Private Equity (Venture Capital) Role in Diversification

1. Private Equity (Venture Capital) Role in Diversification

2. Contents • Introduction • VC /PE industry in Botswana • Impact of PE • Economic growth via PE/VC. • Benefits of the industry • Conclusion

3. VPB

4. PE in Botswana • 3914 active private companies registered(2008) • 23 local public companies on BSE • Significant economic activity independent of public markets. • However limited channels for risk capital flows to support this activity • PE/VC investment driven by Public sector • Interventionist and development focused • Early stage focus • Additionality • Investors primarily, CEDA, BDC • Generalist public sector investors • Alignment of GDP growth sectors and capital flows required.

5. PE in Botswana • Estimated shortfall in capital for alternative assets (demand side) ± P3 Bn • Total supply side –P350m? • BDC • CEDA • Angel Investors • Foreign capital targeting larger scale transactions • BPOPF and DPF (Limited) • Growth in demand: • Maturity in traditional industries and establishment of new industries. • Extensive corporate leverage • Broadening of economic base away from Government • Growth/Expansion capital beyond the borders • M&A and consolidations • PE can reverse capital outflows to remain in-country as investments owned locally.

6. PE and Economic Growth

7. Why PE (micro) • Strength and Quality of Partnership • Dynamism and innovation • Focus on growth • Employment creation (Adam Smith) • Corporate Governance • Risk takers

8. Why PE (macro) • Provides a formal channel for institutional capital to flow to sectors defined as risky • Transitions business: • Economies of scale • (organically / M&A network of investments) • Market maker • Develops market for the purchase and sale of businesses • Enable business to transit to public markets • PE provides for growth optimisation through Capital Accumulation and Innovation (Endogenous) in emerging markets • Attractive PE industry attracts foreign capital • New skill sets • Global linkages with local industry • New technologies and methodlogies available to local companies

9. PE Growth factors • Minimal allocation to PE • Allocation of Growth oriented return seeking capital • Asset allocation policy review • Focus on local and regional investments • CGT waived on BSE gains. Review? • Contractual savings industry still in its infancy • ± P60 Bn in retirement and contractual savings • Industry growth limited by: • skills, • scale opportunities • leverage

10. Regional PE • South African PE AUM R162.2 Bn • Nigerian PE AUM at 1% of total pension fund assets • Kenya’s technology industry growth fuelling growth in VC (primarily foreign corporate venture capital) • International benchmark. PE as a percentage of GDP ±1% • Pension Fund Allocation on average ±4% • SA and Namibia leading institutionalisation of PE through legislative allocation policies (Reg 28 and 29) • Nigerian PENCOM allows PFAs to allocate maximum 5% to PE. The PE fund must be registered in Nigeria and 75% must be invested in Nigeria. • Nigerian Pension fund assets growing at US$250M per month • Growing recognition that a growing PE market drives Foreign capital Inflows • Introduces new skill sets • New industries

11. Conclusion • Diversification requires resources • Productive, Innovative and competitive • Botswana PE industry needs to be innovative as it grows • Closer fusion between Public markets and the Private Capital market in order to optimisegrowth. • Funds are longer term in tenure (>10yr) cycle • Botswana funds and fund managers have to take cognisance of local needs and local context • Funds need to drive infrastructure growth, successful industry sectors and cross border oriented industries (Scale). • Policy framework should be for establishing scale within industry sectors. • Policy framework should drive scaleable capital formation opportunities.

12. THANK YOU 1st Floor, Block B, BIFM Building Plot 50676, Fairgrounds Office Park, Gaborone Botswana Tel +267 (3181012), Fax +267 (3181038) www.venture-p.com