Two issues for donors in VC are attracting new institutional money without distorting the market and leveraging the existing infrastructure to speed the investment of capital into SMEs. Solving these two issues within donors’ operating constraints was the assignment given to Innovative Ventures by the World Bank for the countries Kenya, Tanzania and Uganda.
Innovative Ventures advised in the creation of the East Africa Equity Facility, a ‘fund of funds’ that makes investments in venture capital funds operating in the countries of East Africa. This facility manages US$5MM and is the first time the World Bank invested money to capitalize a privately managed ‘fund of funds,’ organized to industry standards.
Innovative Ventures established the design, creation and execution of this facility:
- Rationalized the fund’s investment strategy and its implementation as the lead investor to catalyze more investment by private sector investors
- Defined two market niches for investment
- SMEs with investment needs of < $500k, most located in rural areas and small cities of Uganda
- Growth stage SMEs privatized by the governments of Kenya and Tanzania
- Selected two African funds for investment, negotiated terms and conditions including minimum size of funds, co-investment, manager compensation and carried interest, drawdown of capital, distribution policies and the exit clauses.
- $2.5MM committed to Uganda Dev. Corp., Kampala, as the fund manager for Uganda
- $2.5MM committed to IPRIS, Nairobi, as the fund manager for Kenya and Tanzania
- Created the policy and procedure manual to manage the facility, its fund investments and develop the East Africa investment infrastructure.
A condition of investment is that private VC funds co-invest $15MM to create a US$20 million pool of VC for the region. Investing on terms equal to private investors ensures that World Bank money is invested on purely commercial terms.
A challenge in the emerging markets is attracting institutional money and developing the investment infrastructure to finance venture capital funds and investees. This facility accomplishes these needs without introducing market distortions like subsidizing management fees or resorting to risk sharing schemes. A second problem is the bias of entrepreneurs for debt versus equity due to its high cost and limited availability. This facility increases the supply of capital to overcome these issues.
“Consider Innovative Ventures as your investment advisor and partner in planning and executing international private equity schemes. We can help you avoid the learning curve costs that skilled investors inadvertently incur when executing new investment programs.”