Frequently Asked Questions

Please see below a list of Jamaica Venture Capital Programme (JVCP) frequently asked questions.
Check here to make sure your questions are answered before sending a general query using our contact form.

A Venture Capital ecosystem serves the purpose of bridging the financial gap for companies, especially SMEs. The main pillars of a VC ecosystem can be considered to be:
 
Investors who are interest in and understand the asset class;
Venture capital fund managers with the necessary business acumen and commitment to the effort and
Good companies interested in and ready to receive VC investments.

Venture funding is not suitable for all enterprises.  The size of the firm, business model and growth and expansion prospects may determine whether an enterprise will be attractive to a venture capitalist.  Some businesses may not be able to meet the requirements for reporting, corporate governance and having an appropriate management structure in order to meet the requirements of an equity partner.

Investors want to invest in companies with the following characteristics:

  • Potential for growth
  • A unique product
  • Well-developed business model
  • Management with proven track record

An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. Venture capitalists are willing to invest in such companies because they can earn a massive return on their investments if these companies are a success.

The establishment of venture capital funds with the attendant legal and regulatory framework would enable SMEs to obtain direct access to the capital markets and provide an exit mechanism for investors through the Junior Stock Exchange.  Successes in this area will attract new and existing investors to the industry. 

The development of Small Medium Enterprises (SMEs), touted as the primary drivers of job creation and GDP growth, has traditionally been hindered by the access to finance as they lack sufficient collateral and structure.  The development of the venture capital industry will provide the financing, in the form of long term capital, as well as the mentoring needed by SMEs to support their growth and development. 

Venture capital is a subset of the larger private equity asset class. The private equity asset class includes venture capital, buyouts, and mezzanine investment activity. Venture capital focuses on investing in private, young, fast growing companies. Buy-out and mezzanine investing focus on investing in more mature companies. Venture capitalists also invest cash for equity. Unlike buy-out professionals, venture capitalists do not use leverage in their transactions.

Venture capital is the term used. A venture capitalist places money in a company that is high risk and has a high growth. The investment is usually for a period of five to seven years. The investor will expect a return on his money either by the sale of the company or by offering to sell shares in the company to the public.
 
There are three different types of venture capital investment. Early stage financing includes seed financing, start-up financing and first stage financing. Seed financing refers to a small amount of venture capital given to an entrepreneur or inventor who wishes to start a business. It may be used to build a management team, for market research or to develop a business plan.

Venture capitalists invest in high-risk enterprises. However, venture capitalists manage that risk through portfolio risk management. It is estimated that 40 percent of venture backed companies fail; 40 percent return moderate amounts of capital; and only 20 percent or less produce high returns. It is the small percentage of high return deals that are most responsible for the venture capital industry consistently performing above the public markets.

An "angel" is a high net worth individual who invests directly into promising entrepreneurial businesses in return for stock in the companies. Many are entrepreneurs themselves, as well as corporate leaders and business professionals.

Venture capital firms are professional investors who dedicate 100% of their time to investing and building innovative companies on behalf of third party investors or their limited partners. The ‘angel’ investment community is a more informal network of investors who invest in companies for their own interests. 

Venture capitalists are professional investors who specialize in funding and building young, innovative enterprises. Venture capitalists are long-term investors who take a hands-on approach with all of their investments and actively work with entrepreneurial management teams in order to build great companies.

Most venture capital firms raise their "funds' from institutional investors, such as pension funds, insurance companies, endowments, foundations, family offices, and high net worth individuals. The investors who invest in venture capital funds are referred to as "limited partners." Venture capitalists, who manage the fund, are referred to as "general partners." The general partners have a fiduciary responsibility to their limited partners.
 
Limited partners are able tolerate the ‘higher risk’ associated with venture capital funds as they typically invest only a very small percentage of their assets in the pursuit of higher than normal returns.   As many of the institutions manage large pools of capital, even a small percentage allocated to the venture capital markets, creates a relatively significant impact.

Venture capitalists are long-term investors, who take a very active role in their portfolio companies, but are also open to short term opportunities for realizing returns on their investments. When a venture capitalist makes an investment he/she may expect to realize returns on the portfolio investments over a period of 7-10 years, on average. The initial investment may just be the beginning of a long relationship between the venture capitalist and entrepreneur. Venture capitalists provide great value by providing capital and management expertise. Venture capitalists often are invaluable in building strong management teams, managing rapid growth and facilitating strategic partnerships.  Should there be opportunities for liquidating the investments due to market conditions and the performance of the portfolio company, a venture capitalist will seek to do so, sometimes well within the first few years of making the investment. 

You will need to put together a business plan, and you must take advice on doing it. At the very least you will have to provide:

  • an explanation of who you are (including your age, qualifications, background, etc)
  • an explanation of what your business does and where you plan to take it
  • sales and profits figures as far back as you can go
  • a balance sheet showing assets and liabilities
  • a detailed three year sales and profits projection
  • a detailed cash flow projection over the same three year period
  • an idea of what you expect to do in the following two years
  • details of your management team (if any) 

Business plans, particularly those designed for investment institutions, are becoming sophisticated documents. Be prepared to spend time and detail on yours. This is your selling document, and you may only get one chance at presenting it. Venture capitalists are swamped with applications for money, most of them incomplete or inadequate, and it is very unlikely that they will be willing to look at yours a second time.

The companies that venture capitalists invest in are private enterprises. Typically, the venture capitalist realizes a return on their investment when the company goes public (IPO) or is merged or purchased by another company (M&A), or the share re-purchased by the original entrepreneur.

Mentors will play a critical role in JVCP.  Mentors by nature are able to solve venture problems, and take action consistent with mentorship agreement requirements. They are inspirational to others around, empathetic, and good listeners. Mentors are very well organized, stick to plans, and meet deadlines. They have no problem taking the initiative and making important business decisions. They are comfortable with working independently, but also like to take on the mentoring role. Mentors make invaluable contributions to new ventures by helping with capital, contacts, technology, as well as providing knowledge based advice specific to new ventures.

An investment fund that manages money from investors seeking private equity stakes in startup and small- and medium-size enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities.

Presently the Development Bank of Jamaica has been mandated to develop Jamaica’s Venture Capital Programme.  Additional Information can be obtained by calling the DBJ’s telephone switchboard at 929-4000 or sending your queries to arichards@dbankjm.com