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Financial sustainability of AIIC incubators
 

Financial sustainability of AIIC incubators

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Business incubators need to be financially sustainable to carry out its mandate. The session will focus on how to get multilateral funding agencies/investors to support agribusiness incubators, ...

Business incubators need to be financially sustainable to carry out its mandate. The session will focus on how to get multilateral funding agencies/investors to support agribusiness incubators, factors and parameters to be considered for obtaining aid, and how to involve the Government to support such ventures, with the ultimate objective of developing an ecosystem for the growth of small and medium agribusinesses.

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    Financial sustainability of AIIC incubators Financial sustainability of AIIC incubators Presentation Transcript

    • 7 February 2012 NIABI 2112, New Delhi, India Ralph von Kaufmann UniBRAIN Facility Coordinator Forum for Agricultural Research in AfricaAgBIT - Zambia CAF - Mali CURAD - Uganda CCLEARr - Ghana IDPA - Uganda SVCDC - Kenya
    • FUNDING ANDSUSTAINABILITY OFOF AGRIBUSINESSINCUBATORS
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Content • Background to UniBRAIN • UniBRAIN’s purpose, objectives, outputs • UniBRAIN Agribusiness Incubators • Functions of agribusiness incubators • Types of incubators and nature of financing • Sources and nature of incubator financing • Financial management • Take home messages
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Background to UniBRAIN • Wide scale investment in agribusiness and agro-industry in Africa is presently constrained by: Human and institutional capacity deficits • African universities are not sufficiently geared to meet the needs of industry • Graduates often cannot find employment while many small businesses lack staff with the education and skills needed to drive innovation • Essentially the relationship between the demands of the private sector and what universities teach is too weak • Nowhere are the these deficiencies more critical than in agriculture, Africa’s dominant industry • However, studies show that when university graduates do business they create more jobs than those without university education
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Purpose of UniBRAIN UniBRAIN will break the barriers and foster collaboration between universities, business and research to create cultures and environments that will: • value, encourage and enable innovation • produce graduates who are problem solvers • who are potential entrepreneurs • especially women and youths UniBRAIN will establish agribusiness incubators to accelerate the creation of successful enterprises by providing them with comprehensive and integrated support, including incubator space, business support services and clustering and networking opportunities
    • UniBRAIN’s unique synergies of the interactions between the partners Activity Line A: Fostering agricultural innovation Access to high Opportunities to level human and acquire and share More efficient & institutional experience in effective capacity promoting innovation innovation in AfricanActivity Line C: Exchanging agriculture Activity Line B:Improvingexperience, resources and agribusiness teaching knowledge learning and research Access to hands-on learning and stakeholder guidance in changing curricular and improving teaching and learning
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS UniBRAIN Agribusiness Incubator Consortia  The Consortium for enhancing University Responsiveness to Agribusiness Development (UniBRAIN-CURAD) focusing on plantation cash crops Specific value chain: Coffee  The Incubation and Diversification of Banana Products for Agribusiness (UniBRAIN-ABP or Afri Banana) focusing on staple food and cash crops Specific value chain: Banana  The Sorghum Value Chain Development Consortium (UniBRAIN- SVCDC) focusing on smallholder dry land food grains Specific value chain: Sorghum  The Creating Competitive Livestock-bias Entrepreneurs in Agribusiness (UniBRAIN-CCLEAr) focusing on Smallholder livestock Specific value chain: Livestock  The Innovative Centre for Agro-forestry (UniBRAIN-CAF) focusing on agro-forestry products Specific value chains: non-timber forestry products, cereals and fruits  The Agri-Business Incubation Trust (UniBRAIN-AgBIT) focusing on tropical fruit Specific value chain: Mango
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Locations of UniBRAIN agribusiness incubators UniBRAIN CAF UniBRAIN CCLEAr UniBRAIN AgBIT
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Functions ofand Agribusiness Innovation Incubators Why the how will African universities link with agribusinessUniBRAIN will support universities, businesses and researchinstitutions to establish agribusiness incubators, which willprovide:• facilitation for creating competitive agribusinesses through technology development and commercialization• handholding services starting from business conceptualization to implementation and scaling up• support for realising business concepts from university faculty and graduates, researchers and agribusinesses• consultancy services to agribusiness• help in accessing financing for SMEs and start-ups approaching impact investors and social capitalists
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Example Incubator Client Categories and Services Start Up Growth Expansion Mature Networking (domestic and International) Assistance and linkages to funding and market Technologically capable, Productivity driven and Handholding through business coaching, mentoring, consultancy and Globally competitive training on mindsetting, Business plan, Accounting, marketing, communication skills etc Biotech; Assistance in Brand Agribusiness; Development Production assistance Incubation services •Technology commercialization and shared facilities •Product and process improvement •Technology Transfer Office Selection/ •IP Management Assessment Pre-incubation/ Preseed Diagramme by ANAFE
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Functions of the Agribusiness Innovation Incubators  The mission of the incubator is to facilitate the creation of competitive agribusiness enterprises through technology development and commercialization  The incubator, helps new entrepreneurs and enterprise clients with handholding services starting from business conceptualization to implementation and scaling up  It is up to the clients to choose the kind of services they want from the incubatorThe agribusiness incubators will provide institutional frameworks for:  the realisation of business concepts from university faculty and graduates, agricultural research and agribusinesses of all sizes  consultancy services to agribusiness  help in accessing financing for SMEs and start-ups by approaching banks, impact investors and social capitalists
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS The nature of the incubator determines its prospects for local or international funding: Type 1: provide a physical location in which a new business can access facilities, support services and business advice Type 2: provide high-tech facilities and high- level skills that the firms need from time to time but cannot justify tying much of their own capital Type 3: provide in situ institutional support to enable firms, entrepreneurs and inventors to access resources, which they do not have in house  This is the UniBRAIN model
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Type 1: Will appeal to local investors and lenders  They serve local needs  They are not easily up-scaled Type 2: should appeal to international public & private investors if they:  offer services that are undersupplied in developing countries  offer scope for collaboration in training, equipping and usage  can serve clients nationally and regionally  promise high impact breakthroughs Type 3: should attract international public and private donors if they:  are public – private partnerships  leverage existing human and physical resources  offer international collaboration in business and training  will be financially self sustained in a relatively short time
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSTHE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING Current businesses New businesses Existing Business Enhancement Development of new Functions enterprisesNature of Activities Qualtity  TrainingBusiness  Problem solvingActivities New Expansion Agro-sector enlargement Business New products Activities New processes  New business lines New markets Source: John Kuada Centre for International Business, Department of Business Studies, Aalborg University
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSTHE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING Necessity-based Growth-based Imitation- “Entrepreneur among “Giants in the crowd” oriented others” Good positions in social businesses  Crowded low-end and political networks business segments Dependent on social capital Degree of  Low profitability to leverage resources Creativity  Limited organic growth &Innovation Innovation- “Orphans” “Eye – catchers” oriented  ”lonely entrepreneurs”  Persons with unusual businesses  May go unnoticed talent  High entry barriers  Seeking venture capitalist  Success difficult to support achieve  Want to attract  Require support & public/journalistic attention mentoring Source: John Kuada Centre for International Business, Department of Business Stu Aalborg University
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Funding Prospects There are few international donors and investors who are specifically dedicated to supporting agribusiness incubators But if the incubators are themselves businesses there is a huge number and variety of potential donors and investors amongst which to search for compatible mandates, interests and cultures Whether agribusiness incubators can attract business investment is still to be tested and will depend on the merit of their business plans and how well they can mesh with not just the official policy of the potential investor but also with the personal convictions of the investors’ staff and decision takers
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSSources of financing Governments • Most governments are keen to support start-ups and SMEs but research is required to find the schemes criteria and what kind of proposals are most likely to succeed Development Partners • Promoting public private partnerships is a popular development objective but it is almost a requirement for success to find a champion in the development agency who is not only interested but can actually help Banks • Bank interest can be high but the incubators can reduce there transaction costs and risks and they should respond favourably. Islamic banking may be more appropriate for start-ups
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Sources of Financing (contd)Impact investors Impact investors seek to enhance social structure or environmental health as well as achieve financial returns. They ay take an active role mentoring or leading the growth of the company similar to a venture capital firm assists in the growth of an early-stage company.Social capitalists Social capitalists believe that a strong social support network for the poor enhances capital output and that by decreasing poverty, capital market participation is enlarged. Social capitalism accept that government regulation, and even sponsorship of markets, can lead to superior economic outcomes.Venture capitalists Venture capitalists invest in early-stage, high-potential, high risk, high growth startup companies. They make money by owning equity in the companies it invests in, which and usually have a novel technology or business model in high technology industries
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Incubator FinancingThere are 3 main revenue models for business incubation environments:1. Income from incubated enterprises – payments for facilities and services2. Returns to equity - sharing in client success by rising value of equity or royalty agreements on gross sales  this can be a very good way to receive payment for business incubation services once the company succeeds, rather than up front when the company has little income  It only applies to high growth companies which have clear exit strategies otherwise royalties may be a better approach  it takes up to 10 years to realize returns and a portfolio of at least 20 companies is required to spread the risk, not to mention the high level of management expertise that is required3. Generate revenue from non-business incubation activities such as consulting, collaboration and access to facilities to ongoing businessesAt different stages different amounts and combinations of financing may be needed
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Raising Funds The incubators should have well developed business models for itself and for its clients that together form its Business Plan  These identify the main funding requirements in ways that can attract the interest of financiers  These have to be supported by surveys to find potential partners, sponsors and financiers to know and understand their objectives, operating modes, contact persons etc.  Know the projects they already support to identify their priorities and opportunities so that the incubator can make a targeted presentation Prepare a succinct funding proposal aimed at clearly establishing the project concept, principal benefits and requirements in line with the financiers interests
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Financial Management Incubators need to walk the talk and demonstrate high levels of financial management capability to incubated enterprises. The main attributes of quality incubator financial management are: • planning, overseeing and controlling the incubator funds, whether they are brought in through services or provided by partners and investors • Having mechanisms that enable the incubator manager to know accurately the amounts available, the needs and the investment capacity • Financial management also involves bringing in new sources of funds for the incubator • Preparation of Investment Spreadsheet • Preparation of Costs and Expenditures Spreadsheet • Preparation of Revenues Spreadsheet
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Cash Flow  Reliable cash flow projections are crucial to the successful financial administration and they must be linked to the budget in order to monitor the financial performance of the incubator  Despite the simplicity of the cash flow concept, its application to a business may result in some difficulties, arising from the following aspects:  In a new business, it is hard to forecast the income and expenditures resulting from some activities  It is hard to foresee future cash income and expenditure amounts, due to the uncertainties of the projected scenario  It is hard to quantify the impact on the cash income and expenditures due to the business risks
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Take Home Messages Agribusiness incubators are businesses worthy of commercial, donor and social capital investment The funding is there but you have to find an appropriate source and justify why it should invest in your incubator Good business models and plans, a sound funding strategy, and flawless financial management are essential forThank you both funding and sustainability
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS UniBRAIN’s development objective is: • to contribute to enabling African countries to create jobs and raise incomes through sustainable agribusiness development. UniBRAIN’s Immediate Objective, which is also its value proposition, is: • to enable universities, business and agricultural research institutions to commercialise agricultural technologies and produce graduates with entrepreneurial and business skills through agribusiness incubator partnerships.
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS UniBRAIN’s objectives will be realised by: Output #1: Commercialisation of agribusiness innovations supported and promoted Output #2: Agribusiness graduates with the potential to become efficient entrepreneurs produced by tertiary educational institutions Output #3: UniBRAIN’s innovative outputs, experiences and practices shared and up-scaled.
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Sources of funding: Development PartnersSeveral Development Partners have schemes for supporting start-ups and SME’s such as: Danish Small Business grants Norwegian Investment Fund for Developing Countries (NORFUND) is supporting Ugandas Small enterprises with Shs20 billion fund channeled through Dfcu Bank It will boost SME programmes including agro processing and market research among other ventures A recent study commissioned by Sida concluded that: “Existing knowledge suggests that public sector development support should be integrated with other types of support, address clusters of factors and take linkages between them into account.” This seems to fit with the mandates of agribusiness incubators
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSSources of funding: Development PartnersThe incubators should seek donors and investors with mandates, interests & cultures that are consistent with their business models (not vice versa)UniBRAIN incubators’ business models will be consistent with the Africa Commission’s criteria including: Gender balance in beneficiaries Fostering innovation and competitiveness along whole agricultural value chains to create sustainable growth, jobs for youths and reduce poverty The depth, quality and contextual appropriateness of proposed changes in curricula and in teaching and learning methods Fostering collaboration between African institutions and with institutions in other countries and regions Having sound governance of the institutions and programmes
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSSources of funding: Impact investorsThe Global Impact Investing Network (GIIN) GIIN Investors Council is a diverse group of leading impact investors committed to building a coherent industry that effectively channels investment capital to address social and environmental challenges at scale Impact investment which is intended to create positive social or environmental impact beyond financial returns This should apply to: - agribusiness incubators dedicated to addressing social (poverty alleviation) and - environmental challenges (adaptation for climate change) - amongst entrepreneurs not reached by ‘normal’ business support systems and - at scales beyond that of individual firms
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Sources of funding: Impact investors GIIN members include:  ACCION, Acumen Fund, The Annie E. Casey Foundation, Armonia, The Bill and Melinda Gates Foundation, Calvert Foundation, Capricorn Investment Group, Citigroup, Deutsche Bank, The DOEN Foundation, Equilibrium Capital, The Gatsby Charitable Foundation, Generation Investment Management, Gray Ghost Ventures, IGNIA, J.P. Morgan, Leapfrog Investments, Lundin for Africa, Morgan Stanley, National Community Investment Fund (NCIF), Omidyar Network, Packard Foundation, Prudential, The Rockefeller Foundation, Root Capital, Sarona, Shorebank International, Skoll Foundation, SNS Asset Management, TIAA-CREF, Trans-Century, Triodos Investment Management, W.K. Kellogg Foundation, and Wolfensohn & Company.
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSSources of funding: Impact investorsExample: Kilimo Trust Investors: Gatsby Charitable Foundation and the Rockefeller Foundation (and the Government of Uganda) The Kilimo Trust has a Vision of Broad-based Wealth Creation in East Africa through agriculture and agribusiness It removes constraints that limit the exploitation of business opportunities and increases the success rate of investments in agricultural enterprises It provides grants directly to private businesses and disseminates the commercial experiences gained from this to support other interested parties
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORSSources of funding: Social capitalists Social venture capital is a form of venture capital investing that provides capital to businesses deemed socially and environmentally responsible These investments are intended to both provide attractive returns to investors and to provide market-based solutions to social and environmental issues Social venture capital can refer to debt or equity investments in socially-oriented enterprises, which includes BoP (Base of the Pyramid)-targeted efforts to stimulate economic development in the poorest regions of the world Commercial banks also need to demonstrate “good corporate citizenship” and may support start-ups and artisan enterprises if the incubators prepare business plans and support them
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Sources of funding: Social capitalists  Among the firms that deploy "social venture capital" are: Acumen Fund, Grassroots Business Fund, Tandem Fund, Bridges Ventures, Citizen Capital, Triodos Bank, Calvert Group, Gray Ghost Ventures, The New Economics Foundation , Social Venture Capital Fund, Ventursome Fund, Social Venture Partners, VenturEast BYST Growth Fund, ennovent, Aavishkaar and Good Capita (Some of these are GIIN members)  Research will be needed to determine which GIIN members, Social Capitalists and commercial banks may be interested in supporting agribusiness incubators that pursue social objectives in developing countries
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Sources of funding: Social capitalists Example:Endeavor Global, endeavor.org  Endeavor breaks down barriers that prevent emerging- market entrepreneurs from reaching their high-impact potential  Endeavor has supported over 320 entrepreneurs from over 190 companies  Endeavor Entrepreneurs have created more than 80,000 new jobs, paying on average ten times the national minimum wage, and generated approximately $2 billion in new revenue  95% of Endeavor Entrepreneurs companies are still operating in countries where ventures typically close in 42 months
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Example: Venture Capital for Africa (VC4Africa) VC4Africa.biz - Africas largest venture capital community, investors and entrepreneurs, dedicated to building business on the continent  The VC4Africa Daily has + 1186 follower on Twitter - Next update in about 10 hours  VC4Africa organises Meetups at which aspiring entrepreneurs can meet venture capitalists wherever there is interest  e.g., University of California Los Angeles (UCLA) & Santa Monica  These are simply a place for members to meet share ideas  No speeches, no agenda, nothing planned  The loose structure allows for lots of networking  Just remember participants pay for their own drinks
    • FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS The prospects for local and international funding:  There are few international donors and investors who are specifically dedicated to supporting agribusiness incubators  But if the incubators are themselves businesses and there is a huge number and variety of potential donors and investors amongst which to search for compatible mandates, interests and cultures  Whether agribusiness incubators can attract business investment is still to be tested and will depend on the merit of their business plans and how well they can mesh with not just the official policy of the potential investor but also with the personal convictions of the investors’ staff and decision takers