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Sustainably scaling agri incubator through CAPEX & revenue models
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Sustainably scaling agri incubator through CAPEX & revenue models

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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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  • 1. FUNDING & SUSTAINABILITYOF BUSINESS INCUBATOR Agri-Business Incubation (ABI) program of ICRISAT
  • 2. Funding strategies for business incubation and sustainability  Initial funding of business incubator program is provided by public authorities  EU countries- A funding mix based on the matching of national funding usually upto a maximum of 50% of the operations and other sources such as regional/ local public and private funding is the most common funding structure  US Incubation programs- Usually start as local initiatives by economic development agencies. Following the initial preparations federal agencies are approached  Federal funding is usually limited to preparation and construction costs as well as research grants for client companies and then compounded with other local/ private sources
  • 3. FINANCIAL MANAGEMENT This is designed to bring together 1 information on the uses and disbursement periods of funds for Preparation of investments needed to establish Investment incubator spreadsheet CRITIICAL ISSUES 2 FOR INCUBATOR 3 Preparation of Preparation of costs and revenue expenditures spreadsheet: spreadsheet:Revenues brought by the Provides information on the usesincubator incl its own income and disbursement periods,and third parties income separated into costs and expenditures Results Effective oversight of the financial flow of the incubator, identifying needs and sources for bringing in funds
  • 4. Financial Management ProcessREVENUE MODELS OF BUSINESS INCUBATORS CAPITAL GAINS MODEL FRANCHISE / REVENUE GEN. MODEL  Big impact highly proprietary technologies • Incremental technologies / pure services.  Types of incubatees • Type of incubatees – Mature/ large businesses – Numerous small businesses / entrepreneurs – Start-ups with solid entrepreneurs • Characteristics:  Characteristics: – Needs significant ABI mgmt. support – Needs less ABI mgmt support – Does not need great new tech inputs – Needs great new tech development – Needs investment in technology transfer support from ICRISAT.. – Needs investment in branding /  Equity payment primarily marketing • Service / royalties / one time fees
  • 5. Business models to manage revenue streamsIncubators use a mix of the following revenue models to managethe revenue streams Rent Equity Royalty Deferred model model model debt model
  • 6. Business models to manage revenuestreams- Rent model Rental charges to the clients can be source of funds, through incubators need to achieve a significant size before this become a major income source In most cases public grants are provided directly to the incubator but in some cases grants towards rent are given to the incubator clients, helping them to focus the incubator staff on the need to attract sufficient clients to fill the space available The level to rent subsidy declines over time to near market- related levels. The benefits of this strategy are to gradually introduce commercial discipline to clients and to make a progressively growing contribution towards the financial sustainability of the incubator
  • 7. Business models to manage revenuestreams- Equity model Incubators can take a minority stake (2-6%) in incubated businesses, often in return for free and low rent periods enabling future income for dividend payments An additional equity (eg: 1-2%) may be further added for additional periods spent in the incubators The relative smallness of the incubator shareholding means, there are many opportunities for it to liquidate its position To work the liquidity model requires scale and portfolio quality
  • 8. Business models to manage revenue streams- Royalty model According to this model, the revenues earned by the client will legitimate a royalty payment for the incubator Usually the royalty is around 5% of the revenue and is limited in time (around 5 years) As the royalty can undermine the financial management of clients that are in start-up phase thus needing sources, it might happen that incubators agree to postpone payments at when companies can afford them This type of model requires lot of trust, communication and exchange between the parties
  • 9. Business models to manage revenuestreams- Deferred debt model In this model, the services provided to the client are valued, along with incubators overheads, and then charged in the incubation fee The client has up to 10 years to payback the debt to the incubator Once the client has left the incubator and/ or when it has reached an agreed financial target, the total debt due to the incubator is fixed and the repayment can start Repayment can be in lump sum or partial payment
  • 10. Other sources of revenue Consultancy assignments Funds facilitation fee Marketing facilitation fee Capacity building & trainings Handholding and mentoring Events ( seminars, conferences, exhibition etc)
  • 11. Revenue stream structure ABI-ICRISAT DEFERRED DEBT, 0REVENUE STREAM % EQUITY, 20RENT 80 ROYALTY, 0ROYALTY 0EQUITY 20 RENT, 80DEFERRED DEBT 0
  • 12. ABI-ICRISAT Financial sustainability over a period of six yearsFY 2005 2006 2007 2008 2009 2010 •Revenues in USD • 33 • 89 • 142 • 121 • 206 • 611 000 ABI-ICRISAT Financial sustainability 800 Revenue (US$000) 600 611 400 200 206 142 121 89 0 33 2005 2006 2007 2008 2009 2010 Year
  • 13. THE OPPORTUNITY IS VERY HUGE LETS PARTNER FOR PROSPERITY Mr. Aravazhi Selvaraj Email id: s.aravazhi@cgiar.org Mobile no: 0 9618889800