Venture Capital in Nigeria

The Story So FarAn Appetizer

Rotimi OyekanmiPresident, Venture Capital Association of Nigeria

African Venture Capital Association Conference Mombasa, KenyaNovember 9, 2005

Nigeria

Full of Challenges

OR

Full of Opportunities ????

Challenges Inconsistent economic policies Corruption “Walk” the “Talk”??? Brash

Opportunities Population around 120 (or 150??) million people

Arguably the biggest market in Africa Probably the largest telecoms market in Africa

Probably 2nd or 3rd largest economy in Africa Major oil exporter (OPEC member) Huge informal sector Major exporter of skilled professional to Western

world Democratic Government in place since 1999

President Olusegun Obasanjo

Investment Opportunities Significant investment opportunities in

Telecoms Power/Energy Banking FMCGs Shipping

Due to: Democratization (political stability) Deregulation Privatization Reforms

Pension Reforms Banking consolidation

Nigerian Initiatives (2001/2)

Small and Medium Enterprises Equity Investment Scheme (SMEEIS) - Funds for Equity in SMEs

Bank of Industry (BoI) - Funds for Debt financing

Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) – Ensure Enabling Environment for SMEs

SMEEIS Recognition and acknowledgement of important role

of SMEs in economic development SMEs claimed lack of LT funding is problem

In 2001, Small and Medium Enterprises Equity Investment Scheme launched Nigerian Banks contribute 10% of PAT for equity

investment in SMEs Mode implementation via:

Banks directlyBank subsidiaries Independent fund managers

SMEEIS objectives

SMEEIS aims for SUSTAINED ECONOMIC DEVELOPMENT through:

Employment generationValue added productionMovement from informal to formal sector Develop equity investment culture

SMEEIS

As at September 30, 2005 N31 billion (US$ 220 million) set aside N10 billion (US$ 71 million) invested About 200 investments

Slow pace due to lack of preparedness for quantum of funds available (funds came before PE/VC skills)

Key Players Amalgamated Capital

Manage SMEEIS funds for a few Banks Aureos

SME Investment vehicle (also manages SMEEIS funds for a few banks). First Funds

Subsidiary of First Bank First SMI

Manage SMEEIS funds for 3 banks SME Manager

Manages SMEEIS funds for 14 banks UBA Private Equity

Subsidiary of UBA Unique Venture Capital

Manage SMEEIS funds for a few Banks Several Banks manage the funds in-house

SMEEIS

Co-investment opportunities Accion (MicroFinance) AfriCap (MicroFinance) AfricInvest (PE firm)

SMEEIS

Already an EXIT in SMEEIS Executive Development Business in Lagos Investment – N35 mln (US$250,000) Dividends – N9 mln (US$ 65,000) MBO (after 39 months) – N90 mln (US$ 650,000) Gross IRR (in Naira) – 50.1% Employment – 5 staff to 35 at exit Turnover – N30 mln (US$ 214,000) to N150 mln

(US$ 1,071,000) at exit Customer base now includes Blue chip companies

Key Players

Non SMEEIS Fund Managers Actis

Formerly CDC Capital Partners Avante Capital

Promoted by Ocean and Oil Holdings Capital Alliance Nigeria (ACA)

CAPE fully invested CAPE II - follow-up to CAPE being raised

Vectis Newly promoted Fund

Increased activity by DFIs in Nigeria IFC made Nigeria its regional office for West Africa FMO also in Nigeria European Investment Bank increasing its activities

Beginning of critical mass for the VC industry

Venture Capital Association of Nigeria (VCAN)

Industry players collaborated to promote VCAN Initial start-up supported by FF and CDVCA

VCAN aims to promote growth of Venture Capital in Nigeria

VCAN formed in 2003 and elected pioneer executives Rotimi Oyekanmi – President Kayode Ayeni – Vice President Soye Adetunji – Treasurer Peter Longe – Ex Officio Kunle Wright – Ex Officio

Next Steps for VCAN Work with like-minded organisations for:

Capacity building PE/VC practitioners Entrepreneurs

Advocacy for enabling environment for PE/VC to succeed in Nigeria (especially with regulators)

Work with BoI and SMEDAN to ensure they operate efficiently

Institute high ethical standards for the profession

Outline for breakout session

Nigeria – Background Information Nigerian Experience

Pre 1997 1997 – 2002/3 2002/3 - Date

Challenges for VC in Nigeria Conclusion

Thank You