Big room for equity financing – expert

 

By Basiru ADAM

The CEO of Bridge Capital, a fund management firm, Mr. Anthony Siaw, has said there is a big opportunity for equity financing – money lent in exchange for ownership in a company – in Ghana if fund managers make a compelling case for it and convince businesspeople about its benefits.

He said the fact that the Venture Capital Trust Fund has “within a short period of time” invested in about 46 SMEs indicates that there is “a big room” for equity financing.

“The problem I see has been that our investment fund managers have probably not been able to convince entrepreneurs that it brings additional value when they invest in equity.”

All over the world, he said, entrepreneurs have a common trait: they do not want to share equity, and would only allow others to buy into their businesses when they are given a compelling reason for it.

“Every entrepreneur from around the world does not want to share equity, but as soon as you provide a compelling case of how you can drive that business from point A to point B within the shortest possible time and add the most value to that business, that entrepreneur who thinks like a businessman will see the reason why they should share equity with you,” Mr. Siaw, a former Head of Fund Investments at the Venture Capital Trust Fund, told the B&FT.

Owners of small and medium-scale enterprises (SMEs) in Ghana have often been accused of being selfish and not wanting to share with others in order to grow. The fact that a lot of SMEs in the country tend to struggle has been blamed partly on this attitude.

Mr. Siaw, who left the Venture Capital Trust Fund to run Bridge Capital as Managing Partner and CEO, argues, however, that a better case has to be made for equity in Ghana, a task his new outfit has set itself.

Government in 2004 established the Venture Capital Trust Fund (VCTF, Trust Fund) under Act 680 to provide credit and equity financing to eligible Venture Capital Finance Companies (VCFCs) to support SMEs.

An SME is defined under the VCTF Act as a business whose total asset base, excluding land and building, does not exceed the cedi equivalent of US$1 million.

Data from the fund indicate that since its establishment, VCTF has leveraged its seed funding of GH¢22.4 million to create additional GH¢40.2 million from the private sector in a public-private partnership.

VCTF’s funds have a total of GH¢62.6 million to be invested in the SME sector and the Trust has financed 3,500 farmers directly each year for three years running. It has created 2,500 direct jobs and 4,500 indirect jobs.

But the entity has come to exhausting the first round of funds that government gave it and Mr. Siaw believes that the new Mahama administration needs to “re-augment” the fund for the gains that have been made to be scaled up.  

“Once the Venture Capital Fund is given more money by the government, fund managers like myself will be able to raise money from them and then on the back of that funding go outside and raise more money for SMEs in Ghana.

“When you go outside and you want to raise money, the first question they ask is how much local capital you have. So it becomes very difficult when you don’t have local capital as part of your funds,” he said.

 

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