The VCTF’s drive to create a self sustaining venture capital industry

Ghana’s Venture Capital Trust Fund has gone beyond its own equity financing of early stage SMEs – in collaboration with private investors – to engage in several key initiatives aimed at creating a self-sustaining, private sector led venture capital and private equity industry. TOMA IMIRHE examines what it is doing and how its efforts will impact corporate Ghana. 

The Venture Capital Trust Fund has mobilized some GHc278.277 million which is currently invested in start up and early stage small and medium sized companies which have illustrated clear commercial viability and the managerial capacity to fulfill their economic potentials.

Importantly, this specialized state-owned financial  institution has succeeded in mobilizing five times as much from commercial financing institutions and fund management firms as it has put up itself.

This is crucially important because the financing that the VCTF has mobilized is equity capital, rather than debt and this is critical in an economy where debt is the preferred mode of business financing for entrepreneurs but the debt tends to be too expensive and short tenured to support economic viability.

Instructively the Ghana Stock Exchange has not attracted nearly as many equity capital seeking companies as was anticipated over its nearly three and a half decade history and the Ghana Alternative Exchange GAX, which was established specifically for SMEs that do not qualify for listing on the GSE itself, has attracted more long term debt issuing companies than equity seeking ones.

This means that the VCTF has effectively opened a new door for SMEs with regards to relatively cheap and long tenured financing which vastly improves their chances of growth and sustained commercial viability – one which has the potential to bring about a paradigm shift for the better in how corporate Ghana approaches the issue of business financing.

Most importantly though the VCTF is acutely aware that for corporate Ghana to benefit fully from its cutting edge activities it needs to nurture a vibrant venture capital and private equity industry which ultimately will no longer need the industry development role played by the state through the VCTF itself.

This it is doing with similarly exemplary skill and commitment to that with which it is partnering commercial fund managers to provide the equity capital that is propelling lots of early stage SMEs on a fast tracked trajectory of growth and sustainable profitability. . .

“The objectives of VCTF’s advocacy efforts are to expand and deepen the venture capital and private equity (VC/PE) industry in Ghana” asserts Percival Ofori Ampomah, the institution’s General Manager. “VCTF has played an instrumental role in developing the VC/PE ecosystem through various interventions:”

Indeed one of these is the: establishment of the Ghana Angel Investor Network (GAIN) in 2011 to promote angel investing as an alternative financing source for startups. This has mobilized astute relatively high network investors who can recognize an outstanding equity investment opportunity in an early stage SME by formally organizing high-net-worth individuals to invest in and mentor entrepreneurs.

Instructively GAIN is the first angel investor network in Ghana and aims to promote angel investing as a source of early-stage financing for startups. VCTF’s role in creating and supporting GAIN has been crucial in catalyzing the angel investing landscape in the country.

Another is the VCTF’s pivotal technical and financial support for the creation of the Ghana Alternative Exchange (GAX) to facilitate SME listings and access to capital, both equity and debt, by companies that are not large enough or old enough to list on the GSE itself.

Then there is the VCTF’s hosting of industry events that have attracted more venture capital and private equity firms to Ghana. Add to this the state institution’s helping establish other industry institutions like the Ghana Venture Capital and Private Equity Association (GVCA), Impact Investing Ghana (IIGH) – which currently manages GAIN – and the GIMPA Center for Impact Investing (GCII); all of which are serving as platforms for the industry to collaborate, network and expand its capacities.

The biggest and most important of these industry groupings is the Ghana Venture Capital and Private Equity Association (GVCA) which was established with the support of VCTF.  GVCA is an industry association that brings together Venture Capital and Private Equity fund managers, investors, and other stakeholders in the ecosystem. Its objectives are to promote the development of the industry, advocate for favorable policies, and facilitate knowledge sharing and networking.

Confirms Percival Ampomah: “VCTF played a catalytic role in the creation of GVCA by being the key sponsor and continues to be involved in its management and activities, leveraging the association as a platform to drive its advocacy agenda.”..

He enthuses that these efforts have placed Ghana on the Venture Capital and Private Equity map in Africa and laid the groundwork for a more vibrant and structured industry. “Going forward, VCTF aims to continue playing a catalytic role in further developing the ecosystem through policy advocacy, capacity building, and facilitating more private capital mobilization.” he assures.

Another key intervention being made by the VCTF towards developing a self-sustaining, private sector led venture capital and private equity industry in Ghana is its efforts in support of the drafting and subsequent passage into law of a Limited Liability Partnership Act.

“VCTF is providing technical inputs towards the development of a Limited Liability Partnership (LLP) Act in Ghana” reveals Percival Ampomah. “This legislation is expected to strengthen the regulatory environment for Venture Capital and Private Equity activities by establishing a dedicated legal framework for these investment vehicles.”

Indeed, equity fund managers and investors alike agree that the impending LLP Act will help address current challenges around taxation, asset class categorization, and the requirement for all Venture Capital funds receiving tax breaks to be legally registered in Ghana.

“VCTF’s involvement in shaping this Act is crucial, as it will create a more enabling environment for the growth of the VC/PE industry” asserts Percival Ampomah.

At the same time the VCTF is actively and concertedly engaged in strategic efforts to raise awareness about venture capital and private equity as alternative financing options, targeting both potential investors, entrepreneurs and SMES. It is doing this by organizing workshops, SME round table discussions, conferences, media campaigns, and other outreach initiatives to educate key stakeholders and generate greater interest and participation in the Venture Capital and Private Equity ecosystem.

Crucially, the VCTF is relying on partnerships and collaborations with other stakeholder institutions to install a vibrant, self – sustaining venture capital and private equity industry for the benefit of corporate Ghana and the wider economy.

“In a broader context, VCTF collaborates with relevant government agencies, industry associations, and development partners to drive its advocacy agenda and mobilize resources for the VC/PE ecosystem” explains Percival Ampomah “This includes policy support, funding, and joint initiatives to promote the industry and attract more investors and entrepreneurs”

Ultimately the VCTF’s efforts are bearing palpable fruit. The venture capital and private equity industry is quietly but rapidly growing as exemplified not only by the sharp growth in local capacity and activity but the expanding presence of and investments.by major international private equity funds in Ghana as well.

 

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