Sunday, January 21, 2018

Venture capital can restore growth

Howai at finance seminar:

Venture capital is one avenue through which the region can realise its true potential, as a way to restore economic growth and transformation, Finance Minister Larry Howai said yesterday. 

“We have to challenge ourselves to facilitate a complete change from the usual way of doing things…that will require us to be innovative and move beyond the immediate focus on conventional economic expansion and stimulation,” he said in his address at the Caribbean Centre for Money and Finance’s Venture Capital seminar at the Hyatt Regency (Trinidad), Port of Spain.

Venture Capital is money provided by investors to start-up firms and small businesses with perceived long-term growth potential. It is an important source of funding for start-ups that do not have access to capital markets—or even traditional financing from banks. It typically entails high risk for the investor, but it has the potential for above-average returns.

“The Caribbean region does have some progress to make in this direction as we have been overly reliant on traditional debt and equity financing arrangements to finance commercial activity. Venture capital is an invaluable, welcomed source of innovation financing if we are to operationalise unique Caribbean businesses and ideas for the 21st century,” he said. 

Venture capitalists also offer extremely valuable services to nascent companies to ensure that they build and grow; this involvement provides a fertile breeding ground for knowledge transfer, strategic counsel, sound governance and application of cutting edge commercial best practices, Howai said. The task therefore, is to ensure that ours is an accommodating venture capital ecosystem to attract not just funding, but also the expertise to aid the transformation process. 

“The enabling environment created for innovative venture capital firms to thrive also serves as a major area of reform benefitting the wider private sector as a powerful engine of growth, including the promotion of sound corporate governance and entrepreneurship,” he added. 

The willingness to undertake risk and fail also makes venture capital unique for our economic transformation,” he continued. 

Venture capital also plays an essential role in retaining talented professionals whose human capital is essential for economic transformation. 

“These are benefits we cannot overlook. However, we need to understand the reality of the venture capital industry. Venture capitalists are not in the business of giving away money. They are prepared to take risk in the expectation of above normal rates of return. They require detailed business plans that quantify properly the expected rates of return and that clearly identify and evaluate associated risk. In many instances, young entrepreneurs may not be ready for the rigors’ of the venture capital industry. 

The solution therefore also requires us to step out of the strict venture capital regime and embrace additional structures including business incubator schemes and angel financing and, at a different level of sophistication, private equity funds,” he said.