations on access to Venture Capital and Private Equity
for SMEscontinued 31.
- We take the view that CSR and sustainable entrepreneurship
- in Africa must come from within the African business
partners
- themselves, especially the entrepreneurs. It should be a
natural
- part of the business practise and fit in the specific
- African business environment.
- Awareness raising and capacity building can help
entrepreneurs
- to develop their own strategy towards sustainable
FINAL REMARK 32.
- Venture Capitalists are not really
- interested in SMEs nor social returns
STATEMENT FOR DISCUSSION: