Investment Opportunities
62
believe in taking calculated risks. If we don’t – potentially good ideas can be lost to the economy forever. Once a business has received some form of investment, other private sector investors see the business as less of a risk and are more willing to put up their own money. This means that when governments invest small amounts in good quality businesses they actually give them a better chance of receiving additional investment from other sources. It has a catalytic effect which enables leverage several times over what the government has provided. This idea can be capitalised on further with public finance schemes that are designed to attract additional private investment. For example we have introduced a ‘Seed Fund’ in our region to support the development of young businesses when funding from venture capitalists or banks is often hard to find. In T&T, the National Entrepreneurship Development Company was created to fund small businesses that were unlikely to obtain financing from commercial banks. They provide loans of up to TT$250,000 and have become the primary source of start-up and expansion capital for the SME sector in Trinidad and Tobago. Their operations include a significant training and development component and they have also utilised mentors in attempting to develop young entrepreneurs. There are also other players such as the bpTT-funded Mayaro Initiative for Private Enterprise Development MIPED, MICROFIN Caribbean, Youth Business of Trinidad and Tobago, and the Enterprise Development Fund run by The Tobago House of Assembly. The Finance South East seed fund works on a ‘matched’ basis which means investment must be equalled by money from elsewhere such as a business angel. We actively help the business find this through our network of business angels. The UK also has a generous tax break scheme for private investors who are prepared to invest in relatively high risk early stage businesses. This long-running scheme provides both relief on income tax when making new investments and reduced or nil capital gains tax on exits. Clearly this concept can only work if business angels are prepared to invest in early stage businesses in Trinidad and Tobago. Business angels come from many walks of life and it can be a highly rewarding and enjoyable way of investing money. The risks are relatively high, but so are the rewards. The trick is to find those people who will benefit from diversifying their investments by financing small businesses and then train them in how to spot opportunities and manage a portfolio. One way of boosting activity would be to run an awareness campaign about business angels and encouraging people with the right skills and wealth to consider this form of investment in Trinidad and Tobago. There have been some attempts at developing an angel investor mentality in Trinidad and Tobago but the results so far have been poor. We have, however, seen companies such as BP fund small and microcredit schemes in the Mayaro/Guayaguayare area (MIPED). This programme was started with seed capital of TT$7 million provided by bpTT. We also have a venture capital industry in Trinidad. It is fund-driven and supported with tax incentives to encourage fund growth. This has not yet seen major success since we only have two active venture capital companies under the scheme. Total fund size in the industry is approximately TT$14 million and only about 13 companies have obtained financing over the past 12 years. Venture capital investments
Business Trinidad & Tobago
Survey Results – Impact of Funding In 2009, Finance South East (FSE) surveyed its clients to measure the impact of its funding on the businesses in which it invests, and evaluate this within the context of the wider economic landscape. CEO Sally Goodsell noted that the survey found that average turnover of its client companies grew by 34 per cent per annum compared to a national average of 7 per cent – proving that bridging the funding gap with the right financing approaches does work. The report, Meeting the Funding Gap, was published in January 2010. Some of its main findings taken from the executive summary are as follows. • Since its first investment in 2004, Finance South East (FSE) has provided over £18 million of investment to South East companies. In the second half of 2009, FSE surveyed its clients to measure the impact of its funding on those businesses. A 60 per cent response rate (100 customers) was achieved, resulting in a picture that is largely representative of the FSE client base. • On the basis of our results, we can estimate that investments made by FSE have resulted in the creation and safeguarding of over 1,200 jobs. • 89 per cent of companies told us that without FSE investment, their project could not have gone ahead at that time. Some added that without access t FSE investment they would have moved to another area to obtain funding, or even gone into administration. • Four out of five companies said that they could not have got the funding elsewhere in the market. For many, this is because other finance providers are unwilling to lend: banks due to the higher level or risk perceived, venture capitalists because the levels of investment, and thus return, are too low. • FSE makes relatively small investments with over 87 per cent of companies needing £100,000 or less, and around half of these applying for sums up to £50,000. Our survey demonstrates that despite these comparatively modest amounts, be securing investment at the right time FSE companies have grown at a rate that far exceeds national and regional averages. • Our survey shows that the turnover of FSE-backed companies has increased by an average of 34 per cent per annum, compared with 7.8 per cent for the South East. UK-wide surveys show that many SMEs have experienced a recent decrease in turnover and employee numbers, while two-thirds of FSE companies continue to report growth in one or both of these areas. • For investments in this area of the funding gap to succeed, it takes more than just money. FSE takes additional steps to de-risk what would be considered in the wider funding marketplace to be high-risk investments. Our survey shows how crucial the additional support they received from FSE is in ensuring the success of the investment and the business. • FSE is streamlined, efficient and cost neutral to Her Majesty’s Treasury: the jobs created and safeguarded with FSE funding will have resulted in around £7.5 million per annum to income tax and national insurance contributions and over £3.8 million in value added tax. FSE has received a total of £1.75 million of operational funding from SEEDA since its inception in 2002.