THE Development Bank of Jamaica (DBJ) is looking at working around current laws to enable the start-up of venture capital (VC) funds in 2014.
The state agency plans to provide seed capital for the establishment of such a fund next year, when it will invite investors wanting to pool their money and invest in small and medium-sized enterprises (SMEs) to participate.Now, the DBJ is mulling over recommendations from lawyers on new regulations and laws needed for a legal framework to govern VC funds.But having no control over the pace at which bills crawl through the legislature, the DBJ has to figure out how to use existing laws to make those investments happen in the near term.“Whatever the workaround that can be achieved in the next year we want to be able to put that in place so that any entity that wants to establish a venture capital fund can,” said Audrey Richards, who is leading the venture capital project for the development bank.“We do recognise that from an investment point of view, pension regulations and insurance regulations are still not clear whether these funds can invest, or how much they can put in venture capital,” she told the Jamaica Observer at its Monday Exchange held at its Beechwood Avenue headquarters in Kingston.Indeed, about $300 billion are invested in pension funds in Jamaica, so even a small percentage being directed towards SMEs could be substantial.Current regulations for collective investment schemes require that investors wanting to pool funds from others for investment would have to do so using unit trust or mutual funds, which Richards reckons would not be the “best place” for venture capital.“There is a new collective investment scheme regulation being put in place by the Financial Services Commission,” she said. “It is something we looked at and identified as one of the things that needs to happen very quickly.”Policymakers are also looking at modernising an antiquated Arbitration Act and work has begun on changes to insolvency laws, which the DBJ expects to see legislated over the next year.But the year 2016 remains a major goalpost for getting all the legal framework to put venture capital funds in place.With the backing of the Inter-American Development Bank (IDB), the DBJ aims to provide capacity-building for some 100 SMEs over the next three years, with at least 30 being ready to get venture capital, and at least five receiving financing from VC funds by 2016.And the state agency hopes to kick-start such funding with its own capital as early as next year.“We want to identify fund managers that DBJ can co-invest with, and these fund managers would undertake the investments in the SMEs or start-ups,” said Richards. “We are looking to invest with qualified fund managers over the next year.”It is still too early to determine how much capital will find its way in the first venture fund, but the Multilateral Investment Fund (MIF), the arm of the IDB that focuses on private equity, suggests that the minimum critical mass for VC funds in the region ranges between US$20 million ($2 billion) and US$50 million, depending on the size of the country.“This is needed to provide several financing rounds to SMEs and to retain skilled staff at the fund management company,” said a 2011 MIF report on building a local venture capital industry in Latin America and the Caribbean (LAC). “Since every country in the LAC region has very few seed and VC funds, each fund should have enough capital to provide several rounds of financing to the best SMEs and not rely on there being other funds providing subsequent rounds, as happens in the US and other developed markets.”Audrey Richards, consultant on the Jamaica Venture Capital Programme. (PHOTO: NAPHTALI JUNIOR)View the original article here
Bullish on venture capital: DBJ not solely relying on lawmakers
