What do Face­book, Google, Ap­ple and Mi­crosoft all have in com­mon ?Aside from be­ing some of the most suc­cess­ful com­pa­nies in the world, they are able to lay claim to their dom­i­nant po­si­tions as a re­sult of sourc­ing ven­ture cap­i­tal.But, ac­cord­ing to lo­cal ex­perts in the field, there seems to be lit­tle hope for en­tre­pre­neurs here who need ven­ture cap­i­tal to de­vel­op their ideas in­to the next big bil­lion-dol­lar com­pa­ny.

At the Caribbean Cen­tre for Mon­ey and Fi­nance's Third Caribbean Busi­ness Ex­ec­u­tive sem­i­nar, Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran said, "the in­dus­try has col­lapsed" and when ex­pressed as a per­cent­age of GDP, VC fundrais­ing in the Caribbean was "neg­li­gi­ble" or at "ze­ro".

First Cit­i­zens In­vest­ment Ser­vices gen­er­al man­ag­er Ja­son Julien pre­sent­ed da­ta at the sem­i­nar show­ing that ven­ture cap­i­tal and pri­vate eq­ui­ty funds had sharply de­clined in T&T from 2008. The da­ta showed that be­fore 2008, there were as many as 15 ven­ture cap­i­tal and per­son­al eq­ui­ty funds. In an in­ter­view with the Sun­day BG, Julien said, "To­day, you are lucky to even find three."

For those un­fa­mil­iar with ven­ture cap­i­tal, the lo­cal Ven­ture Cap­i­tal In­cen­tive Pro­gramme (VCIP) de­fines it as "a form of long-term in­vest­ment, al­so known as pa­tient or eq­ui­ty cap­i­tal, that is typ­i­cal­ly in­vest­ed in busi­ness­es with po­ten­tial for growth and prof­itabil­i­ty. In ad­di­tion to cap­i­tal, the in­vestor brings hands on man­age­r­i­al ex­per­tise to the in­vestee com­pa­nies."Es­tab­lished by gov­ern­ment in 1994, the VCIP be­gan op­er­at­ing in 1996.

The US is the lead­ing coun­try in terms of ven­ture cap­i­tal ac­tiv­i­ty. There, ven­ture cap­i­tal­ists in­vest bil­lions in the ideas of en­tre­pre­neurs, seek­ing high re­turns on their in­vest­ment year­ly.Ac­cord­ing to the Mon­eyTree Re­port by Price­wa­ter­house­C­oop­ers and the US Na­tion­al Ven­ture Cap­i­tal As­so­ci­a­tion, in the US, in­vest­ments by ven­ture cap­i­tal­ists amount­ed to US$29.4 bil­lion on 3,995 deals in 2013; an in­crease of 7 per cent in dol­lar val­ue and 4 per cent in deal num­bers from 2012.

Cul­ture part of the de­cline

Julien ref­er­enced a num­ber of fac­tors when talk­ing about the de­cline of ven­ture cap­i­tal in T&T. He told the Sun­day BG that be­tween 1997 and 2007, ven­ture cap­i­tal funds faced the chal­lenge of putting the cap­i­tal to work. He said at the time there was avail­able cap­i­tal to in­vest, but not enough projects to in­vest in."When peo­ple in­vest their mon­ey they want to see re­turns. No one wants to in­vest in a fund that is not be­ing used, in that case, the re­turn is ze­ro. There just weren't suf­fi­cient deals for funds make sense."

Julien al­so said that peo­ple in T&T have to un­der­stand how to analyse risk and the dif­fer­ent in­dus­tries that are man­aged un­der ven­ture cap­i­tal funds.Speak­ing about lo­cal in­vestors, he said, "peo­ple have to get com­fort­able with los­ing mon­ey if they take risks." He said US cul­ture is dif­fer­ent in that they un­der­stand tak­ing risk for greater re­turns and are will­ing to do so. He said it was this kind of think­ing that fos­ters en­tre­pre­neur­ship, where­as, our cul­ture does not.

Con­tin­u­ing the com­par­i­son, Julien made ref­er­ence to the role gov­ern­ment grants played in the de­vel­op­ment of the al­go­rithm that lat­er be­came com­mer­cial­ly known as Google. With the aid of a grant re­ceived through the Na­tion­al Sci­ence Foun­da­tion's Dig­i­tal Li­brary Ini­tia­tive, two Stand­ford Uni­ver­si­ty stu­dents, Lar­ry Page and Sergey Brin–the founders of Google–were able to cre­ate the math­e­mat­i­cal process that rev­o­lu­tionised the World Wide Web.

Julien said: "Most uni­ver­si­ty grad­u­ates in T&T pre­fer to work for some­one else rather than go in­to busi­ness for them­selves. In our so­ci­ety, we are taught to go to school, fin­ish and work."He al­so ques­tioned the role of fi­nan­cial in­sti­tu­tions in T&T that would have turned away the Google en­tre­pre­neurs, in the in­ter­est of pro­tect­ing cus­tomer's mon­ey from what they might have deemed a risky in­vest­ment.

"If the cre­ators of Google had ap­proached a T&T bank for the cap­i­tal to start, do you think they would have re­ceived it for what was on­ly a math­e­mat­i­cal cal­cu­la­tion?"Julien al­so said T&T has a cul­ture that dis­cour­ages fail­ure. Com­par­ing again to the US, the First Cit­i­zens In­vest­ment Ser­vices ex­ec­u­tive said in such en­tre­pre­neur­ial cul­tures a per­son could go bank­rupt and still be con­sid­ered a suc­cess. But T&T at­tach­es stig­ma to fail­ure. Julien said, the per­cep­tion is, "if you fail in our so­ci­ety, you are more or less damned."

He thinks, though, the younger gen­er­a­tion might be dif­fer­ent­ly mo­ti­vat­ed on see­ing the suc­cess of en­tre­pre­neurs in the US."They are see­ing the val­ue in bril­liant ideas and may be more bold, but how do we feed that bold­ness and find a way to nur­ture them to suc­ceed?"

In re­sponse to his own ques­tion, he sug­gest­ed that im­prove­ment of the ven­ture cap­i­tal ecosys­tem was nec­es­sary if it was to be an op­tion for en­tre­pre­neurs. He thought T&T's cur­rent eco­nom­ic cli­mate was right, but that the coun­try lacked the prop­er in­fra­struc­ture to en­cour­age en­tre­pre­neur­ship.He al­so said there need­ed to be pub­lic and pri­vate sec­tor in­volve­ment. The Gov­ern­ment's great­est con­tri­bu­tion, he said, would be in pol­i­cy de­vel­op­ment to sup­port the VC in­dus­try.

He al­so called for more sup­port for en­tre­pre­neurs and fund man­agers who bet­ter un­der­stood the in­dus­tries be­ing man­aged in or­der to make the best of in­vest­ments.

Not just about fi­nanc­ing

CEO OF CME Con­sult­ing and one-time ad­min­is­tra­tor of the VCIP, Ju­dith Mark, con­curred with Julien's as­sess­ment of the sit­u­a­tion. She said there were not enough deals to keep the in­dus­try vi­brant be­tween 1997 and 2007."The de­cline in ven­ture cap­i­tal ac­tiv­i­ty in T&T re­flects a sim­i­lar pic­ture to what oc­curred in the wider Caribbean, par­tic­u­lar­ly Cari­com mem­ber states. This may be at­trib­uted to the per­for­mance of a large per­cent­age of funds."

She con­tin­ued, "T&T does not cre­ate the num­ber of in­no­v­a­tive, val­ue-cre­at­ing projects which mir­ror the pro­file of the ide­al in­vest­ment for ven­ture cap­i­tal ac­tiv­i­ty. Ven­ture cap­i­tal thrives in an en­vi­ron­ment where there is an ad­e­quate flow of suit­able projects and an ad­e­quate avail­abil­i­ty of risk and ven­ture cap­i­tal. Both are avail­able in lim­it­ed quan­ti­ties in T&T."

Mark said that in the case of the state-ini­ti­at­ed VCIP, "the mod­el was not con­ducive giv­en that the oth­er es­sen­tial com­po­nents of the ven­ture cap­i­tal ecosys­tem were ei­ther non-ex­is­tent or not suf­fi­cient­ly de­vel­oped."The ab­sence of key com­po­nents of the ven­ture cap­i­tal ecosys­tem af­fect­ed all funds whether state or pri­vate sec­tor, cre­at­ed or man­aged.

In speak­ing about the num­ber of projects the VCIP helped de­vel­op when she was at the helm, Mark said that while many en­tre­pre­neurs came for­ward for as­sis­tance, their fo­cus was, more of­ten than not, on get­ting fi­nan­cial as­sis­tance.She told the Sun­day BG: "If by de­vel­op we mean ac­cess to ven­ture cap­i­tal, it was less than 100. If as­sis­tance al­so in­clud­ed the pre-fund­ing or pre-in­vest­ment ac­tiv­i­ties re­quired in prepar­ing busi­ness­es to ac­cess cap­i­tal, then the num­ber in­creased."

She said: "With re­spect to ac­tu­al in­vest­ment made, it was less than 20 for all reg­is­tered VC com­pa­nies. The prob­lem is most en­tre­pre­neurs with­in the SME sec­tor be­lieve that fi­nan­cial cap­i­tal is the so­lu­tion, be it at start up or ex­pan­sion stage, but may be re­luc­tant to al­low the ven­ture cap­i­tal or pri­vate eq­ui­ty provider or man­ag­er the nec­es­sary ad­vi­so­ry or part­ner­ing role re­quired for suc­cess."

Un­like Julien, how­ev­er, Mark thinks that T&T has a strong en­tre­pre­neur­ial cul­ture, and point­ed to ev­i­dence on the Glob­al En­tre­pre­neur­ship In­dex. She al­so said one can at­test to the num­ber of new ven­tures through ob­ser­va­tion."The is­sue is sus­tain­abil­i­ty of these ven­tures so that we see an in­crease in net starts," she con­clud­ed.On the 2013 Glob­al En­tre­pre­neur­ship and De­vel­op­ment In­dex (GE­DI), T&T ranks 70-74 on a list of 118 coun­tries. The US is ranked num­ber 1 and Chad ranked low­est at 118.

Ac­cord­ing to the Glob­al En­tre­pre­neur­ship and De­vel­op­ment In­sti­tute: "The GE­DI cap­tures the con­tex­tu­al fea­ture of en­tre­pre­neur­ship by fo­cus­ing on en­tre­pre­neur­ial at­ti­tudes, en­tre­pre­neur­ial ac­tiv­i­ty and en­tre­pre­neur­ial as­pi­ra­tions."

She how­ev­er be­lieves that en­tre­pre­neurs should not re­ly on VC fund­ing as the lo­cal in­dus­try is near dor­mant. She said, "even if thriv­ing, not every en­tre­pre­neur should use VC even if avail­able. There must be align­ment and fit be­tween fi­nan­cial in­stru­ment and project pro­file."Even though T&T's econ­o­my is ex­pe­ri­enc­ing high liq­uid­i­ty, Mark does not see in­vestors mov­ing to­ward in­vest­ing in ven­ture cap­i­tal funds.

She said: "High liq­uid­i­ty is in­dica­tive of the ab­sence of suit­able op­tions to give high­er re­turns and as such a fund may be wel­come. How­ev­er, the struc­ture, man­age­ment and over­sight of the fund must be ac­cept­able to the tar­get­ed in­vestors." She said she does not think T&T in­vestors will put mon­ey in­to a ven­ture cap­i­tal fund based on the the­o­ry of tak­ing above-av­er­age risk and get sig­nif­i­cant or above-av­er­age re­turns.

"The re­al­i­ty is the pre­req­ui­sites for a vi­brant ven­ture cap­i­tal mar­ket must be there. An in­vest­ment in a com­pa­ny in which there is lim­it­ed op­tion to scale-up or ac­cess mar­kets be­yond TT or the re­gion will not en­tice in­vestors."Mark be­lieves that Trin­bag­o­ni­ans are brave when com­ing to tra­di­tion­al risk sit­u­a­tions, since these are what were avail­able in abun­dance.

"There are very few in­no­v­a­tive, high-val­ue projects al­though, in some quar­ters, some at­ten­tion is giv­en to this in or­der to stim­u­late na­tion­al growth. There is no or lit­tle in­cen­tive to in­vest in in­no­v­a­tive projects. If sig­nif­i­cant prof­its can be made by low-val­ue ven­tures that do not cre­ate ad­di­tion­al wealth, then that is where the funds will flow to."

Part of the prob­lem here, she be­lieved, was that "bank fi­nanc­ing is the first port of call and giv­en that their man­date is to safe­guard de­pos­i­tors funds, then projects which fall out­side the 'es­tab­lished safe zone' will not at­tract cap­i­tal from this source."So what role does gov­ern­ment play in de­vel­op­ing the VC in­dus­try?Like Julien, Mark thinks the Gov­ern­ment's main role is in pol­i­cy de­vel­op­ment.

"The Gov­ern­ment's role is to be a fa­cil­i­ta­tor, pro­vid­ing mea­sures for the en­abling en­vi­ron­ment and mak­ing it eas­i­er for new and ex­ist­ing en­tre­pre­neurs to con­duct busi­ness. This must be re­flect­ed in pol­i­cy ini­tia­tives to dri­ve the in­no­v­a­tive ca­pac­i­ty of cit­i­zens and to al­low busi­ness­es to grow and ac­cess their mar­ket po­ten­tial. Leg­is­la­tion and un­nec­es­sary re­port­ing re­quire­ments are not the an­swer to en­tre­pre­neur­ial ac­tiv­i­ty."

With re­port­ing by Kwame Joseph