Access to Finance: Examining Non-Traditional Platforms for Funding

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

Support Business Enablers

1

Climate Technologie s

Mobile Innovation

Growth-Oriented Entrepreneurs

Investors

Women Entrepreneu rship

Other Enablers

Access to Finance

2

Challenge – Lack of Financing for Early-Stage Companies

Stages of Business Development:

Early- Growth

Idea/Concept

Start-up

Early-Stage

Growth

Banks, Private Equity Public Markets

FFFs, Incubators, Grants, Bus. Plan Competitions

“Valley of Death”

Supply-side challenges • Banks are structurally risk averse • Few formalized early-stage investors

Demand-side challenges • Lack of quality deal-flow

• Equity aversion of entrepreneurs • Entrepreneur skills in engaging investors

Potential Early Stage Financing Options

Early- Growth

Idea/Concept

Start-up

Early-Stage

Growth

Banks, Private Equity Public Markets

FFFs, Incubators, Grants, Bus. Plan Competitions

Venture Capital

Angel Investing

Diaspora Financing

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

By Sector Focus

%

By Stage

%

Software

35%

Seed

3%

• Mostly in near-growth or expansion stages

Bio-Technology

15%

Early

30%

Medical Devices

10%

Expansion

35%

• Fund manager has less flexibility

Industrial/Energy

10%

Later

32%

• Deal sizes of $1 – $10 M

Source: National Venture Capital Association

To what extent is venture capital relevant for Caribbean businesses?

2. Angel Investing

Angel Investing is likely to be a more suitable alternative early-stage financing option in the Caribbean

Invest across Stages

Range of Sectors

More than Capital

Multiple Models

Seed/Start-up

Technology

• • •

• • •

Mentoring Connections

• •

Early

Traditional Industries Service businesses

• Formal and informal group of investors

Growth

Smaller sized deals

Mix of instruments

• Organization led network

$50K - $1.5M

Equity

•

• • •

Convertible notes Revenue based financing

3. Diaspora Financing

Key Findings

85% would be interested in investing in businesses back home

Willingness to invest across the region outside of home country

Interest in investing in non-traditional sectors such as ICT

However, only 13% of respondents have invested in a Caribbean-based business

Major Obstacles

infoDev study published in 2013

Lack of visibility into deal flow

Trusted local investors/validators

Complex regulatory environment

Based on the results of a survey of 850 Caribbean diaspora members

“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?