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