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Cover photograph: Jamaican pictures for sale, iStockPhoto; http://www.istockphoto.com/stock-photo- 16784442-jamaican-pictures-for-sale.php?st=189e5e6 dece m ber 2 0 1 3 Diaspora Investing The Business and Investment Interests of the Caribbean Diaspora Prepared by infoDev Contributing Authors: Qahir Dhanani Mina Lee About infoDev infoDev, a global trust fund program in the Financial and Private Sector Development Net- work of the World Bank Group, supports growth-oriented entrepreneurs through creative and path-breaking venture enablers. It assists entrepreneurs to secure appropriate early- stage financing; convening entrepreneurs, investors, policymakers, mentors and other stakeholders for dialogue and action. We also produce cutting-edge knowledge products, closely linked to our work on the ground. This study was made possible thanks to the support of the Government of Canada. For more information visit www.infodev.org or send an email to infodev@worldbank.org. Table of Contents Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Approach to the Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Organization of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Caribbean Diaspora Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Engagement with the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Engagement Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Engagement in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Barriers to Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Investment Background and Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Interest in Investing in Start‑up Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Interest in Diaspora Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Investment Sectors and Geographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Accredited Investors and Investment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Investment Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Models that Could Operationalize Diaspora Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 An Online Portal to Identify, Invest, and Mentor Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . 24 Engendering Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Harnessing Angel Groups and Reputable Coinvestors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Key Learnings and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Enablers for Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Enablers for Individual Investors and High-net-worth-individuals (HNWIs) . . . . . . . . . . . . 28 Enablers for Angel Investing Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Enablers for an Online Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1 List of Figures Map 1: Diaspora from 31 affiliations participated in the study . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 1: Demographic profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 2: Most hold higher education degrees and are between 35-54 . . . . . . . . . . . . . . . . . . . 9 Figure 3: 65% with private sector backgrounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 4: 25% have investable wealth or annual earnings over $100,000 . . . . . . . . . . . . . . . . 11 Figure 5: Diaspora tend to invest in real estate; 8% are accredited . . . . . . . . . . . . . . . . . . . . . 11 Figure 6: Most give back and are part of diaspora organizations . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 7: Diaspora want to be more connected, possibly as mentors . . . . . . . . . . . . . . . . . . . 13 Figure 8: Strong interests in giving back to alma maters and investing . . . . . . . . . . . . . . . . . . 14 Figure 9: Barriers to increased engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 10: Respondents very interested in investing in start-ups . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 11: 40% of diaspora have invested in start-ups before . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 12: Interest in diaspora bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 13: Investors interested in a variety of sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 14: Diaspora investors take a regional perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 15: Accredited investors interested in start-ups and SMEs . . . . . . . . . . . . . . . . . . . . . . 20 Figure 16: Giving back is important to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 17: Accredited investors are willing to invest more capital . . . . . . . . . . . . . . . . . . . . . . 21 Figure 18: Accredited investors are willing to invest more time . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 19: Insufficient trust is cited as the greatest barrier to investing . . . . . . . . . . . . . . . . . 23 Figure 20: Accredited investors use online resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Figure 21: Meeting with entrepreneur is key prior to investing . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 22: Investing with others in an angel group minimizes risk . . . . . . . . . . . . . . . . . . . . . 27 2 Acknowledgments This study was carried out by Qahir Dhanani and Barnett, Romi Bhatia of the International Dias- Mina Lee as part of the design process for the pora Engagement Alliance team of USAID, Celia Access to Finance component of the Entrepre- Davidson-Francis of The University of the West neurship Program for Innovation in the Caribbean Indies, Julian Hall, Denise McCalla-Creary, Edward (EPIC). EPIC is a project of the World Bank Group’s Chin Mook, High Commissioner of Jamaica to the infoDev unit and is funded by the Government of UK Aloun Ndombet-Assamba, Ravi Ramkeesoon, Canada. Karen Thomas of the High Commission for the Republic of Trinidad and Tobago in the UK, Toronto Strong support from Valerie D’Costa, Grace City Councillor Michael Thompson, Hansen Von Kyokunda, Marialisa Motta, P. S. Srinivas and the Shneir, and Cardinal Warde. EPIC team, particularly Samuel Raymond, made it possible to conduct the study. The study would The study benefited greatly from comments pro- not have been possible without invaluable insights vided by a group of experts who participated in the shared by over 850 interviewees, focus group par- peer review process. The peer reviewers included ticipants, and survey respondents. We would not Thomas A. Vis, Giorgio Valentini, Maria Angelica have been able to reach out to this broad spectrum Sotomayor, Pierre Nadji, Ellen Olafsen, Dilip of participants without the assistance and strong Ratha, and Oltac Unsal from the World Bank Group networks of the Caribbean Association of World and Romi Bhatia from USAID. Sophie Sirtaine Bank and IMF Staff (CAWI), Lily Bengfort, Paul chaired the peer review process. 3 Executive Summary Engaging over 850 self-identified members of the Caribbean diaspora, the assessment brings together knowledge and data gathered from 636 respondents affiliated with every country in the The Caribbean region is unique for many reasons. Caribbean to an infoDev online survey, inputs from Perhaps most striking among these is the demo- 200 participants of face-to-face focus group ses- graphic fact that for almost every resident in the sions with business leaders, opinion leaders, and region there is an individual living in the diaspora high-net-worth individuals (HNWI) in the diaspora abroad. This near one-to-one ratio of nationals around the world, and insights from individual to diaspora members presents a tremendous op- one-on-one interviews with 20 accredited business portunity for cross-border engagement among a angel investors. people who share common cultures and histories. The assessment seeks to address four key infoDev conducted a study to assess the business questions: and investment interests of the diaspora as part 1. Profile: Who are the members of the Caribbean of the Entrepreneurship Program for Innovation diaspora? in the Caribbean (EPIC)1 and in line with the World Bank’s respective Caribbean Country Partnership 2. Engagement: How willing are they to engage Strategies, which emphasize the importance of with the Caribbean? igniting private-sector led growth. EPIC aims to 3. Investment: What is their financial ability to contribute to increased competitiveness, growth invest back home? and job creation in the Caribbean region through 4. Models: What models could work to increase the development of a robust and vibrant innovation diaspora investment? and entrepreneurship ecosystem, with particular emphasis on supporting high-potential growth- This report presents findings from the assess- oriented early-stage companies. These enterprises ment, including both the quantitative data from require a broad range of resources from mentor- the surveys and the qualitative data from focus ship to networks to financing. While there are groups and individual interviews. It aims to help numerous early stage financing models available, all stakeholders, including policy makers, multi- EPIC is focused on leveraging business angel in- lateral financial institutions, donors, and program vestors from the diaspora who can bring “mentor- managers, among others to better understand ship-based-capital” to address the financing gap and engage the Caribbean diaspora. The report that Caribbean entrepreneurs face.2 The goal of also provides material for an open dialogue on this study is therefore to inform EPIC and related new ways to engage the diaspora for investment programs in their design and development. purposes. Although the assessment is focused primarily on the diaspora members’ willingness 1 EPIC is funded by the Government of Canada and imple- and ability to invest in and mentor high-potential mented by infoDev at the World Bank; it aims to foster the growth-oriented enterprises (HGEs), it also creation and growth of competitive start-ups in 14 Carib- bean countries through multiple activities. touches on their interest to be involved through 2 An angel investor is an individual who makes direct other channels and investment vehicles, such as investments of personal funds into a venture, usually diaspora bonds, volunteering, or charitable giving. early-stage businesses in return for ownership equity. Because the capital is being invested at a risky time in a An overview of key findings from the survey shows business venture, the angel must be capable of taking a that the Caribbean diaspora members are typi- loss of the entire investment. Most angel investors are high-net-worth individuals and are nearly always “ac- cally well-educated and fairly affluent with more credited investors” as defined under the Securities Act of than half having a bachelor’s degree and almost 1933. (Source: Preston, Susan L. 2004. Angel Investment a quarter having investible wealth of more than Groups, Networks, and Funds: A Guidebook for Develop- ing the Right Angel Group for your Community. Kauffman Foundation.) 4 Photo: Jamaican pictures for sale, iStock Given the common heritage and $100,000.3 While respondents came from around the world, the diaspora members are concentrated strong familial connections across in four major cities: London, New York, Miami, the region, diaspora respondents and Toronto. Half of the diaspora respondents send remittances back home and a full 85 percent overwhelmingly took a regional are engaged in some way, shape, or form. Most approach to the Caribbean, rather interestingly, nine out of ten respondents would like to be even more engaged in the future. Given than a nationalistic one. the common heritage and strong familial con- nections across the region, diaspora respondents overwhelmingly took a regional approach to the accredited diaspora members expressed the need Caribbean, rather than a nationalistic one. for diaspora bonds to include a substantial level of Historically, 40 percent of the diaspora has in- transparency in the use and management of funds vested in a start-up company of some sort around as a prerequisite for this instrument. The need to the world, a quarter of which has been in the “touch and feel” an investment or to meet with the Caribbean. Eight percent of respondents claimed investee was crucial among the interests of these to be accredited investors based upon the U.S. investors. legislative definition.4 Most of these investors are The findings demonstrate that a growing commu- engaged with online funding platforms and appre- nity of angel investors exist among the diaspora, ciate the potential of crowdfunding. Furthermore, but they have not yet recognized the investment accredited investors from the diaspora were keen potential of Caribbean HGEs. Key barriers include to explore joining diaspora angel investing groups low visibility and awareness of deal flow for local with a view to review Caribbean business opportu- and diaspora angels, difficulty in establishing a nities together and share risk when investing. relationship of trust with entrepreneurs, primar- A closer look at accredited investors shows that ily because of distance and lack of due diligence they are more active in making start-up invest- channels, and difficulty in maneuvering complex ments, that they invest larger sums of money local legal processes. The interviews and focus per deal, and that they are willing to spend more groups also revealed that a number of enablers time investing. However, average deal size is still need to be in place to increase transaction activ- relatively small with 50 percent investing between ity. Some high-net-worth individuals and entre- $10,000 and $100,000 and only 10 percent invest- preneurs will require capacity building on angel ing above this threshold. Three-fourths of all investing, the use of web-based crowdfunding plat- respondents reported a desire for a three to five forms, and governance and operations associated year exit from their investments. Practically all with these kinds of investments. It is hoped that the findings from this study can 3 All dollar amounts are U.S. dollars unless otherwise be used to improve dialogue and collaboration indicated. between innovation ecosystem participants on 4 Under the U.S. Securities Act of 1933, accredited investors removing barriers to private sector involvement are natural persons who have either individual net worth, or joint net worth with the person’s spouse, that exceeds and better engaging the diaspora on a wide suite $1 million at the time of the purchase, excluding the value of development and investment objectives. Surely, of the primary residence of such person, or, income ex- the diaspora’s investments can provide angels ceeding $200,000 in each of the two most recent years or and investors around the world proof that the joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income Caribbean has attractive and investable HGEs. level in the current year. 5 Introduction survey responses, held focus groups with 200 indi- viduals in San Francisco, Washington, DC, New York, Toronto, and London, and interviewed 20 accredited angel investors.6 The study and paper were com- This report represents an important step in the pleted during a five month period and were entirely ongoing efforts of infoDev to make effective executed by a World Bank Group team. and useful knowledge available to policy mak- The online survey was distributed through various ers, investors, and private sector development diaspora organizations, high commissions, and stakeholders to use in their efforts to encourage media channels and was open for a period of six private sector investment and private sector led weeks. Respondents represent a random sample economic growth. Access to finance is a critical of self-identified diaspora members claiming piece of the stronger innovation ecosystem re- affiliation with the following 31 countries or ter- quired for small and medium enterprises (SMEs) ritories: Antigua and Barbuda, Aruba, Anguilla, and high-potential growth-oriented enterprises The Bahamas, Barbados, Belize, British Virgin Is- (HGEs) to prosper.5 lands, Cayman Islands, Colombia, Cuba, Curacao, The purpose of this report is to present a summary Dominica, Dominican Republic, Grenada, Gua- of the lessons learned and tools needed to effec- deloupe and dependencies, Guyana, Haiti, Hon- tively leverage the diaspora as investors in stimu- duras, Jamaica, Martinique, Montserrat, Puerto lating the start-up and venture sector. Rico, St. Barthélemy, St. Kitts and Nevis, St. Lucia, St. Martin, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, and U.S. Virgin Islands (see Map 1). Approach to the Assessment The diaspora business and investment interests Focus groups with select business and opin- study used a three-pronged approach to assess ion leaders from the private and public sectors the willingness and ability of the diaspora to invest explored why diaspora members had not invested in HGEs. in start-ups, presented investment scenarios to test appetite and preference, and explored how the 1. A detailed on-line survey targeted to all diaspora measure success, including ascertain- Caribbean diaspora members ing whether these measures of success included financial returns, jobs created, or other social 2. In-person focus groups with business and opin- development metrics. ion leaders, high-net-worth individuals and investors The one-on-one interviews with angel investors 3. One-on-one interviews with accredited angel explored their historical and expected investment investors terms and assessed whether there were any differ- ences in expectations when investing back home in The assessment ran from April to May 2013. During the Caribbean versus elsewhere. this period, the assessment collected 636 online 5 High-potential growth-oriented enterprises (HGEs) are young, usually technology-focused start-up companies that tend to have a growth ambition beyond their home country or region. They are innovative, bringing a new, often disruptive product or service to consumers, possibly 6 While the sample size for the survey, focus groups, and using new business models and processes. Essentially, interviews are relatively high, findings from this study are HGEs are start-ups that aim to change the game in their intended to provide directional perspectives, rather than respective areas of endeavor. statistically significant perspectives. 6 Photo: Kingston Jamaica, iStock The assessment collected 636 online Organization of the Report survey responses, held focus groups The report is organized into seven sections. Fol- with 200 individuals in San Francisco, lowing this introduction, Sections 2 through 5 are structured in the order of the four key questions Washington, DC, New York, Toronto, that were explored. and London, and interviewed 20 1. Profile: Who are the members of the Caribbean accredited angel investors. diaspora? 2. Engagement: How willing are they to engage with the Caribbean? Section 6 summarizes lessons for practitioners, such 3. Investment: What is their financial ability to as incubator managers and transaction platform invest back home? managers, as well as policy implications for govern- 4. Models: What models could work to increase ment stakeholders who would like to increase invest- diaspora investment? ments. Section 7 provides concluding remarks. Map 1: Diaspora from 31 affiliations participated in the study 7 Caribbean Diaspora Profile Demographics Diaspora members from each country in the Carib- bean participated in the online survey. Jamaica had the largest representation, which reflects its In general, the Caribbean diaspora is a well- population relative to other countries in the region. educated and affluent group of individuals, who Half of the diaspora respondents are based in the have great potential to make valuable contribu- four metropolises of London, New York, Miami and tions to the Caribbean’s economic development, Toronto, with the remaining spread out over many both through the sharing of their knowledge and cities. Respondents are normally distributed by through the substantial financial resources they age and balanced by gender (Figure 1). can bring to bear. Figure 1: Demographic profile Most affiliated with Jamaica Living in dispersed cities Equal split among female and male Which Caribbean country are you affiliated w/? (Check all that apply)1 Current residence Gender Jamaica 65% T&T2 21% London 17% Barbados 10% Guyana 7% Grenada 4% Male 51% Saint Lucia New York/ 12% 4% New Jersey Bahamas 3% Dominica 3% Haiti 3% Miami 7% St Kitts & Nevis 3% St Vin. & Gren3 3% Ant. & Bar.4 3% Cayman 2% Toronto 7% Belize 2% Female 49% DR5 1% BVI 1% Other 57% Suriname 1% Turks, Caicos Is. 1% 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 0 10 20 30 40 50 60 % of respondents (n=635) % of respondents (n=635) % of respondents (n=635) Notes: 1. Respondents from all Caribbean countries, only top 18 shown. 2. Trinidad & Tobago. 3. St. Vincent & Grenadines. 4. Antigua & Barbuda. 5. Dominican Republic. Source: infoDev Caribbean Diaspora Survey, April-May 2013. 8 Photo: pitchIt Caribbean Bootcamp, Jamaica, 2013 affluent and accredited individuals In general, the diaspora is well-educated with 80 percent holding a bachelor’s degree or higher are of critical importance in making (Figure 2). More than 65 percent of the respon- informed investments back home. dents are employed in the private sector with al- most 40 percent owning their own businesses. The They tend to have a level of top three most common professional backgrounds investment sophistication and of respondents were in education, culture and arts, and business consulting. At least 6 percent came business acumen that promotes best from investing backgrounds in asset management, practices among investees, demands private equity, or venture equity (Figure 3). accountability and results. Figure 2: Most hold higher education degrees and are between 35-54 ~50% with higher than a Bachelors degree Average age 35-54 What is your highest level of education completed? What is your age? PhD 11% Under 25 4% Masters 41% 25-34 19% Bachelors 28% 35-44 24% Community College 12% 45-54 28% High school Diploma 3% 55-64 16% Less than High School 1% Other Certification 65 and older 9% 6% 0 10 20 30 40 50 0 5 10 15 20 25 30 % of respondents (n=353) % of respondents (n=353) Source: infoDev Caribbean Diaspora Survey, April-May 2013. 9 Figure 3: 65% with private sector backgrounds ~65% of those working are from private sector Education, culture and business consulting are top background sectors What is the sector you are most What is your occupation? familiar with? (Select top 3) Education 30% Entrepreneur 20% Culture & arts 22% Business consulting 22% Public sector 19% Business owner 18% Entertainment, leisure, music 16% Marketing/PR 14% Health care & pharma 14% Consultant 15% Real Estate 14% (Private sector) Science, high tech, eng. 14% Energy 12% Academic 14% Mobile platforms, internet 12% Agriculture 11% Manager Green energy, env. sust. tech 11% 8% (Private sector) Accounting 9% Banking / brokerage 9% Legal 8% Non-profit 7% Telecommunications 8% Food, bev., tobacco 7% Engineer Broadcasting/publishing 7% 6% Manufacturing 6% Asset management 6% Politician 5% Insurance 5% Apparel/accessories 4% Retail / wholesale 4% Other 7% Private equity 4% Venture capital 4% 0 5 10 15 20 0 5 10 15 20 25 30 % of respondents (n=349) % of respondents (n=349) Source: infoDev Caribbean Diaspora Survey, April-May 2013. Financial A quarter of diaspora respondents are considered $200,000 during the past two years or at least $1 affluent with either net investable wealth or annual million in investible assets. These affluent and incomes of more than $100,000 (Figure 4). This in- accredited individuals are of critical importance come is held primarily in cash savings, real estate in making informed investments back home. They holdings, or public equity (Figure 5). tend to have a level of investment sophistication and business acumen that promotes best practices A small proportion of respondents (8 percent) among investees, demands accountability and identified themselves as “accredited investors,” results, and can have a major contribution to the having either an annual income of more than development of Caribbean economies. 10 Figure 4: 25% have investable wealth or annual earnings over $100,000 What is your net investable wealth?1 What is your annual income? Below $100K 75% Less than $50K 32% $100K - 250K 14% $50-100K 42% $250K - 1Million 8% $100-200K 21% Above $1Million 3% More than $200K 5% 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 % of respondents (n=320) % of respondents (n=320) Notes: 1. Liquid assets such as stock, cash, other forms of investment excluding property. Source: infoDev Caribbean Diaspora Survey, April-May 2013. Figure 5: Diaspora tend to invest in real estate; 8% are accredited Savings and real estate most popular 8% are accredited investors What do you invest in? (Check all that apply) Are you an accredited investor under US leg.?1 Savings account & CDs 47% Real estate 36% Stocks 24% Yes 8% Mutual funds 19% Money market 18% Insurance 17% Bonds 12% PE 8% No 92% VC 4% Structured products 3% Do not invest 22% 0 10 20 30 40 50 0 20 40 60 80 100 % of respondents (n=320) % of respondents (n=320) Notes: 1. Annual income of USD 200,000 for last two years or $1 million in investable assets. Source: infoDev Caribbean Diaspora Survey, April-May 2013. 11 Engagement with the Caribbean Social instability, connectivity and distance, and weak legal enforcement ranked as the top three The diaspora is a highly engaged population and would like to be even more connected to the barriers to engagement. Caribbean in the future. Understanding barriers to engagement and working on ways to overcome these barriers could have a significant impact on opening the door for more latent diaspora mem- bers to increase engagement. in the Caribbean. More than 85 percent of diaspora members give back to the Caribbean in some way, shape, or form. While half of the respondents send remittances, a large share gives back in nonfinan- Engagement Now cial means as volunteers and mentors. Charitable The Caribbean diaspora is a particularly engaged giving is a strong and important part of being a and organized community, in which 70 percent member of the Caribbean diaspora evidenced by belong to an affiliation organization whether for- one-third of the diaspora respondents who make mal or informal in their resident country or back donations to philanthropic enterprises and one-fifth Figure 6: Most give back and are part of diaspora organizations Highly engaged community Visit at least once a year Active with community organizations In what ways do you engage with the Caribbean Are you active within the community "back home"? Check all that apply How often do you visit? Caribbean community? Send money to 48% family & friends More than twice a year 24% Active with Caribbean 36% Volunteer 40% community where I live Mentor 33% Twice a year 12% Donate money Active with 32% Caribbean to charities 10% community Every year 24% back home Invest in property 22% Donate money 18% Active with to alma mater Once every 2 years 19% Caribbean community both 25% Work for 14% where I live Caribbean entity & back home Invest in 13% Once every 5 years 10% companies Invest in stocks 8% I am not active 29% Very rarely 12% Not engaged 16% 0 10 20 30 40 50 0 5 10 15 20 25 0 5 10 15 20 25 30 35 40 % of respondents (n=444) % of respondents (n=420) % of respondents (n=498) Source: infoDev Caribbean Diaspora Survey, April-May 2013. 12 Photo: Digital Jam 2.0, Jamaica, 2012 More than 85 percent of diaspora who give back to their alma maters. Private sector investment is perhaps a stronger pull on the dias- members give back to the Caribbean pora. One in four diaspora members invests in real in some way, shape, or form. The estate and one in ten invests in a business venture of some form. The diaspora could bring added value diaspora could bring added value to job creation and productivity increases through to job creation and productivity these private sector investments, thereby shifting the culture from one of hand-outs to one of hand- increases through these private ups, that is, entrepreneurship supported by remit- sector investments, thereby shifting tances for investments. Visiting family and friends in the Caribbean are another key source of engage- the culture from one of hand-outs to ment, as almost 60 percent of diaspora make the one of hand-ups. trip home at least once a year and almost a quarter travel home more than twice a year (Figure 6). their home country, demonstrating the deep- Engagement in the Future seated desire to remain connected “back home.” Against this backdrop of already significant These desires were manifested in the relatively engagement back home, 90 percent of the dias- high interest in providing mentoring to individu- pora members responded positively, when asked als in the Caribbean—68 percent were positively whether they would like to be “more connected” to inclined to mentor and 80 percent of those are Figure 7: Diaspora want to be more connected, possibly as mentors ~90% would like to be more connected ~70% interested in becoming a mentor for the region "I would like to be more Are you interested in mentoring connected to my home country" individuals in the Caribbean? Strongly agree 57% Yes 68% Agree 33% Already mentor 17% Disagree 9% No 15% Strongly disagree 1% 0 10 20 30 40 50 60 0 10 20 30 40 50 60 70 80 % of respondents (n=478) % of respondents (n=384) Source: infoDev Caribbean Diaspora Survey, April-May 2013. 13 Figure 8: Strong interest in giving back to alma maters and investing Interest in giving back to alma maters Interest in investing in companies "I am interested in giving back to my "I am willing to invest capital in select alma mater in the Caribbean" businesses back in the Caribbean" Strongly agree 46% Strongly agree 32% Agree 40% Agree 46% Disagree 11% Disagree 19% Strongly disagree 4% Strongly disagree 2% 0 10 20 30 40 50 0 10 20 30 40 50 % of respondents (n=491) % of respondents (n=498) Source: infoDev Caribbean Diaspora Survey, April-May 2013. willing to spend more than one hour per week opportunity for increasing the level of engagement mentoring (Figure 7). from the diaspora in a meaningful way. Interest in certain engagement channels was also much higher than actual current involvement. For example, when asked whether they were “interest- Barriers to Engagement ed in giving back to an alma mater in the Caribbe- A number of factors currently constrain increased an,” 85 percent responded positively compared to engagement from the diaspora. Social instability, the 18 percent that currently do. During the focus connectivity and distance, and weak legal enforce- groups, a large number of diaspora members ment ranked as the top three barriers to engage- explained that they are active in their high-school ment (Figure 9). Accredited investors and focus alumni associations, a source of deep affiliation group participants also cited the lack of awareness and nostalgia. Similarly, 80 percent were “inter- of investment opportunities and the bureaucracy ested in investing capital in a business back home” associated with making such investments as key relative to the 13 percent that currently do (Figure barriers. Addressing these sources of dissuasion 8). This demonstrates a very strong, but latent should be a priority going forward. 14 Figure 9: Barriers to increased engagement What prevents you from getting more involved in the Caribbean? (Check all that apply) Social instability (crime) 32% Too geographically distant 31% Weak legal enforcement 30% Macroeconomic instability 24% Not ready to get involved now, but would like to later 20% No family there 7% Do not feel a connection to Caribb. 4% No friends there 2% Not applic. – already involved fully 25% 0 5 10 15 20 25 30 35 % of respondents (n=444) Source: infoDev infoDev Caribbean Diaspora Survey, April-May 2013. 2013 Excludes respondents from Jamaica, Haiti, Cuba, Dominican Republic, Puerto Rico, Honduras, and Colombia; Including Jamaica would increase social instability (crime) as the major barrier by 10%. 15 Investment Background and Preferences 23 percent of diaspora members have already made investments in new ventures in the Caribbean region. Perhaps the most impactful contributions diaspora members can make are through their investments in business ventures back home. It is important, therefore, to understand diaspora investment backgrounds and preferences, especially when it In fact, 40 percent of diaspora respondents have comes to the terms required by angel investors. In- already invested in a business venture somewhere vestment opportunities, diaspora bonds, and chari- in the world, broadly defined as any company in table ventures seeking donors could all be better its early stages. Of these investments, 57 per- designed and marketed if stakeholders know the cent were ventures based in the Caribbean. This diaspora’s interests. means that 23 percent of diaspora members have already made investments in new ventures in the Caribbean region (Figure 11). This is a remarkable finding as it provides clear evidence that diaspora Interest in Investing in dollars are already flowing to new ventures in the Start‑up Ventures region and that these come from fairly sophisti- cated investors. As already noted, the diaspora is already invest- ing in businesses both where they currently reside and back home. When asked what types of venture investments they prefer, start-ups were ranked Interest in Diaspora Bonds first among all other types of venture investments, Sixty-three percent of respondents indicated be they SMEs or established public companies having some interest in investing in a diaspora (Figure 10). bond. This was lower than their interest in invest- Figure 10: Respondents very interested in investing in start-ups How interested are you in investing in the following types of companies? Established public 22% 46% 32% companies SMEs 28% 47% 24% Start-ups & early stage companies 32% 43% 25% 0 20 40 60 80 100 % of respondents (n=435) Very interested Somewhat interested Not interested Source: infoDev Caribbean Diaspora Survey, April-May 2013. 16 Photo: Caribbean Ideas Marketplace, Jamaica, 2013 Figure 11: 40% of diaspora have invested in start-ups before 40% previously invested Of those invested, ~60% Jamaica, T&T, and Barbados in start-ups were in the Caribbean received most investment Have you previously invested Where was the start-up In which Caribbean country in a start-up or early stage co.? based? (Select all that apply) were those start-ups based?2 Jamaica 73% T&T 15% Yes Caribbean 57%1 Barbados 4% 40% Haiti 3% St. Vincent & Grenadines 3% Bahamas 2% Antigua & Barbuda 1% BVI 1% 50% No 60% Others Dominica 1% Guyana 1% Other 0% 0 10 20 30 40 50 60 0 10 20 30 40 50 60 0 5 10 15 20 8% % of respondents (n=435) % of respondents (n=176) % of respondents (n=92) Notes: 1. Translates into 23% of the total respondents that has invested in start-ups in the Caribbean, asked only of those that indicated "yes" for previously invested in start-ups. 2. Only asked of those who indicated "Caribbean" as a region for where the invested start-up was based. Source: infoDev Caribbean Diaspora Survey, April-May 2013. ing directly in business ventures by 15 percentage use, governance, and administration of funds. points and interest in giving back to their alma Countries, such as Israel and India, that have mater by 23 percentage points (Figure 12). Those raised the most development dollars through who did respond positively to investing in dias- diaspora bonds tend to incorporate a number of pora bonds are slightly more active in investing best practices, including opening these instru- in the Caribbean overall. They were generally two ments to all investors but strategically marketing to three percentage points more inclined in their them to the diaspora, providing relatively attractive current activities of both real estate and business financial returns, and most importantly, including investment in the Caribbean. The interest is also robust transparency and governance measures in stronger among diaspora with strong emotional the use of proceeds.7 Overall, participants tended connections to the Caribbean. to favor opportunities to not only “touch and feel” Many focus group participants expressed that they would be more interested in investing in diaspora 7 Kayode-Anglade, Seliatou and Nana Spio-Garbrah. 2012. bonds if these instruments were enhanced with “Diaspora Bonds: Some Lessons for African Countries.” Africa Economic Brief, African Development Bank: pages transparency and accountability measures on the 3-7. 17 Figure 12: Interest in diaspora bonds To what extent do you agree or disagree with the following statements? Giving back to the 1% 59% 37% 4% Caribbean is important to me I am interested in giving 46% 40% 11% 4% back to my alma mater I am willing to invest 32% 46% 19% 2% capital in select capital in select businesses I am interested in investing in an infrastructure bond 22% 41% 33% 4% 20 40 60 80 100 0 % of respondents (n=498) Strongly agree Agree Disagree Strongly Disagree Source: infoDev Caribbean Diaspora Survey, April-May 2013. the type of investments being made, but also to focus group participants expressed have an active role—preferring to give directly to family and friends, alma maters, and organizations that they would be more interested whom they know and trust personally or ventures in investing in diaspora bonds if these where they can have a majority stake and play an active role for enhanced visibility and risk manage- instruments were enhanced with ment. Interventions aimed at increasing trans- transparency and accountability parency, accountability, and measurement could therefore enhance trust and the desire to invest in measures on the use, governance, such instruments. and administration of funds. Investment Sectors and Geographies Historically, diaspora investments in start-ups At present, matches between the angel inves- have been in a number of sectors ranging from tors and entrepreneurs are made almost entirely entertainment and the arts to consulting and retail through friends and family with 86 percent of inves- to real estate and manufacturing. These interests tors learning about their investment opportunity are also shifting with the times. Looking forward, through this source. However, such matches limit sectors such as green energy, mobile applications, the diaspora to a narrow universe of potential deals. education, and agribusiness are most attractive This is in stark contrast to the actual desires of the among diaspora investors (Figure 13). In the case diaspora investor community, who take a regional of “green energy and technology,” future invest- view for their portfolios. When asked about the ment interest is 40 times greater than historic countries in which they are interested in making investment activity. A need for business incubation investments, diaspora investors always listed more services that target entrepreneurs in the green than one country, providing further evidence that energy and mobile applications sectors is therefore they are seeking to make deals in multiple desti- important in meeting the demand and interests of nations beyond their country of primary affiliation diaspora investors. (Figure 14). Fourteen percent indicated that they wanted to invest in the Caribbean as a whole and were completely country-agnostic. This perspective 18 Figure 13: Investors interested in a variety of sectors What sectors are most attractive to invest in? Check all that apply. Agriculture 41% Green energy & tech 40% Education 37% Real estate 33% Entertainment, leisure, music 32% Mobile platforms, internet 30% R&B and tobacco 29% Culture and arts 29% Healthc, fitness, pharma 27% Manufacturing 16% Business consulting 15% Retail, wholesale 12% Marketing, PR 11% Private equity 7% Venture capital 7% 0 10 20 30 40 50 % of respondents (n=400) Source: infoDev Caribbean Diaspora Survey, April-May 2013. Figure 14: Diaspora investors take a regional perspective Respondents by country of affiliation vs. country they are interested in investing Country of affiliation Country interested (n=635) to invest in (n=385) 80 80 70 62% 70 60 60 50 50 40 34% 40 30 24% 30 20 65% 15% 20 15% 13% 11% 11% 7% 6% 8% 9% 7% 10 21% 6% 5% 10 10% 7% 3% 3% 3% 3% 2% 2% 1% 1% 0 4% 4% 4% 0 % int/ % Affil. 0.9 1.6 2.4 2.1 2.8 3.7 2.3 3.8 2.1 3.3 2.7 4.5 3.8 4.9 3.8 s a a a ia is s a s e ica T T& rba d o a n a d i t i n i c u c ev a u d n d l i z DR me ma Gu y ren Ha omi t. L s & N ha m arb n Is la Be rin a Ja B a G D S t B a B a Su Kit ua & ym St. tig Ca An % affiliated with country % interested in investing in country Source: infoDev Caribbean Diaspora Survey, April-May 2013. 19 Figure 15: Accredited investors interested in start-ups and SMEs 70% previously invested in start-ups Of those invested, ~40% were in the Caribbean Have you previously invested in a Where was the start-up based? start-up or early stage company? (Select all that apply) Yes 69% Caribbean 39%1 No 31% Others 67% 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 % of respondents (n=26) % of respondents (n=18) Notes: 1. Translates into 27% of total accredited investor respondents that has invested in start-ups in the Caribbean, asked only of those that indicated "yes" for previously invested in start-ups. Source: infoDev Caribbean Diaspora Survey, April-May 2013. is not surprising given the strong family relations all respondents were willing to accept slightly among individuals from different Caribbean coun- lower returns from their investments as a form of tries, the migration and dispersion of relatives “giving back,” 8 percent fewer accredited investors across multiple countries, and the common cultural were likely to ascribe to this view (Figure 16). heritage shared by Caribbean peoples. The regional outlook among diaspora investors has substantial positive implications for ventures seeking invest- ments as it means they can appeal to a larger pool of angel investors. Figure 16: Giving back is important to investors ~80% willing to accept lower returns as a form of "giving back" Accredited Investors and Would you be willing to accept slightly lower financial Investment Terms returns if investing in entrepreneurs in the Caribbean means you are "giving back" and creating jobs in the Caribbean? A closer look at accredited investors shows signifi- 100 cant differences among the diaspora community 20% in their willingness and ability to invest. Compared 28% 80 to overall respondents, accredited investors have invested more often and at larger investment tick- 60 ets per transaction. Further, they are interested in investing more time and capital as “business angel 80% investors” in the future. 40 72% Investment Activity 20 Seventy percent of accredited investors have made an investment in a business venture in the 0 past compared to 40 percent of all respondents. All Accredited Investor However, a smaller share—only two in five of these (n=401) (n=25) investments has been in the Caribbean. One-on- Yes No one interviews with angels revealed that this is because they “go where the deals are” and are Source: infoDev Caribbean Diaspora Survey, April-May 2013. generally more region agnostic (Figure 15). While 20 The diaspora expressed a strong desire for having The regional outlook among diaspora an impact on job creation and economic develop- investors has substantial positive ment through their investing. In terms of impact for investors, these factors ranked second and implications for ventures seeking third after generation of financial returns, high- investments. lighting that the diaspora do have a social metric for success in addition to a financial one. How- ever, the need for financial return, or at least the prevention of financial loss, is important as it highlights the need for capacity building to raise the quality of start-ups and the need to package Looking to the future, 40 percent of accredited in- deals as an investment opportunity, rather than a vestors compared to 14 percent of all diaspora re- charitable one. spondents expressed willingness to invest at least $100,000 each year for a five year period in HGEs Investment Terms in the Caribbean, further demonstrating the desir- Historically, 11 percent of accredited investors ability of available opportunities (Figure 17). This is compared to 6 percent of all respondents have particularly telling as it indicates a significant pool funded new business ventures with capital injec- of capital available from accredited investors for tions of $100,000 or more. The average size of an ventures in the next five years. investment in start-ups for accredited investors Accredited investors are also willing to dedicate was between $50,000 and $100,000 compared to more time to angel investing, with 35 percent between $10,000 and $50,000 for all respondents. expressing an interest in spending more than 10 Figure 17: Accredited investors are willing to invest more capital 63% of AI1 historically invested 40% of AI1 willing to invest greater than greater than $10,000 in a start-up $100,000 per year What is the average size of your How much money am I willing to invest (lose) investment in the start-ups?2 per year during the next 5 years?3 120 120 20% 20% 20% 28% 28% 28% 100 3% 5% 100 3% 7% 5% 19% 7% 7% 80 16% 80 12% 29% 19% 80% 16% 60 60 72% 37% 25% 40 40 59% 58% 13% 20 37% 20 25% 0 0 All Accredited Investors All Accredited Investors (n=157) (n=19) (n=73) (n=18) More than $250,000 More than $250,000 $100,000-250,000 $100,000-250,000 $50,000-100,000 $50,000-100,000 $10,000-50,000 $10,000-50,000 Less than $10,000 Less than $10,000 Notes: 1. Accredited investors. 2. Caribbean Diaspora Survey Data only, question was asked of all those who indicated "Yes" to having invested in a start-up before, regardless of where it was based. 3. Focus Group Survey data only. Source: infoDev Caribbean Diaspora Survey, April-May 2013. 21 Figure 18: Accredited investors are willing to invest more time 35% of AI1 willing to spend greater 75% of all respondents looking than 10 hrs /month angel investing for 3-5 year exit How many hours per month do I want What time frame (in number of years) to devote to angel investing?2 for an exit will I consider?2 100 100 0% 3% 6% 11% 5% 20% 19 19% 28% 18% 80 16% 80 21% 25% 60 60 34% 80% 72% 25% 40 40 76% 71% 20 35% 20 31% 0 4% 0% 0 All Accredited Investors All Accredited Investors (n=74) (n=16) (n=73) (n=18) >20 >10 11 to 20 9 to 10 6 to 10 6 to 8 1 to 5 3 to 5 None Notes: 1. Accredited investors. 2. Focus Group Survey data only. Source: infoDev Caribbean Diaspora Survey, April-May 2013. hours a month angel investing. Three quarters of capacity building. A number of online platforms to all respondents look for a three to five year exit connect entrepreneurs and mentors now exist to time frame, which is relatively short, when com- facilitate this. A focused study on the instrumental- pared to exit time frames in other parts of the ity of crowdfunding, such as the one conducted by world (Figure 18). Some focus group participants infoDev, could better explore the myriad of options attributed this requirement to the perceived risk of available for nonaccredited investors.8 investing in a developing market back home. Accredited versus Nonaccredited Investors Investment Barriers Accredited investors, who are legally defined by minimum income or wealth thresholds, are most One of the primary challenges cited by accred- ideal for early stage, equity-based patient capital, ited diaspora investors was simply visibility and because these investments tend to have more risk awareness of interesting deals that could generate and often take multiple years to generate positive returns and positive externalities. In cases where returns, if at all. While accredited investors are diaspora investors were able to identify a deal, a best suited for equity investments, nonaccredited number of other factors thwarted any real invest- investors can still play a significant role in support- ment. Whereas investment returns and exit time ing entrepreneurship through other instruments. frames were expected to be the primary barriers For example, nonaccredited investors can partici- to investment, when asked to rank the barriers, pate in lending or donation crowdfunding plat- insufficient trust in the entrepreneur, complicated forms, such as Kiva.com or perks-based platforms legal processes, and the quality of the offering such as Kickstarter.com or Indigogo.com and other emerged as the most hindering barriers for both channels that do not involve a sale of securities. They could also support entrepreneurs through 8 infoDev recently published an in-depth report on “Crowd- funding’s Potential for the Developing World.” It can be nonfinancial means, such as mentorship and accessed at http://www.infodev.org/crowdfunding 22 accredited investors and overall respondents suggesting that a platform that showcases inter- (Figure 19). During discussions with focus group esting business venture opportunities could serve participants, the overwhelming majority indicated as a matchmaker for greater investment flows; that they did not understand the legal and regula- that mechanisms or tools to enhance local due tory framework for investing in Caribbean coun- diligence or monitoring could enhance trust in the tries. Interestingly, insufficient financial returns entrepreneurs; that a central reference source for were ranked last among the barriers. These find- investors to help them navigate the complicated ings are particularly significant as they suggest the legal processes could have significant upside im- diaspora firmly believe that lucrative investment pact on investment activity and reduce transaction opportunities exist, but that broader ecosystem costs; and that training programs, peer exchanges, issues constrain their uptake. and business incubators could help improve the quality of start-up products and services and en- Practically all focus group and interview partici- hance the overall innovation and entrepreneurship pants noted awareness of deals as a critical miss- ecosystem. ing link in their attempts to make an investment, Figure 19: Insufficient trust is cited as the greatest barrier to investing Barriers to investing in start-ups in the Caribbean Please rank the greatest barriers to investing in start-ups in the Caribbean (1=greatest, 6= smallest) All respondents Accredited Investors only Insufficient trust in Insufficient trust in 2.78 2.38 mgmt/entrepreneur mgmt/entrepreneur Complicated legal Complicated legal 3.21 2.81 processes processes Quality of product/ Quality of product / 3.40 3.65 service service Poor enforcement 3.42 Poor enforcement 3.19 of laws of laws Macroeconomic & Macroeconomic & 3.76 3.96 political instability political instability Insufficient financial Insufficient financial 4.44 5.00 returns returns 0 1 2 3 4 5 0 1 2 3 4 5 Average rating (n=407) Average rating (n=25) Source: infoDev Caribbean Diaspora Survey, April-May 2013. 23 Models that Could Operationalize Diaspora Investment An online platform could provide diaspora investors with significantly increased visibility of deal flow. An Online Portal to Identify, Invest, and Mentor Entrepreneurs novation ecosystem participants. Incubators could exchange best practices on profiling and market- An online platform that connects entrepreneurs ing entrepreneurs online. Service providers, such and investors could be a critical link in connecting as law firms and training companies, could list diaspora investors with opportunities back home. themselves on the site to make it easier for entre- Using a low-cost, scalable, and economically sus- preneurs, incubators, and investors to find them. tainable model, such an approach would capitalize on the geographically dispersed nature of diaspora In developed markets, most accredited investors populations, the increasing use of the Internet for are already familiar with or are using an online- social networking and investing, and the nascent based platform to find, invest in, and mentor but growing crowdfunding sector. entrepreneurs. While approximately 77 percent of accredited diaspora investors surveyed indicated While an online platform could provide diaspora that they have heard of online platforms such as investors with significantly increased visibility of AngelList, FundersClub, Homestrings, and Crowd- deal flow, it would also enhance access to finance Cube, among others, only 30 percent reported to for entrepreneurs and serve as an incentive to rally be using these platforms actively to find invest- stakeholders around creating a network among in- ments in start-ups (Figure 20). Almost two-thirds Figure 20: Accredited investors use online resources I would be comfortable mentoring a Caribbean Are you familiar with the start-up that I found on an online platform following online platforms? 100 AngelList 17% 13% 38% 33% 15% 20% 23% 28% Kickstarter 22% 17% 9% 80 Kiva 9% 17% 13% 39% IndieGoGo 14% 9% 14%6 60 38% 80% Crowdcube 9% 5% 18% 72% Gust 14% 5% 9% 40 FundersClub 9% 5% 9% 30% 27% GrowVC 20 9% 9% Clearly So 9% 9% 15% 12% 0 0 20 40 60 80 All Accredited Investors (n=385) (n=26) % of respondents (n=24) Strongly agree Use it regularly Use it once in a while Agree Heard of but not used Disagree Strongly disagree Source: infoDev Caribbean Diaspora Survey, April-May 2013. 24 Photo: Digital Jam 2.0, Jamaica, 2012 Nine of out ten respondents of accredited investors also indicated comfort in mentoring an entrepreneur online, with 15 percent expressed that it was important to of them already familiar with specific online men- meet the entrepreneur in person toring platforms. prior to investing. Equity-based platforms are important because the investors these platforms attract typically devote both funding and mentorship to the start-ups, what bilities, ability to execute a business plan, or return infoDev refers to as “mentorship-based-capital.” investment dollars. Although many of the equity-based investment In ascertaining what factors could improve trust platforms are restricted to accredited investors, and increase investor willingness, three levers nonequity investment platforms, which are open were suggested. First, the ability to meet the en- to everyone, are also growing in use. More than a trepreneur in person before “signing on the dotted third of all respondents were familiar with Kick- line” was noted as a critical prerequisite. Second, starter, a “perks based” crowdfunding site. With the participation of trusted (potentially institutional appropriate training, entrepreneurs could learn or angel group) coinvestors was cited. Finally, to distinguish and leverage the access to finance sophisticated on-the-ground partners who could platforms that are most relevant to their specific conduct due diligence or monitoring, such as local needs. angels, were noted as possibly helpful. As more crowdfunding platforms emerge to serve Nine of out ten respondents expressed that it was niche audiences such as CircleUp for consumer important to meet the entrepreneur in person prior companies or Mozaic for solar energy projects, to investing (Figure 21). However, just over half of Caribbean entrepreneurs and investors interested accredited investors participating in focus groups in the region could also leverage such platforms to also stated that the geographic distance to their serve their geographical interests. One such plat- investment does not matter, suggesting that they form, namely Homestrings.com, already exists and are willing to invest globally and across distances, has connected diaspora investors to projects back so long as appropriate due diligence such as an in- home. This platform is an investment portal that person meeting is conducted first. The fact that 60 facilitates investments for global diasporas. It has percent of the diaspora members visit their home mobilized funds in the region of $30 million since country at least once a year creates an opportunity its UK launch in July 2011. Homestrings’ projects for them to meet entrepreneurs and raises the currently include commercial real estate, telecom, possibility of such investments taking place. Re- and SMEs. For the Caribbean, survey respondents gional “demo days” or “pitch events” where many indicated interest in investing in specific sectors entrepreneurs gather to meet and present their such as green energy, mobile and Internet tech- business plans to angel investors were also cited nologies, education, and agriculture among others. as a potential avenue to help bridge this concern. Further assessment may need to be conducted on the investment constraints in these sectors, such as legal and regulatory constraints specific to these sectors. Harnessing Angel Groups and Reputable Coinvestors Almost all accredited investors stated that they Engendering Trust would be more willing to invest in a Caribbean Focus group respondents overwhelmingly noted start-up if partnering with a reputable coinves- that their largest concern around investing in an tor, such as a multilateral financial institution, a entrepreneur, particularly one found online, is the reputable fund manager, or another angel inves- ability to trust him or her. They expressed concerns tor. Investing as part of an angel group, instead over believing in the entrepreneur’s claimed capa- of as an individual, was noted to create sourcing, 25 Figure 21: Meeting with entrepreneur is key prior to investing 92% of AI1 must meet the 95% of AI1 more comfortable ~84% of AI1 more comfortable entrepreneur prior to investing with a credible co-investor with legal advisory support It is important for me to meet I would be more willing to make an I would be more willing to make an the entrepreneur in person investment in a start-up in Caribb. investment in a start-up in Caribb. if first before investing if there was a reputable co-investor I understood legal framework for investing 100 100 100 80 80 80 59% 69% 44% 54% 49% 54% 60 60 60 40 40 40 31% 31% 46% 42% 42% 20 23% 20 20 8% 9% 8% 8% 7% 8% 0 1% 0% 0 2% 4% 0% 0 3% All Accredited Investors All Accredited Investors All Accredited Investors (n=385) (n=26) (n=385) (n=26) (n=385) (n=26) Strongly disagree Disagree Strongly agree Agree Notes: 1. Accredited investors. Source: infoDev Caribbean Diaspora Survey, April-May 2013. leverage, risk mitigation, and cost benefits. In such Finally, the role of local angels in further enhanc- angel groups, any member can share a deal with ing due diligence and minimizing unease with the rest of the group to increase visibility of deal investing in an entrepreneur was noted as a critical flow. In addition, members can also pool funds to- factor for increased diaspora investing. Local angel gether to enhance leverage and sharing risk, while investors can conduct background checks on the members with specific technical know-how can entrepreneurs through informal networks, confirm lead or advise on deals enhancing due diligence. the physical presence of the company, and continue In light of these benefits, 70 percent of accredited light-touch monitoring of the company, if needed. investors indicated an interest in formally joining a Some interviewed diaspora angel investors had “Caribbean Diaspora Business Angel Group.” Two- already set up relationships with local angels that thirds also emphasized that investing alongside married technical know-how with local knowledge. fellow diaspora members would give them greater comfort (Figure 22). 26 Figure 22: Investing with others in an angel group minimizes risk 71% of accredited investors interested 66% of accredited investors would be in joining a Diaspora Angel Group more active with Diaspora co-investors % of respondents I am interested in formally joining a “Caribbean Investing alongside fellow Diaspora Diaspora Business Angel Investor Group” will give me greater comfort 100 100 12% 28% 33% 80 80 60 59% 60 72% 33% 40 40 20 20 33% 29% 0 0 % of respondents (n=18) % of respondents (n=18) Neutral Agree Strongly agree Source: infoDev Caribbean Diaspora Survey, April-May 2013. 27 Key Learnings and Recommendations broad spectrum of both platforms and avenues to raise finance for an enterprise, ranging from donations to perks to presales to equity. There- fore, selecting the right platform and fundrais- ing vehicle for a particular business can be In general, diaspora members engaged in this challenging and require breadth of knowledge. study confirmed the various hypotheses of the Entrepreneurs could benefit from capacity infoDev team in the design of an entrepreneurship building as it relates to fundraising from online and innovation program for the Caribbean. Ensur- sources. ing that venture finance deals occur in nascent • Training on general business and manage- venture markets, such as the Caribbean, requires ment principles. Entrepreneurs need general several other ecosystem components to be ad- management training and support on topics, dressed alongside access to finance. This includes such as business plan development, marketing significant capacity building for all stakeholders strategy, fundraising, and sometimes, techno- due to the interconnected nature of the innovation logical support and guidance. These topics can ecosystem, including policy makers, incubators, be delivered typically in a bundle by incubators angel investors, mentors, and entrepreneurs. The or accelerators. Caribbean would also benefit significantly from activities that lower transaction costs, such as centralized legal resources or simplified invest- ment processes. Developing an online marketplace Enablers for Individual and ensuring it gains momentum and facilitates Investors and High-net-worth- deals requires a number of factors to be in place. The first factors are an appropriate design and individuals (HNWIs) launch to attract the required critical mass of • Angel investing capacity building. As angel entrepreneurs and investors. investing is a relatively new concept in the Ca- ribbean and among the Caribbean diaspora, nu- This section discusses key enablers, gleaned from merous HNWIs in focus groups and interviews the engagement of participants in the diaspora expressed a desire to become better informed study, for developing an active and sustainable of the opportunities, benefits, and methodolo- access to finance ecosystem for entrepreneurs in gies of becoming effective angels. the Caribbean. Addressing multiple enablers will • Provision of a venture finance resource center. improve momentum and success of deal activity. Accredited diaspora cited the complexity of legal and regulatory frameworks for venture financing as a major impediment to deploying Enablers for Entrepreneurs their capital in the region. A potential mitigat- • Training on value addition that angels provide ing factor, which emerged through focus group through their equity investments. In particu- discussions, was an online venture finance lar, entrepreneurs need to be more informed resource center, which would be developed by about the importance of the mentorship-based- a law firm and centralize information around capital, networks, business savvy, and techni- investing procedures, legal templates, and legal cal acumen that an angel can provide. In some service providers for use by anyone interested cases, accredited investors from the diaspora in making an investment. cited the “narrow-mindedness” of entrepre- neurs in relation to the value that angels could provide. • Training on leveraging appropriate crowd- funding platforms. Crowdfunding includes a 28 Enablers for Angel preneurs in the first place and ensuring that they are retained and engaged in transactions. A plat- Investing Groups form can attract users by leveraging the legitimacy • Establishing angel groups. Diaspora HNWIs of others, from the profile of pilot angel investors expressed a desire to join Angel Groups as an to the reputation of incubators to media firms that avenue for improved sourcing, financial lever- market the program. Retaining investor attention age, and due diligence. At the same time they requires a continuous flow of high-quality deals. expressed a need for support in forming these While a drive for successful transactions on the groups and catalyzing their activity. Interestingly platform would require many of the above enablers many diaspora HNWIs noted that investors from to be executed simultaneously, a number of suc- outside the diaspora would be equally interested cess factors specific to the platform would need to in any opportunities arising in the region. be realized: • Identification of angel champions. These indi- viduals, identified from within existing or new • Identifying respected trail blazers. It will be angel groups, could take the lead in setting up essential for investors from among the dias- the investing group and initiating deals in the pora and local community to join the platform Caribbean. They would not have to be from the at launch and serve as trail blazers. These diaspora, but would need to have fairly regular investors would not necessarily have to engage presence in the region. in transactions to provide the platform cred- ibility, social activity such as commenting on • Training on angel group governance, business companies or sectors would also create the models, and organizational best practices. In desired effect. developing and catalyzing the creation of angel groups, it would be particularly important to • Vetting companies with minimum quality stan- provide technical assistance on the governance, dards to improve investor confidence. Trans- business models, and organizational best prac- parency around a quality vetting process and tices of angel groups to ensure these groups the source of deals will make investors more are well-functioning and present the greatest comfortable. For example, if investors know opportunity for success. that the companies have undergone training by a reputable incubator, they are more likely to • Linking diaspora to local angel investors or browse and assess the start-up profiles listed. groups. One avenue that was identified through The inclusion of any low-potential deals will focus group discussions to overcome the chal- quickly lead to loss of investor confidence and lenges related to geographical distance, trust in willingness to return and spend time on the entrepreneurs, and monitoring of investments platform in the future. was to involve local angel investors to the ex- tent possible. Such individuals, who are already • Packaging deals on the platform as attractive based in the Caribbean and are angel investors investment opportunities, rather than chari- in their own right, could serve as important fo- table ones. cal points for diaspora angels. • Boosting awareness and capacity building materials on the site. The platform can provide increased value by serving as a one-stop-shop Enablers for an Online for relevant entrepreneur and investor capac- Marketplace ity building materials and the venture finance resource center, in addition to serving as an A new online marketplace that matches angel online marketplace for entrepreneurs to match investors and entrepreneurs faces a two-fold chal- with investors. This would increase activity on lenge of attracting sufficient investors and entre- the site and enhance the overall offering. 29 Conclusions Specifically, policy makers can take a leader- ship role in supporting increasing transparency, establishing an investor friendly legal framework, reducing social instability and crime, and provid- Undoubtedly, the Caribbean region is viewed as a ing information resources. The private and public destination with great opportunity and hope among sector can come together to resolve informa- the diaspora community. This study has shed light tion asymmetries, consolidate and increase the on the Caribbean diaspora’s characteristics and visibility of investment opportunities, and help investment interests. The report takes a broader investors and entrepreneurs connect through view on how to leverage the diaspora to address innovative channels, including credible online the access to finance gap, tests various models crowdfunding platforms. Private sector law firms for enhancing the entrepreneurship and innova- could work with governments to create an easier tion ecosystem, and lays out a number of recom- to use information and tools portal for investors. mendations for practitioners interested in applying Law firms could be incentivized to help underwrite the findings and interventions in the Caribbean or such a portal as a marketing avenue to generate other markets. additional business. Institutions, such as the World Bank Group, could support governments in har- The diaspora is a sizeable, well-educated, and monizing these regulations and rules across the affluent demographic whose large majority is Caribbean and crafting policy to create a friendlier interested in engaging even more back home. It business enabling environment and investment is also evident that there is investment interest climate overall. toward both specific Caribbean countries and sec- tors, such as green energy, Internet technologies, The diaspora can indeed play an important role in agriculture, and education. Caribbean govern- the Caribbean’s development story—but it will re- ments, with the support of institutions, such as the quire leadership from governments and the private World Bank Group and private sector input, could sector to lower barriers to engagement, facilitate further explore these sectors and focus on ways structured opportunities, and increase informa- to lower investment barriers and legal complexi- tion transparency. Policy addressing investment ties for each. This willingness and ability to engage climate challenges, such as legal complexity and represents a significant untapped potential for enforcement, can provide a significant first step in Caribbean nations through reducing the barriers lowering barriers to engagement. In the long term, to, and improving the avenues for, engagement. diaspora investments and their deals in the region can demonstrate to the rest of the world that the Caribbean has viable high-growth enterprises and is open for business. 30 Photo: Enterpreneur Roundtable, Barbados, 2013 31 ©2013 infoDev / The World Bank | 1818 H Street, NW | Washington DC, 20433 Email: info@infoDev.org | Tel + 1 202 458 8831 | Twitter: @infoDev www.infodev.org