PRESENTATION OF  VENTURE CAPITAL TRUST FUND (VCTF) OPERATIONS BY NANA OSEI-BONSU CEO, VCTF OCTOBER 28, 2008

INTRODUCTION AND SALUTATION!!

·         Hon Minister

·         Hon Deputy Minister & Chief Director

·         Chairman & Members OF the Board of Trustees, Venture Capital Trust Fund

·         Staff of VCTF

·         Distinguished Ladies and Gentlemen of the Press

·         All Protocol Observed

·         Good Morning

OBJECTIVES OF THE PRESENTATION

·         The Object of today’s presentation is to discuss:

·         The VCTF and its mandate under the Trust Fund Act:

·         To provide moneys to the SMEs and to develop a Venture Capital Industry in Ghana

·         The Processes and procedures employed to make moneys available to SMEs

·         The VCFCs, what they are and do

·         What The VCTF has done so far; and

·         The Way Forward

GOVERNMENT’S VISION

Background

·         In response to the hue and cry by the business community of  inadequate and high cost of capital to run their businesses.

·         The Government in 2004 established the Venture Capital Trust Fund with a vision to provide low cost financing to businesses;

·         To grow,

·         Create jobs, and

·         Improve wealth creation towards Poverty alleviation

·         With enough jobs and wealth created, that will consequently impact on Government revenues through taxes.

·         This definitely is a win-win cycle

ESTABLISHMENT & MANDATE OF VCTF

VCTF Act 680 establishing the Venture Capital Trust Fund was passed by Parliament in 2004,  to :

·         Provide Finance to Small and Medium Enterprises (SMEs) and also Develop and Promote the Venture Capital industry in Ghana

·         However, Operations of the Venture Trust Fund did not start until a Board of Trustees was constituted in November 2005 and a Chief Executive Officer was appointed subsequently.

·         The Trust Fund Started Full Operations in January 2006.

Within its relatively short history of Two and Half years the Trust Fund has chalked various degree of Successes as it prosecutes its agenda to Develop and Promote the Venture Capital industry in Ghana as well as provide funding to Small and Medium Enterprises (SMEs).

·         Not Micros and not for big companies. It is available for start ups or existing businesses

·         The SMEs  represent about 90% of all economic activities in the country and therefore constitute a large business population to cover.

·         Define SMEs under the act.

CRITERIA FOR QUALIFICATION

What Businesses Qualify?

·         Businesses and Individuals with Creative ideas and Proposals but not fly by night Outfits.

·         What is SME?

Economic Activity with value not exceeding USD 1 million, excluding land and building. It can be a start-up or an existing business and it has to be privately owned-NOT Government institutions

The Promoter of the business bears 50% of the funding requirement for the business and the promoter will always hold the majority ownership of the company.

While the funds are opened to every business, priority sectors are established based upon Government’s economic growth programme (GPRS). Currently the priority sectors identified are ;

Agriculture

Pharmaceutical

ICT,

Tourism industries.

Energy

These priority sectors may benefit from about 55% of the total funds available.  The remainder of the funds are available to other viable business opportunities.

• Viability of the project is the most important criteria to qualify for funding, and not because the project is in the priority sector.
• The Board of Trustees has approved a funding relationship with an NGO under an Innovative and Incubation Program to provide counterpart money to start up businesses.

These funds will come directly from the Trust Fund but administered through one of the venture finance companies

• Funding is not provided for businesses that engage in direct imports to sell
• However, Merchandising or Wholesaling of locally manufactured goods is permissible.

 MINIMUM AND MAX INVESTMENT

• The minimum investment by a VCFC in an investee company is GHc25,000
• The Fund’s Maximum investment is 10% of Total capital of each VCFC approved by its IC but VCTF’s portion should not exceed GHc5000,000.

RESOURCES TO IMPLEMENT MANDATE

•         Source of Funding to undertake these responsibilities  was 25% of National Reconstruction Levy (NRL)- taxes on Financial Institutions profits.

Unfortunately, Phased out at End of Budget Year December 31^st 2006

No other Source of Money has been provided to the Trust Fund since.

But alternate sources of funding are being explored with the Ministry of Finance and Economic Planning (MOFEP) to anchor the program.

1^st 7 Years: when all funds are fully invested and no investments have matured or occurrence of exiting out of  investments with returns, there is a strong need to continue to receive funds until receipt of investment proceeds, to be recycled to other investee companies to continue the investment process.

THE TWO MANDATES

1. Provision of Capital to SMEs and
2. The Development Of Venture  Capital Industry in the country

   Board of Trustees decided to
   Kill 2 Birds With 1 Stone by engaging in Public Private Partnership (PPP) to achieve the two objectives.

ENGAGEMENT IN PUBLIC PRIVATE PARTNERSHIP

• The Board of Trustee  leveraged the Government’s endowment of GH¢22.4 million to partner with the private sector to bring on board additional funds of approximately GH¢34.5 million from private sector investors.
• This PPP is the first in its kind where a Government institution has leveraged its resources with the Private sector to create more funds than it was endowed with.
• As a result of this Public Private Partnership (PPP), the Venture Capital Industry has grown overnight to a Total Fund of GH¢56.9 million to be sourced out by qualified SMEs
• And these funds Hon Minister, are now available to be sourced out by new and existing Business Promoters, both Young and Old. Creative and Innovative proposals are supported.
• Private Institutional Partners engaged in the Venture Capital Partnerships are:
• Ghana Commercial Bank             Activity Venture Finance Co
• Agricultural Development Bank
• National Investment Bank
• SIC Insurance Company           Bedrock Venture Capital Finance Co
• Gold Coast Securities  {Gold Venture Capital Limited} and
• Fidelity Capital Partners, SSNIT & European Partners  {Fidelity Equity Fund II}
• Within a relative short period of  2½ years, these established partnership VCFCs constitute  the infant stages of a viable  venture capital Industry in the country.

PROCESSES AND PROCEDURES FOR PROVISION OF FUNDS TO SMES

• Partnership Intermediary Institutions – VCFCs.
• What are the VCFCs?- Financial institutions whose sole authorised business under the Trust Fund Act is to assist SMEs by providing Capital and Business Advisory services to them.
• The VCFCs are to be managed by Fund Managers who are licensed by The Securities and Exchange Commission (SEC).

ROLE OF FUND MANAGERS OF VCFCS

• The Fund Manager is responsible for :
• All investment-related Analysis, Evaluation and Due Diligence of applications for funding
• The speed and success of the Funding processes primarily depend on the Fund Manager and Staff.
• It’s critical that the Fund Manager’s team has the qualified expertise and the skills set to review, analyse and evaluate the risk inherent in a potential investee company.
• The Fund Manager of the VCFCs are the main drivers of the Funding and Disbursement Processes.
• Investment recommendations made by Fund Managers are either rejected or approved and ratified by the Investment Committee of the Board of Directors of the respective VCFC.

LETS DISCUSS THE PROCESSES AND PROCEDURES OF INVESTMENTS

Submission of Application by SME/Individuals

Initial submission of the following documentation to VCFC:

• An Comprehensive Business Plan (your  business Roadmap) with three (3)  year projections.
• Audited Financial Reports for past three years for existing business.
• Tax Clearance Certificate (VVIP elaborate)
• Incorporation Papers (if applicable)
• Any other information that may be requested.
• Analysis, Evaluation and Due Diligence by Fund Manager
• Initial (Desktop) Review: Review of Business Plan and other documentation  including Incorporation documents, Tax Clearance Certificate, etc. if attractive then
• Second Round Review: Verification of claim, Visit to facility, Authentication, Title search, etc.
• Due Diligence – Legal, Technical and Financial.
• All these processes are necessary because with venture investment No collateral or security is required against the investment.  No recourse to any property of the business in case of  failure of the investment. 
• (The pace of the process can be speed up.)
• Agree on Term Sheet with potential investee company and submits same to Investment Committee of  the VCFC.
• Term Sheet
• Is Negotiable and should be signed by both Fund Manager and Business Promoter before submission to Investment Committee for decision
• Term Sheet Spells out :
• Structure and method of financing to be  provided to the Investee company (Equity, quasi-equity or combination)
• Responsibilities and Obligations on both sides
• Percentage of share ownership for the investment by the venture finance company
• Agreement to the Term Sheet. Submitted

·         Investment Committee  for consideration

·         Approval or Rejection -  If approved

• Final Due Diligence to ascertain status of the potential Investee co. If No material change in the business then
• Agreement Signed
• Disbursement subject to Conditions Precedent
• Corrections to be made by Business Promoter in the business before start of injection of Venture Money.

Disbursement Of Funds

o  Drawdown method based upon approved business plan

o  Reduce incidence of  funds in the hands of business owner to avoid misapplication of funds

Monitoring Processes During Investment Period

o  Post investment periodic visits to client

o  Submission of monitoring reports by client to verify and ascertain progress for achieving targets and benchmarks

Exit Mechanism agreed by parties in the Investment Agreement

o  Majority Shareholder  Buy Back

o  Third Party Private Placement

o  IPO on the Stock Exchang

INVESTMENTS UNDERTAKEN SO FAR!!

o  Several Investments have so far been made in various SMEs across sectors of the economy and regions

o  Number Of Investee Co. from all VCFCs = 21

o  Industries Invested In Are:

ICT

Education

Finance

Poultry

Pharmaceutical

Agriculture

Environmental (Waste Management)

REGIONAL DISTRIBUTION OF INVESTMENTS

The Total Capital Invested in SMEs is GH¢11,930,443.94

o  The Regional Distribution of Investments are:

                                                                                                            GH¢

o  GREATER ACCRA                                    4,797,774.04

o  ASHANTI                                             561,263.00

o  BRONG AHAFO                                 500,708.68

o  EASTERN                                         3,485,698.22

o  WESTERN                                           425,000.00

o  SORGHUM PROJECT IN:

n  UPPER EAST

n  UPPER WEST                      2,160,000.00

n  NORTHERN REGION

INVESTMENT DISTRIBUTION BY REGION (IN GH CEDIS

SPECIAL PURPOSE VEHICLE

The Board of  Trustees of  the Trust Fund periodically approves Special Purpose Vehicle financing to provide funding to Special industries and projects. An example is the

SORGHUM VALUE CHAIN PROJECT

ongoing in the Upper East, Upper West, Northern Region and the Northern Part of Brong Ahafo

SPECIAL PURPOSE VEHICLE
SORGHUM VALUE CHAIN PROJECT

o  SPECIAL PURPOSE FINANCING
Under the Special purpose financing arrangement funds are extended to a finance company to on-lend exclusively to participants of a Special project

o  In August 2006, the first year of operations of the Trust Fund, the Board of Trustee approved investments in the Sorghum Value Chain Project.

            The VCTF provided GH¢365,000 to 1,500 farmers in the Upper East, Upper West, Northern and Brong Ahafo Regions for the local production of sorghum for Guinness Ghana Brewery Limited to replace imported barley which the company uses for its brewing processes.

            Domestic Sorghum farm production increased from pre-VCTF era of  100 metric tonnes to 903.4 metric tonnes in the first year.

o  In the 2007 farming season, VCTF advanced GH¢800,000 to 3,500 farmers in the Project who produced 2000 metric tonnes of Sorghum.

o  In 2008 farming season, VCTF has provided GH¢1,000,000 to approximately 4,000 farmers under the Sorghum Value Chain Project who are projected to produce in excess of 3000 metric tonnes of Sorghum

o  Total investment by the VCTF in the project within the 2 year period is GH¢2,160.000 and the local production of Sorghum has increased from 100 metric tonnes in 2006 to  over 3000 Metric Tonnes in 2008.

o  Collateral Benefits of the Sorghum Project to the communities and other include:

o  Creating Jobs for the People

o  Total Farmers directly engaged in the project in the UE, UW, North and North Brong Ahafo are in excess of 3,500

o  Indirectly, 25,000 people in other incidental  businesses are impacted by the project which is funded exclusively by the Venture Capital Trust Fund.

o  Creating Wealth

o  Direct Income to the farmers grew in 2006 from almost zero to Ghc102,000 and  GHc371,250 in the 2007 Farming season.

o  Income to Support Service sectors including casual labor, storage, transport etc was  GHc36,000 in 2006 and grew to GHc52,000 in 2007.

o  The project also yielded about 500 jobs in Youth employment in the farming communities.

o  Farm Machinery

o  To introduce mechanization into the Sorghum farming, 6 Tractors with accompanying implements including trailers, harrowers and ploughs have been purchased for  the Sorghum farmers with funds extended to them in 2008

o  Several Trashers are also provided to the farmers for efficient production.

o  Guinness Ghana Breweries which buys the total Sorghum production has also constructed 19 Bore hole water systems for participating farming communities in the Upper East, Upper West and Northern Regions .

o  This is a classic example of  the benefits of a Public Private Partnership (PPP)

SPECIAL PURPOSE VEHICLE
SORGHUM VALUE CHAIN PROJECT

No of Farmers

OTHER IMPORTANT ENHANCEMENT IN ADDITION TO THE VCTF FUNDS

Technical Assistance Program:

VCTF does not provide only funding to investee companies, but
also offer Technical Assistance to them.

TECHNICAL ASSISTANCE PROGRAM

o  The Technical Assistance Program adopts a three-tier strategic approach in the provision of best business practices and professional services to needy SMEs.

These are:

Training and Capacity Building for Staff  of Investee companies.

Mentoring- Corporate and Executive Program (Services of Retired Business Executives to help SMEs)

Contract Services by Business Solutions Service Providers in Accounting, Management, Market, Chemical Engineering Etc.

o  The essence of the Technical Assistance is to create efficiency in the operations of the investee companies for successful investment.

TRAINING & CAPACITY BUILDING UNDERTAKEN IN 2008

o  Industry Training for Fund Managers & Professionals of VCFC – March to April 2008

facilitated by a professional Trainer in venture capital and private equity funding from overseas

o  Organized Monitoring & Evaluation workshop for Stakeholders & Fund Managers – July 2008

o  Conducted Training in Basic Accounting & Financial Reporting and Management for Staff of  Investee Companies – August 2008

o  Provided Training on Corporate Governance for Board of Directors and Management of Investee Companies – September 2008.

INTERNALLY GENERATED FUNDS BY THE TRUST FUND

INTERNALLY GENERATED FUNDS

o  Within the two and half years of its operations, the Trust Fund has Internally Generated Funds for its operations

Interest Income                     GH¢5,172,316

Other Income                         GH¢134,451

Total                                       GH¢5,306,767

o  VCTF has generated these Amounts to finance its operations

FORMATION OF VCFCs AND TAX BENEFITS INVOLVED

THE FUTURE -WAY FORWARD

o  The Board of Trustee has approved :

Sustained Public Awareness and Promotional programmes across the nation to erase misunderstanding of Venture Capital Financing

Training and Capacity Building to grow the Industry

Intensive Investment Initiatives to;

o  Establish more finance companies to be located in other parts of the country

Review other Special Purpose Vehicle projects

Explore Warehousing Receipt System to serve as  market for specific  farm produce and also provide storage facilities for Food security

Explore Real Estate Development Fund to be established

All these need more VCTF Counterpart Funds to Partner with the Private sector

Hon Minister ,
Hon Deputy Minister,
Chief Director,
Distinguished members of the Press,
 

We can acknowledge that with these benefits that accrue to a business for sourcing funds at Venture Capital, the Government has done very well in creating this investment vehicle.

Hon Sir, At The VCTF

GROWING BUSINESSES

TO CREATE JOBS AND  WEALTH IS

OUR BUSINESS!!!

THANK YOU SIR

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