INDUSTRIAL DEVELOPMENT FUND (FDI-HAITI)
Venture capital

 

What is Venture Capital?

 

Venture capital is a risk capital invested in enterprises undertaking a creation, an expansion, or a modernization project, in return for an equity position in those enterprises.

 

Are there limitations regarding the shareholders’ structure?

 

Sure there are. For FDI to take an equity interest in a company, no individual or group shall hold more than 20% of the common shares.

 

What is the maximum percentage of shares FDI can hold in a company?

 

FDI can only hold a minority interest in a company. As a venture capitalist, its initial investment cannot exceed 20% of the total shareholders equity or the equivalent of USD 300,000.

 

Is there a time limit for FDI to hold an equity interest in a company, and what will happen at the expiration of that time limit?

 

FDI cannot maintain its participation in the capital of a company for more than 5 years.

At the expiration of these 5 years, in accordance with the participation agreement, the issuing company is obliged to redeem the FDI’s shares, with the aim of reselling them, in priority, to the founder shareholders.  

 

What if the issuing company is short of financial resources to redeem the FDI’s shares? 

 

FDI, in the case, can grant a loan to the company, in order to redeem the FDI’s shares. In other terms, FDI’s shares will be converted into amortizable debt.

 

In a context of absence of a secondary market in Haiti, how is the value of FDI’s shares determined on the redemption date? 

 

On the redemption date, FDI’s shares price will be calculated according to an internal model, taking into account: 

  • The purchase price of the shares
  • The dividends received by FDI from the investment enterprise from the issue to the redemption date.
  • The average market interest rates on loans
  • The inflation rate
  • FDI’s opportunity cost of capital - as indicated in the contract.

What are the advantages of « Venture Capital » for the involved parties?

 

The advantages of « Venture Capital » are summarized below:

 

    a) For FDI

  •  Possibility to better fulfill its mission consisting in creating new businesses, by circumventing obstacles erected in the way of young undercapitalized creative entrepreneurs
  • Possibility to share not only the losses, but also the profits of the company- As opposed to the traditional FDI’s Credit Guarantee, whereby FDI intervenes only where there is loss to be shared. In other terms, Venture Capital enables a better risk-return trade-off.  

   b) For the Financial Intermediary

  • Possibility to take advantage from the opportunities offered by the strengthening of the borrowing capacity of the company, stemming from the capital equity brought by FDI.

    c) For the issuing company

  • The issuing company is offered the opportunities to share the burden of the financial risk with FDI, acting as a venture capitalist.
  • The issuing company is endowed with a strong residual borrowing capacity. In fact, a 300,000-dollar increase in shareholder equity, through FDI’s capital risk, endows the issuing company with an additional borrowing capacity of 1 million dollars, assuming a 70% authorized endebtness limit.

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