Final evaluation of the Ghana venture capital fund : final report

USAID, through a grant, financed the VFMC"s expenses, while the Commonwealth Development Corporation (CDC) of the European Union was the initial investor in the GVCF. The evaluation covers the period 1992-2/96; USAID funding ended in 11/94. GVCF"s most obvious and significant impact has been on the Government of Ghana"s (GOG"s) policies and regulations. Promulgation of the Financial Institutions (Non-Banking) Law of 1993, and publishing of "Draft Operating Guidelines for Venture Capital Funding Companies" by the Bank of Ghana in 1995, with input by VFMC management, clearly show that the GOG wants a regulatory environment which is conducive to institutional venture capital finance. GVCF has undertaken a continual marketing effort to acquaint the business community with its presence and its product. These efforts appear to have been generally successful. GVCF"s presence in the financial sector has increased understanding in the business community of the utility of venture capital as a financing mechanism for certain types of businesses. Moreover, it appears that entrepreneurs are demonstrating greater management discipline and professionalism because they have to meet the Fund"s demanding pre-investment criteria and ongoing reporting standards. To date, however, GVCF"s investment activity has had no discernible direct economic impact on such areas as job creation, increased tax revenues, or enhanced infrastructural development. However, given that the Fund had invested a total of $1.6 million in six companies for less than 2 years at the time of the evaluation, a significant impact in these areas is not expected. Based on the present deal pipeline, the number of approved projects that should come into the Fund"s portfolio over the next 12 months, and the fact that approximately 50% of the projected dollars to be invested would go into start-up companies, appreciable direct economic impact should be discernible over the next 5 years. While prevailing macroeconomic conditions and the relative youth of the existing portfolio make it difficult to make predictions about GVCF"s ultimate success, the current portfolio, while small, is in fairly good shape. Of $1.625 million invested as of 2/23/96: (1) $707,000 (44%) has been invested in companies performing satisfactorily and demonstrating high financial return prospects; (2) $528,000 (32%) has been invested in companies experiencing difficulty due primarily to external conditions and for which return of capital is highly probable and attractive returns possible, though less likely; and (3) the remaining $390,000 (24%) has been invested in a company experiencing significant problems due as much to internal as external problems and for which, barring significant changes, return of capital is doubtful. (Author abstract, modified)