Editorial by B&FT: Private equity and venture capital funds to unlock SME potential

Board Chair of the Ghana Venture Capital and Private Equity Association, Matthew Boadu Adjei, says Private equity (PE) and venture capital (VC) funds are set to invest at least US$30million in small and medium-scale enterprises (SMEs).

Private equity and venture capital funds are investment vehicles that offer financing to companies at various stages of growth. By investing in SMEs, private equity and venture capital funds help to stimulate economic growth and job creation.

Funding and technical support required to unlock the potential of SMEs remain largely unavailable, with private equity funds viewed as a potentially lucrative source of funding.

This year, the Venture Capital Trust Fund (VCTF) has committed to deploying approximately GH¢200million – aimed at supporting managers who can rapidly deploy it to the real sector and strengthen the economy’s resilience, according to General Manager at the VCTF, Hamdiya Ismaila.

While previously viewed as high risk, private equity funds now offer an alternative to government bonds and Treasury-bills and can be used to bolster the SME sector while allowing for setting up proper management structures and governance for such businesses.

Technically speaking, venture capital is just a subset of private equity. Both invest in companies, both recruit former Investment Bankers and make money from investments rather than advisory fees.

Private equity is sometimes confused with venture capital because both refer to firms that invest in companies and exit by selling their investments, often in initial public offerings (IPOs).

Many people use the terms interchangeably; however, the two funding sources have significant differences. Venture capitalists and venture capital funds invest in startup companies at different stages of the business life cycle.

On the other hand, private equity investors typically focus on mature companies that are past the growth stage. They will also sometimes buy out a business, improve its operations and then sell it for a profit.

Therefore, private equity and venture capital can provide much-needed funding to unlock the potential of Ghana’s SMEs and turn them into significant contributors to economic growth.