Should we hold our breaths, folks, or is this another politician's promise that will go unfulfilled?
Prime Minister (PM) Bruce Golding, in his Budget Presentation to the Jamaican Parliament on Tuesday, announced that the government will be doing everything in its power to get the venture capital industry off the ground in Jamaica.
[US-based Venture Capitalists (VCs) provide equity funding in excess of US $5 million to start-up companies.
In return, they require:
1) That the funded companies generate enough revenues so that the VC can recoup their monies (capital) within 5 years
2) A place on the funded company's board, so that they can oversee key strategic decisions.
There is no word as yet as to what the minimum capital requirement will be for this industry in Jamaica].
So the question is, can Jamaica's venture capital industry really get off the ground?...Or is this just a pipe dream of the Jamaican government?
So far, there is only one venture capitalist that's having measured success and that's Dr. Henley Morgan, who has developed a business incubator for depressed communities.
He has managed to co-op investors, due to him realizing the wealth of bankable business ideas that spring from inner city youth and his tenacity at preparing these young entrepreneurs to successfully operate their own businesses.
Investors believe in Dr. Morgan due to the tangible results that have been produced from his Agency for Inner City Renewal (AIR).
The other company venturing into this area is Jamaica National Building Society, through its spin-off, JN Micro Credit Company Limited, but they, for the most part, are still offering loan financing, not equity financing to micro and small businesses.
We have been hearing about the establishment of a Jamaican venture capital industry since 2002, but as soon as we hear of the emergence of a new venture capital company, it vanishes.
Well the government claims that it will address this problem, head-on.
Prime Minister (PM) Golding announced that the Jamaican government will be putting the necessary legal and regulatory infrastructure in place for the Jamaican venture capital industry to get off the ground.
Additionally it will, through the Development Bank of Jamaica, invest minimal funds to kick-start the industry.
What concerns some business analysts, however, is that very few Jamaican companies will be able to take up this offer:
E.g. Professor Rosalie Hamilton, head of the Micro Small Medium Enterprise (MSME) Alliance, in an interview on Independent Talk, has estimated this number to be 3-4% of Jamaican businesses.
This is due to (for the most part) Jamaicans' informal approach to business. Businesses are slowly realizing that those with formal processes (those who are registered and have audited financials), are the ones that will be best able to take advantage of funding opportunities.
According to the PM, insurance companies, the Jamaica Stock Exchange and other investors have been expressing interest in becoming Venture Capitalists for Jamaican companies, but have been unable to provide this service, due to lack of legal and regulatory support.
The PM said that companies requiring venture capital funding will have to be registered companies with audited financial statements.
(The Caribbean Credit Bureau will surely have a place here, as this organization will be instrumental in providing credit histories for companies seeking VC funding).
Well, if the venture capital industry does get off the ground, it will be great for Jamaican businesses...especially for those in the Information and Communication Technologies (ICT) industry.
This largely untapped industry has great potential at generating new revenues for Jamaica.
E.g. if the 2009 revenues of the major players in the industry (Digicel, LIME and Claro), are anything to go by, this industry could generate in excess of US $1.02 billion/year or approximately JMD $86 billion/year. (Using a historical exchange rate of $85 JMD: $1 USD at at December 2009).
This JMD $86 billion represents 17% of Jamaica's GDP for 2009 ($490.6 billion)...and is calculated as follows:
[Digicel Jamaica's revenue for 2009, was approx US $660 million or 1/3 of its total revenues of US $2.2 billion.
(Assuming that Digicel Jamaica still represents 1/3 of Digicel's overall revenues) and that they had approx 65% market share in the Jamaican mobile market, then the total revenue generated by these top players in 2009 was approximately US $1.01 billion or approximately JMD $86 billion.
Digicel Jamaica had approximately 2 million customers in 2009, Claro 400,000 and LIME 660,000. Using Digicel's revenue figures of 2 million customers giving US $660 million in revenue, each Digicel customer generated on average US $330.
So using Digicel Jamaica's average revenue per customer/user (ARPU) as a benchmark, Claro's 400K customers would result in US $132 million and LIME's 660K customers would give US $217.8 million in revenue for 2009.
So total mobile revenue in 2009 would be 660K + 132K + 217.8K = approximately US $1.01 billion/JMD $85.8 billion)].
So, judging from the revenue figures above, if the venture capital industry can become a Jamaican reality within the next two (2) years, this would be great for the Jamaican economy...can you imagine the wealth that would be created from just the ICT sector alone?
Well, according to PM's Budget Presentation, Don Webhy, Grace Kennedy Chief Operating Officer (COO) and former Government Senator and Minister without Portfolio in the Ministry of Finance and the Public Service will be spearheading the team seeking to develop the VC industry in Jamaica.
Don is renown for getting results.
So I truly hope that he and his team will be successful in getting this very important industry established in Jamaica.
All we have to do is wait and see...
In the meantime, please see MOU Blog's listing of Angel Investor companies/networks that can help you get equity financing for your business in the USA and Jamaica.
Gillian
Sources Include
1) Radio Programme, Independent Talk, with Ronnie Twaites, Power 106 FM, May 11,2011
2) Table, "Quarterly Gross Domestic Product - VALUE ADDED AT CONSTANT (2003) PRICES Last Updated 05.04.2011", Statistical Institute of Jamaica, accessed May 11,2011
3) Prime Minister Bruce Golding's Budget Presentation to Parliament, May 10,2011, via Television Jamaica, May 10,2011
4) Transcript of Prime Minister Bruce Golding's Budget Presentation to Parliament, May 10,2011, via website of the Office of the Prime Minister, May 10,2011
5) Article, "Digicel Acquires Claro Jamaica - What's Next for Claro Customers?", by Gillian Campbell, MOUBlog.com, March 22, 2011
6) Article, "Claro's Jamaica entrance did impact Digicel - UPDATE Digicel pushes back!", TechJamaica Forum, October 19,2010
7) Article, "Digicel revenue jumps by 12%", by Niamh Hennessy, IrishExaminer.com June 18,2010
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