AT­TEN­TION AN­GELS:

Re­port to The Caribbean

The Star (St. Lucia) - Business Week - - NEWS - BY CATHER­INE MOR­RIS, STAR BUSINESSWEEK COR­RE­SPON­DENT

As Caribbean small busi­nesses strug­gle to raise seed cap­i­tal, many look to an­gel in­vestors to bridge the gap be­tween po­ten­tial and profit.

Ev­ery suc­cess­ful busi­ness starts with a great idea. But some en­trepreneurs need help turn­ing their pas­sion into profit. An­gel in­vestors, those who pro­vide fi­nan­cial back­ing for strug­gling start-ups, can help busi­nesses by­pass tra­di­tional lend­ing routes to de­velop their po­ten­tial and be­come play­ers in the mar­ket.

Tra­di­tion­ally, this form of in­vest­ment has been un­der­utilised in the Caribbean but that’s chang­ing thanks to a new ini­tia­tive jointly ad­min­is­tered by The World Bank Group and the Caribbean Ex­port De­vel­op­ment Agency (Carib Ex­port). Th­ese two or­gan­i­sa­tions came to­gether last year to launch LINK Caribbean, a US$1.6m project funded by the gov­ern­ment of Canada to con­nect en­trepreneurs and SMEs with High Net Worth In­di­vid­u­als (HNWIs) ea­ger to share their wealth, time and ex­per­tise. Half­way into its two-year term, LINK has al­ready awarded over US$500,000 to 14 Caribbean com­pa­nies and laid the ground­work for what or­gan­is­ers term “an an­gel in­vest­ment ecosytem” in the re­gion.

SMES IN NEED

Or­gan­ised an­gel in­vest­ing is a rar­ity in the re­gion but Caribbean busi­nesses are in des­per­ate need of it. In Saint Lu­cia, as in other Caribbean na­tions, the com­mer­cial bank­ing sec­tor has con­tracted in re­cent years. In 2016 the loans to de­posit ra­tio dropped to 90.1 per cent, in com­par­i­son to 119 per cent in 2013. Risk averse banks are now less will­ing to fund start-ups and SMEs are fre­quently shut out of the mar­ket. In ad­di­tion, fi­nan­cial projects are rarely tai­lored for their needs, us­ing a one-siz­e­fits-all tem­plate that over­looks the unique chal­lenges that come with op­er­at­ing earlystage com­pa­nies and start-ups.

This makes th­ese beginner busi­nesses ide­ally suited to take on­board pri­vate in­vestors who aren’t just look­ing for a re­turn, but to see the com­pany suc­ceed. The ben­e­fits to us­ing an­gel in­vestors go beyond the fi­nan­cial. Th­ese in­vestors not only of­fer fund­ing but also their ex­per­tise, ex­pe­ri­ence and con­tacts. They pro­vide valu­able men­tor­ship to fledg­ling busi­nesses who may not be fully aware of the pit­falls and op­por­tu­ni­ties that come with a new ven­ture. An­gels are mo­ti­vated not just by bal­ance sheets but by the chance to in­vest in their com­mu­ni­ties.

“The term ‘an­gels’ aptly de­scribes th­ese guys,” says Christo­pher McNair, Man­ager of Com­pet­i­tive­ness and In­no­va­tion at Carib Ex­port. “They give up their time, their net­work and their ex­per­tise. They are re­ally giv­ing up much of them­selves. At the very core of what they are do­ing is giv­ing back.”

PERFECTING THE PITCH

Across the Caribbean, a num­ber of HNWIs are sign­ing up to be­come an­gels. The LINK project is sup­port­ing the de­vel­op­ment of a Re­gional An­gel In­vest­ment Net­work (RAIN), hop­ing that it will draw ex­ist­ing an­gel groups and new an­gels to­gether to pool their re­sources, di­ver­sify their risk and find suit­able ben­e­fi­cia­ries. “It is hard for an­gel groups to sus­tain them­selves by just op­er­at­ing lo­cally,” says Aun Rah­man, Head of In­foDev at the World Bank Group’s Ac­cess to Fi­nance pro­gramme. “It is good to build a re­gional per­spec­tive by build­ing this in­fra­struc­ture that brings them un­der one um­brella.”

Ac­cord­ing to Rah­man, an or­gan­ised pro­gramme such as RAIN can help over­come one of the most com­mon ob­sta­cles to an­gel in­vest­ing - lack of trust. “An­gel in­vest­ing is ex­tremely new to the Caribbean and the rea­son why it did not start be­fore comes down to trust be­tween en­trepreneurs and in­vestors, and whether in­vestors felt com­fort­able in­vest­ing with strangers,” he says. “There is value in or­gan­ised net­works that they will trust.”

There are cur­rently five ac­tive an­gel in­vest­ment groups in LINK’s net­work and RAIN had its first of­fi­cial meet­ing in May. Early stage com­pa­nies can get their ideas in front of th­ese po­ten­tial in­vestors through LINK’s on­line plat­form. If the idea is ap­proved by Carib Ex­port, it is sent to ev­ery an­gel in the sys­tem and the in­vestors take it from there. The av­er­age in­vest­ment is around US$150,000 but can go as high as US$500,000.

But SMEs shouldn’t as­sume it’s an easy sell. They have to be at the top of their game if they want to at­tract fund­ing. Part of the LINK pro­gramme is de­voted to help­ing busi­nesses be­come ‘in­vestor ready’. Since its in­cep­tion the scheme has awarded 11 In­vest­ment Readi­ness grants which help SMEs and en­trepreneurs draw up vi­able busi­ness plans so they can pitch ef­fec­tively. LINK has also awarded three Co-In­vest­ment grants whereby they in­vest along­side an­gels to re­duce their risk (th­ese grants are capped at US$100,000 each).

So what are HNWIs look­ing for? Ac­cord­ing to McNair, an­gels are drawn to ar­eas where they can share knowl­edge. “An­gels tend to like projects that are aligned with their own back­ground and ex­pe­ri­ence.” He is quick to stress, how­ever, that SMEs from all sec­tors can at­tract this type of fund­ing. Rah­man agrees, say­ing: “An­gels are sec­tor ag­nos­tic. We have had ICT busi­nesses, as well as bricks and mor­tar busi­nesses like agri­cul­tural ma­chin­ery. We’ve also had an or­ganic food com­pany. Ul­ti­mately what an­gels are look­ing for is a good growth op­por­tu­nity.”

While an­gels are pri­mar­ily in­volved to make money, they tend to have a less rigid ap­proach than for­mal lenders. “The in­vestors are look­ing for projects that have legs. It is a long-term in­vest­ment; they do not ex­pect to put their money in to­day and get a re­sult to­mor­row,” says McNair. “They are look­ing for great ideas and great peo­ple to ex­e­cute those ideas.”

For an idea to have legs, it needs to be scal­able. Caribbean in­vestors know that the best chance of gen­er­at­ing big re­turns is to tar­get in­ter­na­tional mar­kets. “In­vestors are tak­ing a tremen­dous risk so they are look­ing for projects that give them a re­turn on that risk, and those are com­pa­nies that have the abil­ity to scale,” says McNair. “So for a com­pany in Saint Lu­cia, the in­vestor will eval­u­ate that com­pany based on its abil­ity to move beyond Saint Lu­cia’s borders.”

EN­COUR­AG­ING UP­TAKE

One of the big­gest chal­lenges with an ini­tia­tive such as LINK is sim­ply get­ting the word out. McNair says LINK is par­tic­u­larly keen to reach en­trepreneurs in Saint Lu­cia and other East­ern Caribbean na­tions and is plan­ning more train­ing ses­sions in the area in early 2018.

“We are try­ing to see if we can drum up as much aware­ness as pos­si­ble [by] mak­ing a lot of noise about the project. We are re­ally push­ing for Saint Lu­cia and the East­ern Caribbean in gen­eral to be in­volved. There are a num­ber of re­ally great en­trepreneurs there with re­ally great ideas and we want to get them on­board as soon as pos­si­ble.”

Although orig­i­nally slated as a two and a half year project, LINK has the po­ten­tial to carry on in­def­i­nitely if it con­tin­ues its suc­cess. The World Bank’s in­volve­ment ends next year but it will then pass the man­tle onto Carib Ex­port, who will man­age it alone. Rah­man says: “Over the long-term, as we see more trac­tion, it is go­ing to get stronger and it will evolve. It is go­ing to be an or­ganic process.”

For McNair, the ul­ti­mate goal is to de­velop an an­gel net­work that be­comes so ac­tive and ef­fi­cient that it func­tions al­most in­de­pen­dently. He also says there is room to broaden the pool of po­ten­tial an­gels by reach­ing out in­ter­na­tion­ally. “We have a plan to see if we can get the dis­apora in­volved. Part of the rea­son we want a net­work of an­gels is that it al­lows us to put the Caribbean out there on the in­ter­na­tional scene and bring in­vestors into the re­gion.”

Given that SMEs are the lifeblood of the Caribbean econ­omy, it is vi­tal that they get the sup­port they need. “We are a small re­gion. One of the prob­lems is we do not do enough to sup­port en­trepreneurs,” says McNair. “We have to un­der­stand that in or­der for us to com­pete glob­ally, we have to in­no­vate con­stantly. We have to al­low new ideas to come to fruition, to be sup­ported. At the very core of LINK is to cre­ate the kind of ecosys­tem that sup­ports earlystage growth com­pa­nies and, by do­ing so, cre­ate an en­vi­ron­ment for sus­tain­able eco­nomic de­vel­op­ment.”

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