# **<u>Box 1:  VCTF Program</u>**<sup>**29**</sup>

|<br><br>|Objective:“To provide financial resources for the development and promotion of venture capital finance<br>for Small and Medium Enterprises (SMEs) in priority sectors of the economy as shall be specified from<br>time to time.” These priority sectors were to be recognized according to the government development plan<br>outlined by the National Development Planning commission every year.<br>Structure of VCTF:Cedi 17.5 million (US$17.5 million) of the initial capital was allocated towards capital<br>infusion into venture capital funds; and cedi 2 million (US$2 million) was to set up a technical assistance<br>fund, provided as grants to allow investee companies to get expertise in areas such as corporate governance<br>or financial management.<sup>30</sup>VCTF was exempt from paying any form of tax.<br>Investors:VCTF formed co-investor relationships with a number of financial institutions. From the public<br>sector co-investors were Ghana Commercial Bank (GCB), National Investment Bank (NIB), Agricultural<br>Development Bank (ADB),<sup>31</sup>State Insurance Company (SIC), and the Social Security and National<br>Insurance Trust (SSNIT).<sup>32</sup>From the private sector the co-investors were Fidelity Bank, Gold Coast<br>Securities Ltd, and Ghana Union Insurance (GUA).<sup>33</sup>The financial contributions of these institutions were<br>matched by VCTF contributions. In addition, these financial institutions were provided tax incentives<br>towards their investments.|
|---|---|
||Investee Funds:VCTF could invest in 10-year life Venture Capital Finance Companies (VCFCs) set up<br>under the Companies Code, 1963, with the sole business of investing in SMEs through equity and quasi<br>equity investments and providing capacity building to these investee SMEs. According to the VCTF Act,<br>the VCFCs must have a fund manager licensed as an investment adviser by the SEC under the Securities<br>Industry Law 1993 (PNDCL 1993). The minimum equity capital for a participating VCFC was US 1.5mn,<br>although in actuality not all the fund managers provided this minimum equity capital.<sup>34</sup>|
||<br>Investments/ SME definition.The investee funds were required to invest in a balance of companies across<br>the seed, start up and expansion stages. The VCTF Act 2004 defined SMEs as “an industry, project,<br>undertaking or economic activity which employs not more than 100 persons and whose total asset base,<br>excluding land and building, does not exceed the cedi equivalent of $1 million in value.” In general, the<br>VCFC could not invest more than US$500,000 in any one investee company without the Board’s<br>permission. All VCTF funds had to be onshore and invest in Ghana, with the exception of Fidelity which<br>was allowed to invest outside.|
||Governance:VCTF had a 9 member trustee board, appointed by the President of Ghana, which included<br>a representative from the Ministry of Finance, and representatives from Ghana Bankers Association, and<br>the Insurance Association. As part of its mandate, the VCTF was required to form the secretariat of the<br>Steering board, and convene quarterly meetings. In its role as representing the Government of Ghana as<br>an investor, the VCTF supervised the VC Fund manager’s reports and evaluated the funds in its portfolio.<br>While the Board of VCTF was not expected to have a role in investment decisions of the investee funds,<br>the Board could refuse investments deemed to be too risky (as stated in the VCTF guidelines of 2006).|
||Fee structure:Typically, management fees started at 4%, then reduced to 2 - 2.5 percent and then further<br>to 1 percent. Carry was 20 percent and the hurdle rate 8 percent.|
||Draw down of capital.VCTF funds to VCFCs were in the form of loans with an interest rate equal to 50<br>percent of the Bank of Ghana Prime Rate.|

The VCTF made headway in achieving its objectives in a number of ways _._ Since its establishment, VCTF invested US$17 million in 5 funds (see below), which in turn invested in roughly 50 portfolio companies ( _see Table 2 below_ ). In doing so, VCTF kick started a domestic venture capital fund industry in Ghana.

> 29 Drawn from interviews and Venture Capital Trust Fund: Guidelines and Applications, February 28, 2006; and Venture Capital Trust Fund Act, 2004.

> 30 For example, the TA Fund was used to get accounting software for Blackstar Advisors.

> 31 Government owned DFI and commercial bank.

> 32 SSNIT is the state agency which administers Ghana’s national pension scheme.  SSNIT operates the mandatory first-tier of the 3-tier pension scheme.

> 33 A private insurer.

> 34 For example, Activity and Bedrock fund managers did not provide management commitment into the fund.  SIC was the fund manager for Bedrock and was also an investor into the fund, and therefore did not want to duplicate their investment.

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