Uni brain presentation niabi 2012 funding and sustainability of agribusines incubators

SVCDC - KenyaIDPA - UgandaCURAD - UgandaCAF - MaliAgBIT - Zambia CCLEARr - Ghana

Ralph von KaufmannUniBRAIN Facility Coordinator

Forum for Agricultural Research in Africa

7 February 2012 NIABI 2112, New Delhi, India

FUNDING AND SUSTAINABILITY OF OF AGRIBUSINESS INCUBATORS

FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS

• Background to UniBRAIN

•UniBRAIN’s purpose, objectives, outputs

•UniBRAIN Agribusiness Incubators

• Functions of agribusiness incubators

• Types of incubators and nature of financing

• Sources and nature of incubator financing

• Financial management

• Take home messages

Content


• Wide scale investment in agribusiness and agro-industry in Africa is presently constrained by: Human and institutional capacity deficits

• African universities are not sufficiently geared to meet the needs of industry

• Graduates often cannot find employment while many small businesses lack staff with the education and skills needed to drive innovation

• Essentially the relationship between the demands of the private sector and what universities teach is too weak

• Nowhere are the these deficiencies more critical than in agriculture, Africa’s dominant industry

• However, studies show that when university graduates do business they create more jobs than those without university education

Background to UniBRAIN

UniBRAIN will break the barriers and foster collaboration between universities, business and research to create cultures and environments that will:

• value, encourage and enable innovation

• produce graduates who are problem solvers

• who are potential entrepreneurs • especially women and youths

UniBRAIN will establish agribusiness incubators to accelerate the creation of successful enterprises by providing them with comprehensive and integrated support, including incubator space, business support services and clustering and networking opportunities

FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Purpose of

UniBRAIN

Activity Line B:Improving

agribusiness teaching learning and research

Activity Line C: Exchanging experience,

resources and knowledge

UniBRAIN’s unique synergies of the interactions between the partners

Activity Line A: Fostering agricultural innovation

More efficient & effective

innovation in African

agriculture

Access to hands-on learning

and stakeholder guidance in changing

curricular and improving teaching and learning

Access to high level

human and institutional

capacity

Opportunities to acquire and share

experience in promoting innovation


The Consortium for enhancing University Responsiveness to Agribusiness Development (UniBRAIN-CURAD) focusing on plantation cash crops Specific value chain: Coffee

The Incubation and Diversification of Banana Products for Agribusiness (UniBRAIN-ABP or Afri Banana) focusing on staple food and cash crops Specific value chain: Banana

The Sorghum Value Chain Development Consortium (UniBRAIN-SVCDC) focusing on smallholder dry land food grains Specific value chain: Sorghum

The Creating Competitive Livestock-bias Entrepreneurs in Agribusiness (UniBRAIN-CCLEAr) focusing on Smallholder livestock Specific value chain: Livestock

The Innovative Centre for Agro-forestry (UniBRAIN-CAF) focusing on agro-forestry products Specific value chains: non-timber forestry products, cereals and fruits

The Agri-Business Incubation Trust (UniBRAIN-AgBIT) focusing on tropical fruit Specific value chain: Mango

UniBRAIN Agribusiness Incubator Consortia

UniBRAIN CAF

UniBRAIN CCLEAr

UniBRAIN AgBIT

Uni

BRAIN

SVCDCUni

BRAIN

ABP

Uni

BRAIN

CURAD


Locations of UniBRAIN agribusiness incubators

Why and how will African universities link with agribusiness

UniBRAIN will support universities, businesses and research institutions to establish agribusiness incubators, which will provide:

• facilitation for creating competitive agribusinesses through technology development and commercialization

• handholding services starting from business conceptualization to implementation and scaling up

• support for realising business concepts from university faculty and graduates, researchers and agribusinesses

• consultancy services to agribusiness

• help in accessing financing for SMEs and start-ups approaching impact investors and social capitalists


Functions of the Agribusiness Innovation Incubators

Example Incubator Client Categories and Services

Start Up Growth Expansion MatureNetworking

(domestic and International)

Technologically capable, Productivity driven and Globally

competitive

Assistance in Brand

Development

Assistance and linkages to funding and market

Handholding through business coaching, mentoring, consultancy and training on mindsetting, Business plan,

Accounting, marketing, communication skills etc

Biotech; Agribusiness;

Production assistanceIncubation

services and shared facilities

Selection/ Assessment

Pre-incubation/ Preseed

• Technology commercialization• Product and process improvement• Technology Transfer Office• IP Management


Diagramme by ANAFE

Functions of the Agribusiness Innovation Incubators

The mission of the incubator is to facilitate the creation of competitive agribusiness enterprises through technology development and commercialization

The incubator, helps new entrepreneurs and enterprise clients with handholding services starting from business

conceptualization to implementation and scaling up

It is up to the clients to choose the kind of services they want from the incubator

The agribusiness incubators will provide institutional frameworks for:

the realisation of business concepts from university faculty and graduates, agricultural research and agribusinesses of all sizes

consultancy services to agribusiness

help in accessing financing for SMEs and start-ups by approaching banks, impact investors and social

capitalists



The nature of the incubator determines its prospects for local or international funding:

Type 1: provide a physical location in which a new business can access facilities, support services and business advice

Type 2: provide high-tech facilities and high- level skills that the firms need from time to time but cannot justify tying much of their own capital

Type 3: provide in situ institutional support to enable firms, entrepreneurs and

inventors to access resources, which they do not have in house

This is the UniBRAIN model

FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS Type 1: Will appeal to local investors and lenders

They serve local needs

They are not easily up-scaled

Type 2: should appeal to international public & private

investors if they: offer services that are undersupplied in developing

countries offer scope for collaboration in training, equipping and

usage can serve clients nationally and regionally promise high impact breakthroughs

Type 3: should attract international public and private donors if they: are public – private partnerships leverage existing human and physical resources offer international collaboration in business and training will be financially self sustained in a relatively short time


Nature of BusinessActivities

Current businesses New businesses

ExistingBusinessActivities

EnhancementFunctionsQualtity

Development of new enterprises

Training Problem solving

NewBusinessActivities

ExpansionNew productsNew processesNew markets

Agro-sector enlargement

New business lines

Source: John Kuada Centre for International Business, Department of Business Studies, Aalborg University

THE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING


Source: John Kuada Centre for International Business, Department of Business Studies, Aalborg University

Degree of Creativity

& Innovatio

n

Necessity-based Growth-based

Imitation-oriented

businesses

“Entrepreneur among others” Crowded low-end business segments Low profitability Limited organic growth

“Giants in the crowd” Good positions in social and political networks Dependent on social capital to leverage resources

Innovation-oriented

businesses

“Orphans” ”lonely entrepreneurs” May go unnoticed High entry barriers Success difficult to achieve Require support & mentoring

“Eye – catchers” Persons with unusual talent Seeking venture capitalist support Want to attract public/journalistic attention

THE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING


There are few international donors and investors who are specifically dedicated to supporting agribusiness incubators

But if the incubators are themselves businesses there is a huge number and variety of potential donors and investors amongst which to search for compatible mandates, interests and cultures

Whether agribusiness incubators can attract business investment is still to be tested and will depend on the merit of their business plans and how well they can mesh with not just the official policy of the potential investor but also with the personal convictions of the investors’ staff and decision takers

Funding Prospects


Governments• Most governments are keen to support start-ups and SMEs but

research is required to find the schemes criteria and what kind of proposals are most likely to succeed

Development Partners• Promoting public private partnerships is a popular development

objective but it is almost a requirement for success to find a champion in the development agency who is not only interested but can actually help

Banks• Bank interest can be high but the incubators can reduce there

transaction costs and risks and they should respond favourably. Islamic banking may be more appropriate for start-ups

Sources of financing


Impact investors Impact investors seek to enhance social structure or

environmental health as well as achieve financial returns. They ay take an active role mentoring or leading the growth of the company similar to a venture capital firm assists in the growth of an early-stage company.

Social capitalists Social capitalists believe that a strong social support network for

the poor enhances capital output and that by decreasing poverty, capital market participation is enlarged. Social capitalism accept that government regulation, and even sponsorship of markets, can lead to superior economic outcomes.

Venture capitalists

Venture capitalists invest in early-stage, high-potential, high risk, high growth startup companies. They make money by owning equity in the companies it invests in, which and usually have a novel technology or business model in high technology industries

Sources of Financing (contd)


There are 3 main revenue models for business incubation environments:

1. Income from incubated enterprises – payments for facilities and services

2. Returns to equity - sharing in client success by rising value of equity or royalty agreements on gross sales

this can be a very good way to receive payment for business incubation services once the company succeeds, rather than up front when the company has little income

It only applies to high growth companies which have clear exit strategies otherwise royalties may be a better approach

it takes up to 10 years to realize returns and a portfolio of at least 20 companies is required to spread the risk, not to mention the high level of management expertise that is required

3. Generate revenue from non-business incubation activities such as consulting, collaboration and access to facilities to ongoing businesses

At different stages different amounts and combinations of financing may be needed

Incubator Financing


The incubators should have well developed business models for itself and for its clients that together form its Business Plan

These identify the main funding requirements in ways that can attract the interest of financiers

These have to be supported by surveys to find potential partners, sponsors and financiers to know and understand their objectives, operating modes, contact persons etc.

Know the projects they already support to identify their priorities and opportunities so that the incubator can make a targeted presentation

Prepare a succinct funding proposal aimed at clearly establishing the project concept, principal benefits and requirements in line with the financiers interests

Raising Funds


Incubators need to 'walk the talk' and demonstrate high levels of financial management capability to incubated enterprises.

The main attributes of quality incubator financial management are:

• planning, overseeing and controlling the incubator funds, whether they are brought in through services or provided by partners and investors

• Having mechanisms that enable the incubator manager to know accurately the amounts available, the needs and the investment capacity

• Financial management also involves bringing in new sources of funds for the incubator

• Preparation of Investment Spreadsheet

• Preparation of Costs and Expenditures Spreadsheet

• Preparation of Revenues Spreadsheet

Financial Management


Reliable cash flow projections are crucial to the successful financial administration and they must be linked to the budget in order to monitor the financial performance of the incubator

Despite the simplicity of the cash flow concept, its application to a business may result in some difficulties, arising from the following aspects:

In a new business, it is hard to forecast the income and expenditures resulting from some activities

It is hard to foresee future cash income and expenditure amounts, due to the uncertainties of the projected scenario

It is hard to quantify the impact on the cash income and expenditures due to the business risks

Cash Flow


Agribusiness incubators are businesses worthy of commercial, donor and social capital investment

The funding is there but you have to find an appropriate source and justify why it should invest in your incubator

Good business models and plans, a sound funding strategy, and flawless financial management are essential for both funding and sustainability

Take Home Messages

Thank you


UniBRAIN’s development objective is:

• to contribute to enabling African countries to create jobs and raise incomes through sustainable agribusiness development.

UniBRAIN’s Immediate Objective, which is also its value proposition, is:

• to enable universities, business and agricultural research institutions to commercialise agricultural technologies and produce graduates with entrepreneurial and business skills through agribusiness incubator partnerships.


UniBRAIN’s objectives will be realised by:

Output #1: Commercialisation of agribusiness innovations supported and

promoted

Output #2: Agribusiness graduates with the potential to become efficient entrepreneurs produced by tertiary educational institutions

Output #3: UniBRAIN’s innovative outputs, experiences and practices shared and up-scaled.


Sources of funding: Development Partners

Several Development Partners have schemes for supporting start-ups and SME’s such as:

Danish Small Business grants

Norwegian Investment Fund for Developing Countries (NORFUND) is supporting Uganda's Small enterprises with Shs20 billion fund channeled through Dfcu Bank

It will boost SME programmes including agro processing and market research among other ventures

A recent study commissioned by Sida concluded that:

“Existing knowledge suggests that public sector development support should be integrated with other types of support, address clusters of factors and take linkages between them into account.”

This seems to fit with the mandates of agribusiness incubators


Sources of funding: Development Partners

The incubators should seek donors and investors with mandates, interests & cultures that are consistent with their business models (not vice versa)

UniBRAIN incubators’ business models will be consistent with the Africa

Commission’s criteria including:

Gender balance in beneficiaries

Fostering innovation and competitiveness along whole agricultural value

chains to create sustainable growth, jobs for youths and reduce poverty

The depth, quality and contextual appropriateness of proposed changes

in curricula and in teaching and learning methods

Fostering collaboration between African institutions and with institutions

in other countries and regions

Having sound governance of the institutions and programmes


Sources of funding: Impact investors

The Global Impact Investing Network (GIIN)

GIIN Investors' Council is a diverse group of leading impact investors committed to building a coherent industry that effectively channels investment capital to address social and environmental challenges at scale

Impact investment which is intended to create positive social or environmental impact beyond financial returns

This should apply to:

- agribusiness incubators dedicated to addressing social (poverty alleviation) and

- environmental challenges (adaptation for climate change)

- amongst entrepreneurs not reached by ‘normal’ business support systems and

- at scales beyond that of individual firms



GIIN members include:

ACCION, Acumen Fund, The Annie E. Casey Foundation, Armonia, The Bill and Melinda Gates Foundation, Calvert Foundation, Capricorn Investment Group, Citigroup, Deutsche Bank, The DOEN Foundation, Equilibrium Capital, The Gatsby Charitable Foundation, Generation Investment Management, Gray Ghost Ventures, IGNIA, J.P. Morgan, Leapfrog Investments, Lundin for Africa, Morgan Stanley, National Community Investment Fund (NCIF), Omidyar Network, Packard Foundation, Prudential, The Rockefeller Foundation, Root Capital, Sarona, Shorebank International, Skoll Foundation, SNS Asset Management, TIAA-CREF, Trans-Century, Triodos Investment Management, W.K. Kellogg Foundation, and Wolfensohn & Company.



Example:

Kilimo Trust Investors: Gatsby Charitable Foundation and the Rockefeller Foundation (and the Government of Uganda)

The Kilimo Trust has a Vision of Broad-based Wealth Creation in East Africa through agriculture and agribusiness

It removes constraints that limit the exploitation of business opportunities and increases the success rate of investments in agricultural enterprises

It provides grants directly to private businesses and disseminates the commercial experiences gained from this to support other interested parties


Sources of funding: Social capitalists

Social venture capital is a form of venture capital investing that provides capital to businesses deemed socially and environmentally responsible

These investments are intended to both provide attractive returns to investors and to provide market-based solutions to social and environmental issues

Social venture capital can refer to debt or equity investments in socially-oriented enterprises, which includes BoP (Base of the Pyramid)-targeted efforts to stimulate economic development in the poorest regions of the world

Commercial banks also need to demonstrate “good corporate citizenship” and may support start-ups and artisan enterprises if the incubators prepare business plans and support them



Among the firms that deploy "social venture capital" are: Acumen Fund, Grassroots Business Fund, Tandem Fund, Bridges Ventures, Citizen Capital, Triodos Bank, Calvert Group, Gray Ghost Ventures, The New Economics Foundation , Social Venture Capital Fund, Ventursome Fund, Social Venture Partners, VenturEast BYST Growth Fund, ennovent, Aavishkaar and Good Capita (Some of these are GIIN members)

Research will be needed to determine which GIIN members, Social Capitalists and commercial banks may be interested in supporting agribusiness incubators that pursue social objectives in developing countries



Example:Endeavor Global, endeavor.org

Endeavor breaks down barriers that prevent emerging-market entrepreneurs from reaching their high-impact potential

Endeavor has supported over 320 entrepreneurs from over 190 companies

Endeavor Entrepreneurs have created more than 80,000 new jobs, paying on average ten times the national minimum wage, and generated approximately $2 billion in new revenue

95% of Endeavor Entrepreneurs' companies are still operating in countries where ventures typically close in 42 months

http://www.endeavor.org/


Example: Venture Capital for Africa (VC4Africa)

VC4Africa.biz - Africa's largest venture capital community, investors and entrepreneurs, dedicated to building business on the continent

The VC4Africa Daily has + 1186 follower on Twitter - Next update in about 10 hours

VC4Africa organises Meetups at which aspiring entrepreneurs can meet venture capitalists wherever there is interest

e.g., University of California Los Angeles (UCLA) & Santa Monica

These are simply a place for members to meet share ideas

No speeches, no agenda, nothing planned

The loose structure allows for lots of networking

Just remember participants pay for their own drinks


The prospects for local and international funding:

There are few international donors and investors who are specifically dedicated to supporting agribusiness incubators

But if the incubators are themselves businesses and there is a huge number and variety of potential donors and investors amongst which to search for

compatible mandates, interests and cultures

Whether agribusiness incubators can attract business investment is still to be tested and will depend on the merit of their business plans and how well they can mesh with not just the official policy of the potential investor but also with the personal convictions of the investors’ staff and decision takers