THE success of any venture is determined by the willingness of the participants to co-operate toward a good end.
Venture Capitalism (VC) is not new to Jamaica, but for many reasons, among which reside the perception of intense greed among providers of capital, and lack of accountability and appreciation of the risks involved in investing in untried ventures, it has not been the resounding success it has been in other markets.The launch of the Jamaica Venture Capital Programme by the Development Bank of Jamaica has signalled to many that the Government of Jamaica is prepared to support both funders and businesses to more fully explore the possibilities toward success. The involvement of DBJ in such a scheme is important toward bridging the gap between the stakeholders, by taking risk through technical support, development of a clear framework for pursuit, and actual capital injection.CONDITIONS FOR VC TO WORK IN JAMAICAIn order to create a more sustainable VC ecosystem (business environment) that converts the development of ideas to an attractive business venture for venture capitalists and other investors and financiers, a supportive legislative framework is needed, which is clearly defined on dealing with company and individual bankruptcy issues.The framework also requires mechanism for investors to exit their investments, such as the Jamaica Junior Stock Exchange, while the environment should enable the ease of doing business with the simplification of the taxation regime, the process for paying taxes and the establishment of business.It is important to increase the perception of fairness by having independent valuations to guide the negotiations to determine the percentage shareholding that would be acquired by the VC investor. Independent valuations provide the level of understanding needed for funding the business, taking into consideration cash flows (historical and expected), the market potential of the product, and the industry and broad environment for operations and convert the emotional ties of an idea into a potentially capitalised transaction.Additionally, Government support is needed to accelerate the change in the investor mindset that allows for allocation of investing funds into risky ventures. For example, loosening the restrictions on Pension Fund investment that would allow part of this pool to be channeled to say VC investments.NEED FOR MODERN INSOLVENCY FRAMEWORKIt is not coincidental that countries and regions with a vibrant VC market refer to the business environment in which they operate as the VC Ecosystem; it is that enabling environment that facilitates the birth, growth, renewal and death of businesses.An element of this VC Ecosystem is the “licence to fail”. Unfortunately, business failure in Jamaica has historically been viewed very negatively and the stigma associated with insolvency/bankruptcy has served to stifle entrepreneurial drive and the pursuit of innovative ideas.The current stigma associated with insolvency is the antithesis of a vibrant VC ecosystem which is predicated on large volumes of deal flow from which there will not only be some significant winners but there will be many “failures” along the way.The present stigma associated with insolvency can be mitigated if legislation is in place that fosters an easier route to restructuring that focuses on early intervention to rescue the company where practical. It is therefore imperative that we move quickly to enact the proposed Insolvency Act which will provide one of the key pillars for stimulating more private investments.The major emphasis of any new insolvency legislation must be to strengthen the formal rescue processes and options open to companies and their investors during periods of distress which many will no doubt face. For the VC ecosystem to be balanced there must be a business-friendly process for failure and renewal that does not permanently punish those pursuing innovative ideas.Just as seeds need a fertile environment in which to grow and that fertility is fostered by the enrichment provided by other decayed seeds, so too it must be appreciated that the growth and development of businesses and the economy will be facilitated by business failure and insolvency. The strongest will survive but they usually bear many fruits.Some of the future winners will be the proverbial phoenix rising from the ashes.This is the virtuous venture capitalist space that Jamaica needs to foster in “Seeding Tomorrow’s Opportunities”.The launch of the Jamaica Venture Capital Programme by the Development Bank of Jamaica has signalled to many that the Government of Jamaica is prepared to support both funders and businesses.View the original article here
What will make venture capital work in Jamaica?
