Other Finance Options
Venture capital and Equity Financing
Access to venture capital and equity financing in Barbados is very limited. The commercial banks and the finance companies tend to be averse to this type of risk.
A few government-funded institutions and a handful of private firms have stepped in to try to fill the funding gap, but in most cases they are designed to help launch micro-enterprises, fund the incubation of new businesses, and offer some support to existing small businesses to help them expand. Most of these institutions have lending limits of between BDS$100,000 to BDS$150,000, with the exception of the Enterprise Growth Fund Limited, a government funded institution. The tenure of these loans is usually 5-10 years and some of the institutions may insist on taking an equity position depending on the size of the loan and the level of involvement they consider necessary to protect their investment.
The two major players in venture capital and equity financing in Barbados are:
- The Enterprise Growth Fund Limited
This is Government funded and provides loan financing and venture capital. There are four funds within EGFL: the Tourism Loan Fund, the Agricultural Development Fund, the Industrial and Development Fund and the Innovation Fund. Funding ranges from BDS$25,000 to BDS$4.5 million.
- Business Enterprises Ltd. (BBEL)
The Barbados Entrepreneurs Venture Capital Fund which is managed by Barbados Business Enterprises Ltd (BBEL) has been in operation since 2008 and will be officially launched in November 2009. This new entity's strateqy is to develop a family of successful entrepreneurs, with a goal of creating "One high performance enterprise after another". It focuses on existing businesses, start up businesses and new ideas with the challenge to "Reduce the Economic Divide". BBEL is in partnership with the Caribbean Business Enterprise Trust (CBET) and they have a strong relationship with the Barbados Government, the Barbados Private Sector and Foreign Direct Investment.
"A chain is only as strong as its weakest link" is the basis for the CBET Shepherding Model, using shepherding as collateral. They believe that shepherding protects against the risk of business failure and hence secures the Seed & Venture Capital Investment.
The Venture Capital Fund invests in entrepreneur's viable business and then the entrepreneur buys a business plan from BBEL and implements that plan. The venture capital Fund has a confirmed government investment of BB$1.5 million for 2009/10 and an expected private sector and foreign direct investment of BB$15-20 million by 2013/14. Some of the investor benefits of the fund include:
- Government Guarantee
- Exit Strategy (ROI)
- Enterprise Development
- Economic Growth
A legal entity with a Barbadian individual or company would first need to be formed and must be 51% Barbadian owned. Note that BBEL is not a lending agency but offers Venture Capital and would be willing to work with other financial institutions to provide one with the optimal financial mix. At the present level of Venture Capital capitalisation, BBEL's investment would be less than BB$500,000 but in the fullness of time be over BB$1million (note local currency only).
An equity share based on the financial valuation of the company at the time of the investment and the quantum of the investment is required but with a buy-back clause that would clearly be stated in the equity agreement.
With the Offer Document currently being prepared, it is likely that only ordinary shares will be offered and 100% equity financing. When the Offer Document is complete it is also expected that the rate of return will be very attractive and will be based on the selection and Shepherding of the companies which are chosen to participate in the programme.
The shepherding model prevents the need for a Board Member. If one does not agree to a shepherd (paid by the entrepreneur) then the venture capital is not provided. The shepherd is there to look after the interest of the Venture Capital Company as well as the sustainability of your company. It is a win-win situation as the process protects the company from itself. With regards to a preferred exit plan, it is proposed that the shares may be redeemed at the financial value of the company on the day and it is expected that shares will be fully redeemed in five to seven years.
- Caribbean Financial Services Corporation
A private sector initiative, CFSC has a long track record of providing loans and equity financing to small and medium-sized businesses that have the potential to earn foreign exchange and create jobs. The company sources funds from international development banks and agencies and frequently acts as a catalyst in attracting co-financing from other institutions including banks. CFSC also manages the Barbados Investment Fund, a facility set up in partnership with the Central Bank of Barbados to provide equity financing to small and medium-sized businesses in Barbados. The Barbados Investment fund funds projects between BD$ 100,000 - BD$1.0 million. CFSC also has an in house fund that provides financing ranging from US$100,000 - US$1.5 million.
Credit facilities
The Central Bank of Barbados has set up several types of credit facilities for businesses that are designed to stimulate the growth of output, employment and foreign exchange.
One such facility is the Industrial Credit Fund, which is managed by the Central Bank and funded by the World Bank and the European Investment bank. It provides medium- and long-term credit to productive enterprises mainly in the private sector.
The resources of the ICF can be used to finance fixed assets, working capital and technical assistance. However, companies wishing to access these resources must go through qualified financial intermediaries such as the banks and finance companies.
The ICF will advance up to 90% of the funds required to finance an approved project, but the full credit risk of the loan, and the responsibility to secure it properly, resides with the intermediary.
Conditions of access
Foreign investors should note that there are conditions to accessing government-sponsored venture capital and credit facilities, because they are designed to specifically to benefit local enterprises. Generally speaking, they must be majority-owned by a Barbadian or Barbadians, or demonstrate a strong ability to contribute to economic growth, employment and foreign exchange earnings.
Q&A Contact
If you have a question about any information on this page please contact: advisoryinfo@bb.pwc.com
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