Access to Finance: Examining Non-Traditional Platforms for Funding Bridgetown, Barbados November 12th, 2014
infoDev’s Entrepreneurship Program in the Caribbean GOAL: Develop and grow competitive SMEs across the Caribbean 1
Support Business Enablers
Climate Technologie s Mobile Innovation
Growth-Oriented Entrepreneurs
Investors
Women Entrepreneu rship Other Enablers
2
Access to Finance
Challenge – Lack of Financing for Early-Stage Companies Stages of Business Development:
Idea/Concept FFFs, Incubators, Grants, Bus. Plan Competitions
Start-up
Early-Stage
“Valley of Death”
Supply-side challenges • Banks are structurally risk averse • Few formalized early-stage investors
EarlyGrowth
Growth Banks, Private Equity Public Markets
Demand-side challenges • Lack of quality deal-flow • Equity aversion of entrepreneurs • Entrepreneur skills in engaging investors
Potential Early Stage Financing Options
Idea/Concept
Start-up
EarlyGrowth
Early-Stage
FFFs, Incubators, Grants, Bus. Plan Competitions
Venture Capital
Angel Investing
Diaspora Financing
Growth Banks, Private Equity Public Markets
1. Venture Capital Venture Capital as a potential financing option works in select situations •
Growth opportunity must be huge Snapshot of US Venture Capital Industry
• Mostly Technology focused investments • Mostly in near-growth or expansion stages
• Fund manager has less flexibility • Deal sizes of $1 – $10 M To what extent is venture capital relevant for Caribbean businesses?
By Sector Focus
%
By Stage
%
Software
35%
Seed
3%
Bio-Technology
15%
Early
30%
Medical Devices
10%
Expansion
35%
Industrial/Energy
10%
Later
32%
Source: National Venture Capital Association
2. Angel Investing Angel Investing is likely to be a more suitable alternative early-stage financing option in the Caribbean Invest across Stages
Multiple Models • Formal and informal group of investors • Organization led network
• • •
Seed/Start-up Early Growth
Range of Sectors • • •
Technology Traditional Industries Service businesses
Smaller sized deals •
$50K - $1.5M
More than Capital • •
Mentoring Connections
Mix of instruments • • •
Equity Convertible notes Revenue based financing
3. Diaspora Financing Key Findings 85% would be interested in investing in businesses back home
Interest in investing in non-traditional sectors such as ICT
Willingness to invest across the region outside of home country
However, only 13% of respondents have invested in a Caribbean-based business Major Obstacles infoDev study published in 2013 Based on the results of a survey of 850 Caribbean diaspora members
Lack of visibility into deal flow
Trusted local investors/validators
Complex regulatory environment
“Demand Side” Preparation More needs to be done to prepare entrepreneurs for raising capital successfully
• Developing businesses that will attract investors • Building deeper capacity to effectively engage investors • Understanding investor types and expectations • Understanding of investment terms and suitable instrument options • How to pitch and position the business • Managing the relationship once the deal is done
Areas for Discussion
1.
What is the mix of financing options to consider given enterprises needs, stages and potential?
2.
What must happen to make alternative financing options a reality for entrepreneurs?
3.
What role can enablers play to build stronger pools of investable entrepreneurs?