community development venture capital funds

Date: 22/03/2008

Africans are Asset Rich & Cash Poor

VillageDirect.Org Community Development

Venture Capital Funds

Authored By:

Napoleon C. Birch Jr.


INTRODUCTION The existence of poverty is often attributed to geography, ineffective governance, economic policies, education, healthcare, poor infrastructure, the absence of a vibrant private sector, access to financing and consequently political unrest.

Poverty in developing countries has historically been addressed by charitable donations and official development aid. Microfinance has recently gain popularity as a means of helping people raise themselves out of poverty. Although these efforts are valuable in addressing the issues of poverty by helping people to survive; they fall short when it comes to making capital available for business start-ups and infrastructure projects that actually raise people out of poverty.

In the case of West Africa, financing is urgently needed for investment in agriculture and food security. Financing is also needed for infrastructure projects involving road transport, air transport and telecommunications as part of the regional integration plan for West Africa; a plan sponsored by the Economic Community of West Africa States and the World Bank. In addition, financing is needed for start-up businesses to provide support services.

Microfinance Microfinance involves local organizations called microfinance institutions making small loans of $200 or less to poor people in developing countries. These loans are to be use to establish or expand small businesses that will generate additional income for the borrower and their families. The logic is this extra income will allow a poor family to buy food, access healthcare, educate their children, put aside savings and lay the foundation for a better future. According to an article published in the Winter 2008 Wilson Quarterly by Karol Boudreaux, a senior research fellow at the Mercatus Center at George Mason University and Tyler Cowen a professor of economics at George Mason University; the achievements of microcredit, however, are not quite what they seem.


• According to Boudreaux and Cowen most microcredit banks are charging interest rates of 50 to 100 percent on an annualized basis and the loans typically must be paid off within weeks or months. This creates a dilemma in that a borrower’s business may only be growing at 20 percent a year; yet they are expected to pay interest at 100 percent a year.

• Considering most microfinance institutions prefer lending to existing businesses and often refuse to finance start-ups, Microcredit does not always lead to the creation of small businesses.

• Research by Boudreaux and Cowen showed that most microfinance institutions are financing spending and consumption more so than business start-up and growth. In India and many other places, Boudreaux and Cowen saw loans were often used for a doctor visit. The director of a Small Enterprise Foundation and local microlender in Tanzanian disclosed that 60 percent of his loans are used to send kids to school and about 40 percent are for investments. Likewise, a study conducted in Indonesia revealed 30 percent of the borrowed money was for some form of consumption.

Based on the evidence, these loans are more about survival than economic security. However, these loans are a still very good deal for poor borrowers when compared to the alternative offered by moneylenders. A typical moneylender is a single individual. They typically borrow money from their wealthier connections and make loans to individuals in need. Moneylenders typically charge 200 to 400 percent interest on an annualized basis. They operate informally, off the books, and outside the law.

Philanthropy According to Giving USA, American donors gave more than $260 billion to charitable causes in 2005. Approximately 3 percent or $7.37 billion of that total went to disaster relief. Relatively speaking, almost none of this money was allocated for economic development and job creation.

Contributions by Sub-sectors

• Religious organizations received $93.18 billion

• Educational Organizations – received $38.56 billion.


• Arts, culture and humanities organizations: $13.51 billion, a decrease of 3.4 percent from 2004 and 5.2 percent of total giving in 2005.

• Public-society benefit organizations: $14.03 billion, an increase of 8.3 percent from 2004 and 5.4 percent of total giving in 2005.

• Environment and animal organizations received $8.86 billion.

• International affairs organizations - international relief and aid received $6.39 billion.

• Unallocated contributions were $16.5 billion. This category typically includes gifts to newly formed organizations.

Contributions by Sub-sectors Chart


COMMUNITY DEVELOPMENT VENTURE CAPITAL FUNDS Community development venture capital funds provide an avenue to access capital for the development of private sector projects that do not qualify for funding through donations, official development aid, grants or microfinance. These funds are based on the principles of Community Economic Development, Social Responsible Investing and Venture Capital.

Community Economic Development is an approach to development that recognizes the interdependence, complexities, and ever changing nature of economic, environmental and social challenges faced by communities. It is based on the belief that development challenges should be addressed in a holistic and participatory way. Community Economic Development stresses the use of local knowledge and significant involvement by community members.

Socially responsible investing is an investment strategy with an objective of maximizing financial return and certain social good. Socially responsible investors have generally favored corporate practices which are environmentally responsible, support workplace diversity, and increase product safety and quality. In some cases, investors avoid businesses involved in alcohol, tobacco, gambling, weapons and other military industries, and/or abortion. It is believed that socially responsible investing dates back to the Quakers. In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the business of buying or selling humans.

Because the vast majority of companies do not meet the rigorous standards required by the public markets, they must turn to private sources of equity or debt. Venture capitalist generally invests in start-up and early stage businesses. This is the appropriate source of financing at certain stages of a company’s life. It is best suited for young companies with minimal assets and uncertain prospects.


In debt financing, a company issues bonds or interest bearing notes to investors. Investors expect competitive interest payment for this use of their money and repayment of their original investment within a fixed period. Investors will examine historical cash flow and credit history information of

the company in order to assess its ability to repay. They also require the company to pledge assets as collateral in the event of default.

Equity financing involves a company selling ownership in their enterprise to investors. The company does not need to pledge assets as collateral, make interest

payments or guarantee repayment to the investor. Investors hope the company will perform well and increase the value of their investment. The investor expects to sell and realize a profit on their initial investment. Considering the risk involved with an investment in equity, the typical investors will only invest if the potential for profit is substantially competitive with competing debt securities.

Near-equity investments are debt securities that attempt to capture some of the upside of equity. They contain certain elements common to equity investments.

• Debt with Royalties – a loan with the right to a percentage of company sales and profits.

• Debt with Warrants – a loan with the option to purchase equity at a pre-negotiated price.

• Convertible Debt – a loan that is convertible to equity.

MISSION VillageDirect.Org Community Development Venture Capital Funds aims to apply the business building power of equity and near-equity investments to poverty reduction and economic development. This will be accomplished by encouraging enterprise as the solution for sustainable development and economic empowerment. The funds will infuse investment capital and entrepreneurial expertise into the wealth of ingenuity and innovation of communities where traditional investment capital fails to flow.


VALUE SYSTEM The value system of the VillageDirect.Org Community Development Venture Capital Funds includes ethical behavior, social and ecological responsibility, intellectual honesty, team work and continuous learning; while promoting job creation, cross border trade, education, and partnerships.

THE FUNDS Business Advisory & Financial Services Fund

• This fund will provide operational assistance and invest in qualifying entities that provide businesses development, accounting, insurance, savings, investment and other finance related and supporting entities.

Real Estate & Infrastructure Fund

• This fund will provide operational assistance and invest in infrastructure projects involving raw land, roads, transportation facilities, agricultural facilities, hospitality facilities, educational facilities, medical facilities, warehouse and storage facilities, shared corporate offices, sport facilities, entertainment facilities, mixed-use residential communities, office parks and other real estate related and supporting entities.

Information and Communications Technologies Fund

• This fund will provide operational assistance and invest in making information and communications technology accessible to individuals, communities, professionals, small businesses, institutions and governments.

Franchise and Business Holding Fund

• This fund shall provide operational assistance and invest in, franchise, license, broker, represent and form partnership with manufacturing and services businesses that create jobs and satisfy un-met market


INVESTMENT PHILOSOPHY

Management

• Multiple Investment Advisors

• Experienced in identifying opportunities and creating value

• Resourceful and flexible in structuring deals

• Personal commitment to the enterprise success

Disciplined

• Patient capital

• Calculates and manages risk

• Superior return

Preservation of Capital

• Rigorous due diligence

• Thoughtful and innovative capitalization strategies

• Employ insurance & market base hedge strategies

• Asset Allocation

• Adequate capitalization and reserves

Triple Bottom Line

• Targeted and measurable social returns

• Targeted and measurable environmental returns

• Competitive Economic returns


INDUSTRY FOCUS

• Water • High Value-added Horticulture

• Floriculture

• Services

• Tourism

• Transportation

• Infrastructure Development

• Agro-Processing

• Cocoa

• Coffee

• Seafood

• Lumber

• Fruits & Vegetables

• Minerals & Metals

• Communications

• Transportation

• Education

• Warehousing & Distribution

• Healthcare

• Energy-related Products & Services

• Fisheries

• Manufacturing

• Construction

• Real Estate

• Finance


PROJECTS Projects ready for implementation in Liberia under the community development venture capital funds includes; foreign direct investment and promotions intermediary services, the rehabilitation and development of farms, and the development of supporting industries.

The first sets of projects are located in Grand Gedeh County, Liberia. The farm consists of rice, cocoa trees, palm trees, banana trees, plantain trees, sugarcane, tropical fruits, vegetables, and forestry opportunities. Grand Gedeh borders Côte d'Ivoire; where some of the most valued coffee in the world is grown. Unlike Côte d'Ivoire, the farms in Grand Gedeh have high growth tropical rain forest; considered by many to be the most favorable condition for growing coffee.

The second sets of projects are based in Sino County, Liberia. They also involve foreign direct investment and promotions intermediary services, and the development of urban land, rubber plantations, and farms with fruits, vegetables, rice, and forestry opportunities.

Sino County is home to Sapo National Park; one of the last remaining virgin rain forest in West African. Visitors to Sapo National park will catch a glimpse of pygmy hippos, forest elephants, chimpanzees, and the giant pangolin; birds such

as the turaco and hornbill; and “candle trees” with white wax-like sap. The sap of the “candle tree” will burn all night if you light it on fire.

Unfortunately, very few outsiders have been to this park. First, getting there is inconvenient and very difficult. Once there; other then the park warden’s house, there are no accommodations or facilities for visitors. There are no trails inside the park.

The park staff consists of local guides, hired so they will stop poaching the endangered park animals for food. The park warden is paid a dollar a day. Liberia’s tourism budget last year was only $3,000. Sapo National Park has the potential to become a world class tourist attraction; with, cabins on the edge of the park, small bridges over the river, marked maintained trails, rafting, water sports, picnic areas, camping grounds, guided bird walks, a lodge serving contemporary versions of local cuisine and spas for tourists tired from a long day’s hike.


The cultural history, flora and fauna of Liberia; including, white sand beaches, lagoons, rapids, and waterfalls will easily support the development of eco-tourism.

There is an abundance of wind, sun, rivers, lakes and streams nearby to support development of a reliable supply of renewable energy for these projects. In addition, there are verifiable deposits of diamond and gold on the land to serve as collateral for current and future investments. Arterial mining of diamond and gold are currently being carried out by some locals.

The discovery of Gold in California is a perfect case study of how prudent management of natural resources like precious metals can lead to large scale economic development. As a result of the discovery of Gold, San Francisco grew from a tiny hamlet of tents to a boomtown. Roads, churches, schools and other towns were built. A system of laws and a government were created. New methods of transportation developed as steamships came into regular service and railroads were built. This naturally lead to the growth of agriculture and trade on a wide scale.

What these projects need are capital for operations; technical skills to improve and expand production; the development of agricultural processing facilities; logistics and distribution facilities; roads; reliable supply of renewable energy; information and communication technologies services; water and sewer systems; storage facilities; machinery and equipment; and supporting industries. Feasibility studies needs to be conducted to determine appropriate development options and the quantity of diamond and gold deposits available to serve as collateral.

These projects lend themselves to the development of the hospitalities and mixed-use facility envisioned as part of the VillageDirect.Org offline service delivery strategy. Housing demand by expatriates will increase as infrastructures are improved and jobs are created from construction, farming and the development of industries.

Execution of these projects will create much needed jobs in a country with an 80% unemployment rate and provide above average triple bottom line return for investors.

Developers Bio

Contact Info: Napoleon C. Birch Jr.

5331 Pine Street Philadelphia, PA. 19143

Tel: 267-265-2862 SkypeName: bmemisolallc

E-mail: [email protected]

www.VillageDirect.Org

community development venture capital funds

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