History of Venture Capital in Jamaica

Venture capital investments in Jamaica have generally operated through an informal mechanism.  This includes capital available through the entrepreneur’s own funds or that of friends and family.  Additionally, “angel investors” have always been active, but funding through this source has depended to a great extent on access to these investors by entrepreneurs, which is a function of their level of social capital and ability to network.
 
Formal venture capital programmes have been limited.  Apart from the Jamaica Venture Fund (JVF) which mobilized capital through a number of corporate entities and financial institutions in the early 1990s, there have been few certifications of Approved Venture Capital Companies, under Section 36 of the Income Tax Act.  The National Development Bank (NDB) which later merged to form the DBJ, was among the initial investors in the JVF,
 
The JVF which had a successful track record, primarily due to the investment in Jamaica Money Market Brokers (JMMB), but this has failed to attract more players to the industry over the past two (2) decades.
 
Other initiatives include the Caribbean Investment Fund, which was initiated in 2000, but which had returned funding to investors by 2007, having not fully drawn down on its original capital commitments, but instead, curtailing its investment activities and liquidating its portfolio within only a few years.
 
A number of reasons may be put forward for this failure to generate venture capital activity, and not least among these are the high interest rate environment in the 1990’s which persisted to early 2000’s.  This resulted in a high cost and risk premium being attached to venture capital investments, compared with more attractive alternatives such as risk free Government of Jamaica (GOJ) debt securities.  Local investors have also tended to be generally risk averse, while fund managers have lacked expertise in the venture capital asset class.  Deal flow of investible assets has been poor as a result of the low levels of economic growth and the general lack of preparedness of local entrepreneurs.
 
Private equity transactions have taken place, in sectors such as the energy sector, but most of transactions have tended to occur ‘under the radar’, by private interests or by private equity funds operating out of other jurisdictions.  Local investors, fund managers and entrepreneurs have not generally featured in these transactions.