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nigerianfranchise.org nigerianfranchise.org Presentation Transcript

  • FRANCHISING DEVELOPMENT FOR SMES IN NIGERIA: THE ROLE OF VENTURE CAPITAL Presented by : Mr. Kayode A. Ayeni MD/CEO, First Funds, Nigeria. At the International Seminar On Franchising by the Joint Africa Institute, Rabat, Morocco November 13-17, 2006
  • Outline Of Presentation
    • Background To SMEEIS
    • The New Venture Capital Industry
    • Benefits Of Venture Capital
    • Why Franchising Is Good For SMEs
    • Financing Franchising With SM E EIS funds
    • Benefits To Franchisor &Franchisee
    • Benefits To SM E EIS Fund Manager
    • Conclusions
    • How To Contact Us
  • Background to SMEEIS
    • SMEEIS was introduced by Bankers Committee in June, 2001.
    • SMEEIS requires banks to set aside 10% of PAT for investment in Small and Medium Enterprises (SMEs). 
    • SME Investment Sectors : Every legal business activity is covered with the exception of trading/merchandising and financial services.
    • An SME total assets < N 1.5billion (excluding land and working capital)
    • Funding provided shall be in the form of equity or loans, where loans are single digit (max of 9%).
    • Upper limit of 40% equity funding by banks shall apply.
    • The investment can be divested after a minimum period of 3 to 5 years.
    • Funds can be used for start-ups, expansion, working capital, management buy-out, turn around of moribund companies, etc.
  • The New Venture Capital Industry
    • Introduction of SMEEIS has given birth to a new Venture Capital (VC) industry in Nigeria.
    • SMIEIS is set up for investment in equity, which has forced the acquisition of equity investment skills by banks (distinct from lending skills).
    • Many banks have either set up a unit in-house or set up VC subsidiaries (singly or jointly with other banks) to handle investment of their SMIEIS funds.
    • Some other banks have engaged independent VC fund managers to invest their funds .
  • Benefits of Venture Capital
    • Impacts discipline and more accountability in company.
    • Risks are shared equally by all shareholders.
    • Source of medium to long term capital .
    • Investment is not secured (no need for collateral).
    • No interest is paid on Venture Capital funds.
    • Institutional partners lend credibility and acts as a positive signal to other stakeholders.
    • Venture Capitalist adds value in providing financial, technical, advisory and managerial support .
    •  
  • Why Is Franchising Good For SMEs
    • By nature & origin, business arrangement designed by entrepreneurs for SMEs .
    • Quick replication of a good business idea
    • Easy start-up opportunities .
    • Facilitates institutionalisation of business .
    • Global success reports on franchising in development of small businesses
    • 17,500 franchise systems, 1.2 million franchisees & 12.5 million employees in franchise business globally.
    • In USA, half of all retail sales generated through franchised chains; 550,000 franchise outlets employing 7.1 million workers .
  • Why Is Franchising Good For SMEs (contd)
    • U.S franchising industry estimated at US$1 trillion in 2001 .
    • Industry growing at rate of 10-12% per annum .
    • MC Donald’s : 1998 – 16,000 franchises; 2002 –22,000 franchises .
    • Estimated failure of franchise outlets in U.S. less than 5%.
    • Estimated failure by fifth anniversary of new businesses in Nigeria more than 80%.
  • Financing Franchising With SMEEIS Funds
    • SMEEIS Funds can support franchising.
    • Each franchise outlet – an SME- limited liability company with at most N1.5 Billion asset base (excluding land and working capital).
    • Resulting benefits to Venture Capital Fund.
    • Benefits also to Franchisor/Franchisee (Promoter).
  • Benefits To Franchisor
    • Quick business rollout possible
    • Easier start-up opportunities
    • Creation of model outlets
    • Possibility of unlimited growth
    • Strong institutional partner
    • Upon exit of Venture Capital Funds, shares can be sold to Franchisee (s)
  • Benefits To Franchisee
    • Leverage existing franchise goodwill.
    • Reduction in learning curve.
    • Easier break into relatively captive market- confirm/maintain (rather than build) existing franchise reputation.
    • Training & technology transfer by Franchisor .
    • Strong institutional partner .
    • Tried and tested systems plus independence of self employment .
  • Benefits To SMEEIS Fund Manager
    • Facilitates deployment of funds.
    • Facilitates geographical spread of investments.
    • Reduces risk of business failure.
    • Provides good exit opportunities .
  • Conclusions
    • Link between Franchising, SMEs and Venture Capital (SMIEIS) Funds established.
    • Franchising is a good method for achieving rapid growth of SMEs.
    • Venture Capital (SMIEIS) funding is beneficial to SMEs
    • The combination of franchising and SMIEIS funding for SMEs is a recipe for SME success.
  • How to Contact Us
    • All enquiries should be directed to:
    • MD/CEO
    • First Funds Limited
    • Bull Plaza (ConOil Building)
    • 9 th Floor
    • 38/39 Marina
    • Lagos
    • Tel: 234-1- 2665211, 2665214, 2665250
    • Fax: 234-1- 2660784 . Website: www.firstfundsltd.com
  • THANK YOU QUESTIONS (?)