the caribbean diaspora: a source for venture investment?€¦ · there are numerous seed stage...

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The Caribbean Diaspora: A source for venture investment?

June 2013

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Authors: This note has been authored by Qahir Dhanani and Mina J. Lee. The content is based on a study conducted by the authors from March to June 2013. The note was prepared as part of the Entrepreneurship Program for Innovation in the Caribbean (EPIC). EPIC is a 7-year program funded by the Government of Canada and implemented by infoDev, a unit focused on Innovation, Technology and Entrepreneurship within the World Bank. To learn more about EPIC, please visit: http://www.infodev.org/

The Caribbean Knowledge Series is an occasional series that presents World Bank knowledge in an accessible format. It is meant to assist knowledge sharing across the region and trigger policy dialogue on topics relevant for the Caribbean.

This note was prepared to support the participatory policy dialogue in the context of the Caribbean Growth Forum (CGF). The CGF is an initiative facilitated by the Compete Caribbean Program, the Inter-American Development Bank, the World Bank and the Caribbean Development Bank, with the support of the Canadian International Development Agency, the United Kingdom’s Agency for International Development, CARICOM Secretariat, the University of the West Indies, the European Union and Caribbean Export. It aims to facilitate a multi-stakeholder dialogue to identify practical solutions for the growth challenge in the Caribbean. To learn more about the CGF methodology and progress in each Caribbean country visit: http://caribgrowth.competecaribbean.org/

Disclaimer: This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Visit the entire “Caribbean Knowledge Series” collection at: http://worldbank.org/lac

Design & Concept by Room Grupo Creativo | www.room.com.doCover Photo: iStockPhoto

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17%

12%

7%

7%

57%

0 10 20 30 40 50 60

New York/ New Jersey

London

% of respondents

Current residence

Other

Miami

Toronto

(n=635)

The Caribbean region is unique for many reasons. Perhaps most striking among these is the demographic fact that for every resident in the region there is an individual living in the diaspora abroad. This one-to-one ratio of nationals to diaspora members presents a tremendous opportunity for cross-border engagement among a people who share common cultures and histories.

As part of the Entrepreneurship Program for Innovation in the Caribbean (EPIC), infoDev and the World Bank conducted a study to assess the business and investment interests of the diaspora. EPIC aims to support high-potential, growth-oriented early stage companies for the purposes of job creation and economic development. These enterprises require an ecosystem of resources from mentorship to networks to financing. While there are numerous seed stage financing models available, the Program is focused on leveraging business angel investors1 from the diaspora who can bring mentorship-based-capital to address the financing gap which entrepreneurs face. The goal of the study is therefore to inform the development of an early stage innovation financing facility targeted at connecting diaspora investors with startup entrepreneurs.

Engaging over 850 self-identified members of the Caribbean diaspora, the study brings together knowledge and data gathered from 634 respondents, with over 31 countries of origin, to a widely circulated online survey2, inputs from over 200 face-to-face focus group sessions with business leaders, opinion leaders, and high net-worth individuals, and insights from individual interviews with 20 accredited angel investors.

This note provides a brief summary of the findings from the study focusing on three questions of particular interest. First, what is the profile of the diaspora? Second, how willing are they to engage with the Caribbean? And third, what is their financial

multitude of cities (See Figure 1). Respondents are normally distributed by age and balanced by gender.

In general, the diaspora is very well educated with 80 percent holding a bachelor’s degree or higher (See Figure 2). Over 65 percent of the respondents are currently employed in the private sector with almost 40 percent owning their own businesses. A quarter of diaspora respondents are affluent with either net investable wealth or annual incomes in excess of USD 100,000 (See Figure 3). This income is held primarily in cash savings, real estate

1 Angel investors are affluent individuals who invest their own capital and time directly into unquoted companies, in which he/she has no family connection, in return for ownership equity.2 The structured 40-question online survey was distributed through various diaspora organizations and through social media channels. It was open for a period of 6 weeks. Respondents therefore formed a random sample of diaspora members claiming affiliation with the following 31 countries or territories: Antigua and Barbuda, Aruba, Anguilla, The Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Colombia, Cuba, Curaçao, Dominica, Dominican Republic, Grenada, Guadeloupe and dependencies, Guyana, Haiti, Honduras, Jamaica, Martinique, Montserrat, Puerto Rico, Saint Barthélemy, Saint Kitts and Nevis, Saint Lucia, Saint Martin, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands.

ability to make investments in high-potential, growth-oriented startups in the Caribbean?

Profile of the diaspora

Diaspora members from each country in the Caribbean participated in the study. Half of the diaspora respondents are based in the four metropolises of London, New York, Toronto and Miami, with the remaining spread out over a

The Caribbean Diaspora: A source for venture investment?

Figure 1: Respondents from Four Major Diaspora Centers

Source: infoDev Caribbean Diaspora Survey, April-May 2013

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are of critical importance in making informed investments back home. They tend to have a level of investment sophistication and business acumen that promotes best practices among investees, demands accountability and results, and can have a major contribution to the development of Caribbean economies.

Engagement back home

Over 85 percent of diaspora members give back to the Caribbean in some way, shape, or form. While the majority send remittances, make donations, buy property or invest in a venture, many others are involved as volunteers or mentors (See Figure 4).

A large number of diaspora members are active in their high-school alumni associations, a source of deep affiliation and nostalgia. Visiting family and friends in the Caribbean is another key source of engagement, where almost 60 percent of diaspora make the trip home at least once a year and 24 percent travel home more than twice a year. Against a backdrop of already significant engagement

Figure 2: 80% of diaspora with higher education degrees

Figure 3: A quarter are affluent



back home, when asked whether they would like to be “more connected” to their home country, 90 percent of the diaspora responded positively. This demonstrates a very strong, but latent opportunity for increasing the level of engagement from the diaspora in a meaningful way.

However, there are a number of constraints to increased engagement cited by diaspora (See Figure 5). These range from weak legal frameworks, macroeconomic and political stability, and crime, among others. Addressing these sources of dissuasion should be a priority going forward.

holdings, or public equity. A small proportion of respondents (only 8 percent) identified themselves as “accredited investors,” namely having either an annual income of over USD 200,000 during the past two years or at least USD 1 million in investible assets. These affluent and accredited individuals

11%

41%

28%

12%

3%

1%

6%

0 10 20 30 40

% of respondents

Highest level of educa;on completed

Other cer;fica;on

Less than High school

High school diploma

Community college

Bachelors

Masters

PhD

(n=353)

75%

14%

8%

3%

0 50 100

% of respondents

What is your net investable wealth?

Above USD 1Mn

USD 250K -‐ 1Mn

USD 100K -‐ 250K

Below USD $100K

(n=320)

32%

42%

21%

5%

100 0 50

% of respondents

What is your annual income?

More than USD 200K

USD 100-‐200K

USD 50-‐100K

Less than USD 50K

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Figure 4: 84% of diaspora respondents are engaged with the Caribbean community


For some of these reasons, many focus group participants expressed apprehension at the notion of investing in diaspora bonds, which anonymize their contributions and provide limited visibility on the use of funds. Instead, they much favored opportunities to not only “touch and feel” the investments being made, but to have an active role – preferring to give directly to family and friends, alma maters, and organizations whom they know and trust personally.

Not surprising therefore, is the high level of interest the diaspora expressed in serving as mentors, which require a person-to-person connection (85 percent noted a desire to mentor their compatriots).

Investment and financial interests

While mentorship is a very meaningful resource that the diaspora can provide, the most impactful contributions are through their investments in business ventures back home. In fact, 40 percent of diaspora respondents have already invested in a business venture, broadly defined as any company in its early stages.

Of these investments, 57 percent were ventures based in the Caribbean (See Figure 6). This means that 23 percent of all diaspora members have made investments in new ventures within the Caribbean region. This is a remarkable finding as it provides clear evidence that diaspora dollars are already flowing to new ventures in the region and that these come from relatively sophisticated investors.

A closer look at accredited investors shows significant differences in the ability and risk appetite of the diaspora community. Looking at historical behavior, 26 percent of accredited investors, compared to 13 percent of all investors from the diaspora, have made investments of USD 100,000 or more in new business ventures, further demonstrating the quality and desirability of opportunities available in the region. Looking forward, 40 percent of accredited investors as compared to 14 percent of all diaspora investors are willing to invest over USD 100,000 each year for a five year period in startups and high-potential, growth-oriented startups in the Caribbean.

48%

40%

33%

32%

22%

18%

14%

13%

8%

16%

0 10 20 30 40 50

% of respondents

In what ways do you engage with the Caribbean community "back home"? Check all that apply

Not engaged

Invest in stock market

Invest in companies

Work for Caribbean enFty

Donate Money to Alma Mater

Invest in property

Donate money to ChariFes

Mentor

Volunteer

Send Money to Family and Friends

(n=444)

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Figure 5: Social instability and weak legal frameworks cited as largest barriers to increased engagement

Figure 6: Diaspora are already investing in startups, many of which are based in the Caribbean


Source: infoDev Caribbean Diaspora Survey, April-May 2013. Excludes respondents from Jamaica, Haiti, Cuba, Dominican Republic and Puerto Rico, Honduras, and Colombia; Including Jamaica represented 65% of respondents which would have increased social instability (crime) as the major barrier by 10%

40%

69%

60%

31%

0 20 40 60 80

% of respondents

Have you previously invested in a start-‐up or early stage company?

Accredited Investors

No

No


Yes

Yes

(Accredited Investors n=26)

57%

39%

50%

67%

0 20 40 60 80

% of respondents

Where was the start-‐up based? (Select all that apply)


Others

Others

Accredited Investors Caribbean

Caribbean

(All n=435) (Accredited Investors n=18)

(All n=176)

32%

31%

30%

24%

20%

7%

4%

2%

25%

0 10 20 30 40

Too geographically distant

% of respondents

Not applic. -‐ already involved fully

No friends there

Do not feel a connec:on to the Caribbean

No family there

Not ready to get involved now, but would like to later

Macroeconomic instability

Weak legal framework enforcement

Social instability (crime)

(n=444)

What prevents you from geFng more involved in the Caribbean? (Check all that apply)

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Figure 7: Diaspora investors take a regional view and are not biased to their country of origin

These findings are also perplexing as practically all focus group and interview participants noted awareness of deals as a critical missing link in their attempts to make an investment, suggesting that a platform that showcases interesting business venture opportunities could serve as a critical match-maker for increased investment flows.

At present, these matches are made almost entirely through friends and family (86 percent of investors learned about their investment opportunity through this source); however, such matches limit the diaspora to a narrow universe of potential deals.

This is in stark contrast to the actual desires of the diaspora investor community, who take a regional view for their portfolios. When asked about the countries in which they are interested in making investments, diaspora investors always listed more than one country, providing further evidence that they are seeking to make deals in multiple destinations beyond their country of primary affiliation (See Figure 7).

65%

21% 10% 7%

24% 15% 11% 11% 7%

15% 6%

13% 8% 9% 6% 7% 5%

80

60

40

20

0 0

80

60

40

20

Country of affilia.on (n=635)

Suriname

1%

DR

1%

Belize

2%

Cayman

2%

Country interested to invest in (n=385)

3%

Bahamas

4%

St. KiCs & Nevis

3%

St. Lucia

4%

Dominica

3%

Hai.

3%

Grenada

4%

Guyana Barbados T&T

34%

Jamaica

62%

An.gua &

Barbuda

% affiliated with country % interested in inves.ng in country

Respondents by country of affiliation vs. country they are interested in investing

% Int./ % Affil. 0.9 1.6 2.4 2.1 2.8 3.7 2.3 3.8 2.1 3.3 2.7 4.5 3.8 4.9 3.8

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Figure 8: Investors interested in a variety of sectors

Historically, diaspora investments in startups have been in a number of sectors ranging from entertainment and the arts to consulting and retail to real estate and manufacturing. These interests are also shifting with the times. Looking forward, sectors such as green energy, mobile applications, education and agribusiness are most attractive among diaspora investors (See Figure 8). In the

case of green energy and technology, future investment interest is forty times greater than actual investment history. A need for business incubation services that target entrepreneurs in the green energy and mobile applications sectors is therefore important in meeting the demand and interests of diaspora investors.

Sectors diaspora are interested in Sectors diaspora have invested in

(n=400) (n=88)

2% 1% 1%

0 10 20 30 40

Culture and arts 14% F&B and tobacco 15%

Agriculture 17% Business consul?ng 18%

Entertain., leisure, music 19%

% of respondents

What sectors were the Caribbean start-‐ups (that you funded) in? (Check all that apply)

Venture capital Green energy & tech

Private equity Mobile plaMorms, internet 9%

Marke?ng, PR 10% Manufacturing 10%

Healthc., fitness, pharma 10% Real estate 13%

Retail, wholesale 13% Educa?on 14%

0 10 20 30 40

30% Marke?ng, PR 11% Manufacturing 16%

Healthc, fitness, pharma 27% Real estate 33%

Retail, wholesale 12% Educa?on 37%

Culture and arts 29% F&B and tobacco 29%

Agriculture 41% Business consul?ng 15%

Entertain., leisure, music 32%

% of respondents

What sectors are most aGracHve to invest in? Check all that apply)

Venture capital 7% Green energy & tech 40%

Private equity 7% Mobile plaMorms, internet 3.3x

40x

2.4x

2.6x

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ConclusionsUndoubtedly, the Caribbean region is viewed as a destination with a great sense of opportunity and hope among the diaspora community. The survey has shed light on the Caribbean diaspora’s characteristics and investment interests. The diaspora is a sizeable, well educated, and affluent demographic population whose large majority is interested in engaging even more back home. There is investment interest towards both specific Caribbean countries and sectors. This willingness and ability to engage represents a significant untapped potential for Caribbean nations through

reducing the barriers to and improving the avenues for engagement. The diaspora can indeed play an important role in the Caribbean region’s development story – but it will require leadership to lower barriers to engagement, facilitate structured opportunities and increase information transparency.

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