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

Investors

Growth-Oriented Entrepreneurs

Access to Finance

Women Entrepreneu

rship

Climate Technologie

s

Mobile Innovation

Support Business Enablers

1

2 Other Enablers

Challenge – Lack of Financing for Early-Stage Companies

Idea/Concept Start-up Early-Stage Early-

Growth Growth

FFFs, Incubators,

Grants, Bus. Plan Competitions

Banks, Private Equity Public Markets

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

investors

“Valley of Death”

Demand-side challenges • Lack of quality deal-flow • Equity aversion of entrepreneurs • Entrepreneur skills in engaging

investors

Stages of Business Development:

Potential Early Stage Financing Options

Idea/Concept Start-up Early-Stage Early-

Growth Growth

FFFs, Incubators,

Grants, Bus. Plan Competitions

Banks, Private Equity Public Markets

Angel Investing

Diaspora Financing

Venture Capital

1. Venture Capital

Venture Capital as a potential financing option works in select situations

• Growth opportunity must be huge

• Mostly Technology focused investments

• Mostly in near-growth or expansion stages

• Fund manager has less flexibility

• Deal sizes of $1 – $10 M

By Sector Focus %

Software 35%

Bio-Technology 15%

Medical Devices 10%

Industrial/Energy 10%

To what extent is venture capital relevant for

Caribbean businesses?

By Stage %

Seed 3%

Early 30%

Expansion 35%

Later 32%

Source: National Venture Capital Association

Snapshot of US Venture Capital Industry

2. Angel Investing

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

Multiple Models

• Formal and informal

group of investors • Organization led

network

Invest across Stages Range of Sectors

• Seed/Start-up • Early • Growth

• Technology • Traditional Industries • Service businesses

More than Capital

• Mentoring • Connections

Mix of instruments

• Equity • Convertible notes • Revenue based

financing

Smaller sized deals

• $50K - $1.5M

3. Diaspora Financing

infoDev study published in 2013 Based on the results of a survey of 850 Caribbean diaspora members

Key Findings

Willingness to invest across the region outside of home

country

Interest in investing in non-traditional sectors

such as ICT

85% would be interested in investing in

businesses back home

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

Major Obstacles

Lack of visibility into deal flow

Complex regulatory environment

Trusted local investors/validators

“Demand Side” Preparation

• 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

More needs to be done to prepare entrepreneurs for raising capital successfully

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?