VENTURE CAPITAL HAS A POSITIVE IMPACT ON ECONOMIC DEVELOPMENT IN AFRICA, IN TERMS OF SUSTAINED ECONOMIC GROWTH AND EMPLOYMENT
Only one VC firm has actually measured its impact on sustainable development (the Acacia Fund in East Africa by Aureos Capital)
Impact for all the stakeholders at all levels is strong and positive.
Aureos Capital East Africa created 2,815 jobs from 1997 to 2003 with a total investment of € 12 million (€ 4,263 per job)
Business Partners created 700.000 jobs between 1981 and 2004 with a total investment of € 754 million (€ 1,077 per job)
Main focus of venture capitalists and fund managers is on net internal rate of return Realised IRR for Selected Venture Capital Firms In USD: 9 -14 % 1994 Kingdom Zephyr Technology Fund IPO In SAR: 40 % 1980 Horizon Equity Different Funds TFG, Maghreb Funds In USD: 5 -93 % average 24.6 1995 FMO Range during 24 years of investments of quasi-equity In SAR: 10 -16 % 1981 Business Partners Portfolio legacy funds, 11 investments, In €: -/- 7 -159 % average 31.0 1996 Aureos Southern Africa (ex-CDC) Portfolio legacy funds In €: 0 -15% 1996 Aureos African Investments (excl SA) Explanation Net IRR Started Fund
• New IFC initiative, in cooperation with Business Partners International. Project to establish SME Solution Centres, for low threshold finance and BDS for SMEs. The pilot is being rolled out in Madagascar, Kenya and a West-African country. (integrate developmental and commercial goals)
Almost half of the VC Funds provide BDS, but there is still an unsatisfied demand. Mainly for market segments of start-ups, early stage and growth investments between roughly € 25,000 and € 0.5 million.
THERE IS A DEMAND FOR A BUSINESS DEVELOPMENT SERVICES (BDS) PROGRAM FOR THE VENTURE CAPITAL SECTOR IN AFRICA BASED ON CSR PRINCIPLES continued 4.
New financial products and procedures and a different mind-set are necessary when investing according to CSR criteria and rules; this implies awareness raising, information and capacity building for all stakeholders.
National Governments should establish a healthy investment climate that is attractive to CSR investments by legal reforms and tax incentives, developing alternative financial sources and capital markets, apply CSR criteria in privatisation processes and stimulating Public Private Partnerships
Recommendations on promoting CSR in Venture Capital and Private Equity firms
Multinational companies can play an important role in facilitating the access to venture capital for SMEs by co–funding VC funds in related business sectors and linking up with SMEs in supply chains set up from a CSR perspective
(Inter-)national banks and other financial institutions can put their CSR strategy in practice by investing a certain percentage of their profit in VC Funds that focus on CSR-related investment in SMEs
Macro-economic policies in developed countries can also play a role in reducing the risk involved in VC investments in Africa. For instance, access to markets in Europe, the USA and Asia, can be made easier by lowering trade barriers.
Recommendations on access to Venture Capital and Private Equity for SMEs
• Stimulate the development of a BDS programme aimed at increasing the access of SMEs to Venture Capital from a CSR-perspective. This could take the form of a self-sustaining facility that offers BDS to entrepreneurs, through a system of matching grants, vouchers or other financial instruments
Special BDS program could be funded institutions like the IFC, public development assistance funds, large International banks and pension funds, local banks, large foundations and NGOs
Recommendations on access to Venture Capital and Private Equity for SMEs continued