To convene a working group of committed leaders, articulate a vision and organizational strategy, and facilitate the securing of initial capital commitments.
The developing world, Africa in particular, faces a dearth of risk capital that has and will continue to constrain growth. The young companies able to move the needle on innovation, inspiration and employment need high-risk, reasonably-sized equity investments to grow - not the limited doles of short-term, collateralized, high-interest debt currently provided. Unfortunately, investing in Small and Medium Enterprises (SMEs) in developing countries is difficult to justify in commercial terms because of high transaction costs, few exit opportunities, weak managerial capacity, and currency and business environment risks.
In partnership with donors, local governments and private investors, the proposed program would provide equity investment ranging from ,000 to million to a subset of those young companies with a demonstrated ability to absorb capital and a growth strategy that can have a multiplier effect on employment. Investments should be in the form of quasi-equity with no forced amortization or current servicing required. Investors will receive returns from appreciation in the value of equity ownership where possible but more often in the form of payments linked to participation in increased revenues and free cash flow as generated. A parallel component of the funds will be dedicated to grant funding for technical and managerial assistance to the portfolio companies through existing assistance programs.
In order to address the risk-reward imbalance while still building the nascent commercial capital markets, donor investors and governments should recognize that they have to accept very modest rates of return and directly support operating and transaction costs. This will allow local private investors to manage the investments and take a disproportionate amount of the returns. Involvement of international venture capitalists will allow for transfer of necessary skills and knowledge.