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June 19 2014

[World Bank] Enhancing Access to Finance for Technology Entrepreneurs

5Desire supported Pennam Partners to do a research for infoDev (World Bank) about Enhancing Access to Finance for Technology Entrepreneurs. The original article is here.

infoDev debuts a new study on the state of financing for highly innovative, high growth start-ups (HI start-ups)  in Vietnam, Cambodia and Nepal. The study provides a critical knowledgebase on the landscape in financing in these countries, details major gaps and associated barriers faced by these enterprises in accessing finance and offers recommendations to reduce the associated impediments.

The study assesses both demand and supply side barriers including high transaction costs and collateral, high levels of credit risk, lack of start-up expertise and dedicated finance products tailored for these start-ups and low levels of financial literacy of the enterprises. The report also examines the legal and regulatory frameworks associated with the start-up sector in these countries.

Findings and recommendations from the analyses were based on fieldwork undertaken in Vietnam, Cambodia and Nepal engaging investee firms, investors and other relevant stakeholders. In all, on an aggregated level, 72.5 percent of investee firms surveyed said the severity in the financing gap is high (70 percent in Vietnam, 100 percent in Cambodia, and 60 percent in Nepal). 35 percent of investee firms surveyed successfully obtained finance; with 64.29 percent of them getting investments of over $50,000.

Recommendations have been categorized into three groups: (1) financing instruments and how they can be better tailored towards HI-startups (2) financing mechanisms/structures that can improve access to investors and (3) financing catalysts addressing non-financing impediments. The study also includes an investment readiness checklist app (forthcoming) that HI start-ups can utilize to prepare themselves for raising capital and meeting expectations of investors.

Did you know:

  • Investors expressed a strong preference for HI-startups to have multiple founding team members with complementary skillsets. This ensures continuity of operations, allows founding members to leverage each other’s skills, and reduce investment risks for the investor.
  • In Vietnam transaction costs on investments in HI start-ups can average up to $40,000. These costs will vary based on investor profile and jurisdiction, and the complexity of the investment (including extent of due diligence, investment certificate, and holding investment structure).
  •  IG9 is the first crowdfunding platform to operate in Vietnam. It uses a donation model to offer projects to the crowd, and an avenue to raise funding for the business community.