78588 The Caribbean Diaspora: A source for venture investment? June 2013 1 Authors: This note has been authored by Qahir Dhanani and Mina J. Lee. The content is based on a study conducted by the authors from March to June 2013. The note was prepared as part of the Entrepreneurship Program for Innovation in the Caribbean (EPIC). EPIC is a 7-year program funded by the Government of Canada and implemented by infoDev, a unit focused on Innovation, Technology and Entrepreneurship within the World Bank. To learn more about EPIC, please visit: http://www.infodev.org/ The Caribbean Knowledge Series is an occasional series that presents World Bank knowledge in an accessible format. It is meant to assist knowledge sharing across the region and trigger policy dialogue on topics relevant for the Caribbean. This note was prepared to support the participatory policy dialogue in the context of the Caribbean Growth Forum (CGF). The CGF is an initiative facilitated by the Compete Caribbean Program, the Inter-American Development Bank, the World Bank and the Caribbean Development Bank, with the support of the Canadian International Development Agency, the United Kingdom’s Agency for International Development, CARICOM Secretariat, the University of the West Indies, the European Union and Caribbean Export. It aims to facilitate a multi-stakeholder dialogue to identify practical solutions for the growth challenge in the Caribbean. To learn more about the CGF methodology and progress in each Caribbean country visit: http://caribgrowth.competecaribbean.org/ Disclaimer: This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Visit the entire “Caribbean Knowledge Series� collection at: http://worldbank.org/lac Design & Concept by Room Grupo Creativo | www.room.com.do Cover Photo: iStockPhoto 2 3 The Caribbean Diaspora: A source for venture investment? The Caribbean region is unique for many ability to make investments in high-potential, reasons. Perhaps most striking among these growth-oriented startups in the Caribbean? is the demographic fact that for every resident in the region there is an individual living in the Profile of the diaspora diaspora abroad. This one-to-one ratio of nationals to diaspora members presents a tremendous Diaspora members from each country in the opportunity for cross-border engagement among Caribbean participated in the study. Half of the a people who share common cultures and histories. diaspora respondents are based in the four metropolises of London, New York, Toronto and As part of the Entrepreneurship Program for Miami, with the remaining spread out over a Innovation in the Caribbean (EPIC), infoDev and the World Bank conducted a study to assess the business and investment interests of the diaspora. Figure 1: Respondents from Four EPIC aims to support high-potential, growth- Major Diaspora Centers oriented early stage companies for the purposes Current  residence   of job creation and economic development. These London   17%   enterprises require an ecosystem of resources from mentorship to networks to financing. While New  York/   12%   there are numerous seed stage financing models New  Jersey   available, the Program is focused on leveraging Miami   7%   business angel investors1 from the diaspora who can bring mentorship-based-capital to address the Toronto   7%   financing gap which entrepreneurs face. The goal of the study is therefore to inform the development of an early stage innovation financing facility Other   57%   targeted at connecting diaspora investors with 0   10   20   30   40   50   60   startup entrepreneurs. %  of  respondents   (n=635)   Engaging over 850 self-identified members Source: infoDev Caribbean Diaspora Survey, April-May 2013 of the Caribbean diaspora, the study brings together knowledge and data gathered from 634 multitude of cities (See Figure 1). Respondents respondents, with over 31 countries of origin, are normally distributed by age and balanced by to a widely circulated online survey2, inputs from gender. over 200 face-to-face focus group sessions with business leaders, opinion leaders, and high net- In general, the diaspora is very well educated with worth individuals, and insights from individual 80 percent holding a bachelor’s degree or higher interviews with 20 accredited angel investors. (See Figure 2). Over 65 percent of the respondents are currently employed in the private sector with This note provides a brief summary of the findings almost 40 percent owning their own businesses. A from the study focusing on three questions of quarter of diaspora respondents are affluent with particular interest. First, what is the profile of the either net investable wealth or annual incomes in diaspora? Second, how willing are they to engage excess of USD 100,000 (See Figure 3). This income with the Caribbean? And third, what is their financial is held primarily in cash savings, real estate 1 Angel investors are affluent individuals who invest their own capital and time directly into unquoted companies, in which he/she has no family connection, in return for ownership equity. 2 The structured 40-question online survey was distributed through various diaspora organizations and through social media channels. It was open for a period of 6 weeks. Respondents therefore formed a random sample of diaspora members claiming affiliation with the following 31 countries or territories: Antigua and Barbuda, Aruba, Anguilla, The Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Colombia, Cuba, Curaçao, Dominica, Dominican Republic, Grenada, Guadeloupe and dependencies, Guyana, Haiti, Honduras, Jamaica, Martinique, Montserrat, Puerto Rico, Saint Barthélemy, Saint Kitts and Nevis, Saint Lucia, Saint Martin, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands. 4 holdings, or public equity. A small proportion of Figure 3: A quarter are affluent respondents (only 8 percent) identified themselves as “accredited investors,� namely having either an What  is  your  net  investable  wealth?   annual income of over USD 200,000 during the past two years or at least USD 1 million in investible Below  USD  $100K   75%   assets. These affluent and accredited individuals USD  100K  -­�  250K   14%   Figure 2: 80% of diaspora with higher education degrees 8%   USD  250K  -­�  1Mn   Highest  level  of  educa;on  completed   PhD   11%   Above  USD  1Mn   3%   Masters   41%   28%   0   50   100   Bachelors   Community   %  of  respondents   12%   college   (n=320)   High  school   diploma   3%   What  is  your  annual  income?   Less  than   1%   High  school   Less  than     32%   Other     6%   USD  50K   cer;�ca;on   0   10   20   30   40   USD  50-­�100K   42%   %  of  respondents   (n=353)   Source: infoDev Caribbean Diaspora Survey, April-May 2013 USD  100-­�200K   21%   are of critical importance in making informed investments back home. They tend to have a level of investment sophistication and business acumen More  than     5%   USD  200K   that promotes best practices among investees, demands accountability and results, and can 0   50   100   have a major contribution to the development of Caribbean economies. %  of  respondents   Source: infoDev Caribbean Diaspora Survey, April-May 2013 Engagement back home back home, when asked whether they would like Over 85 percent of diaspora members give back to to be “more connected� to their home country, 90 the Caribbean in some way, shape, or form. While percent of the diaspora responded positively. This the majority send remittances, make donations, demonstrates a very strong, but latent opportunity buy property or invest in a venture, many others for increasing the level of engagement from the are involved as volunteers or mentors (See Figure diaspora in a meaningful way. 4). However, there are a number of constraints to A large number of diaspora members are active in increased engagement cited by diaspora (See their high-school alumni associations, a source of Figure 5). These range from weak legal frameworks, deep affiliation and nostalgia. Visiting family and macroeconomic and political stability, and crime, friends in the Caribbean is another key source of among others. Addressing these sources of engagement, where almost 60 percent of diaspora dissuasion should be a priority going forward. make the trip home at least once a year and 24 percent travel home more than twice a year. Against a backdrop of already significant engagement 5 Figure 4: 84% of diaspora respondents are engaged with the Caribbean community In  what  ways  do  you  engage  with  the  Caribbean  community  "back  home"?     Check  all  that  apply   Send  Money  to  Family  and  Friends   48%   Volunteer   40%   Mentor   33%   Donate  money  to  ChariFes   32%   Invest  in  property   22%   Donate  Money  to  Alma  Mater   18%   Work  for     Caribbean  enFty   14%   Invest  in  companies   13%   Invest  in     stock  market   8%   Not  engaged   16%   0   10   20   30   40   50   %  of  respondents   (n=444)   Source: infoDev Caribbean Diaspora Survey, April-May 2013 For some of these reasons, many focus group Of these investments, 57 percent were ventures participants expressed apprehension at the notion based in the Caribbean (See Figure 6). This means of investing in diaspora bonds, which anonymize that 23 percent of all diaspora members have their contributions and provide limited visibility made investments in new ventures within the on the use of funds. Instead, they much favored Caribbean region. This is a remarkable finding as opportunities to not only “touch and feel� the it provides clear evidence that diaspora dollars investments being made, but to have an active role are already flowing to new ventures in the region – preferring to give directly to family and friends, and that these come from relatively sophisticated alma maters, and organizations whom they know investors. and trust personally. A closer look at accredited investors shows Not surprising therefore, is the high level of interest significant differences in the ability and risk the diaspora expressed in serving as mentors, appetite of the diaspora community. Looking which require a person-to-person connection (85 at historical behavior, 26 percent of accredited percent noted a desire to mentor their compatriots). investors, compared to 13 percent of all investors from the diaspora, have made investments of Investment and financial interests USD 100,000 or more in new business ventures, further demonstrating the quality and desirability While mentorship is a very meaningful resource of opportunities available in the region. Looking that the diaspora can provide, the most impactful forward, 40 percent of accredited investors as contributions are through their investments in compared to 14 percent of all diaspora investors business ventures back home. In fact, 40 percent are willing to invest over USD 100,000 each year for of diaspora respondents have already invested in a a five year period in startups and high-potential, business venture, broadly defined as any company growth-oriented startups in the Caribbean. in its early stages. 6 Figure 5: Social instability and weak legal frameworks cited as largest barriers to increased engagement What  prevents  you  from  geFng  more  involved  in  the  Caribbean?  (Check  all  that  apply)   Social  instability  (crime)   32%   Too  geographically  distant   31%   Weak  legal  framework   30%   enforcement   Macroeconomic  instability   24%   Not  ready  to  get  involved  now,     20%   but  would  like  to  later   No  family  there   7%   Do  not  feel  a  connec:on  to  the  Caribbean   4%   No  friends  there   2%   Not  applic.  -­�     25%   already  involved  fully   0   10   20   30   40   %  of  respondents   Source: infoDev Caribbean Diaspora Survey, April-May 2013. Excludes respondents from Jamaica, Haiti, Cuba, Dominican Republic and Puerto Rico, Honduras, and Colombia; Including Jamaica represented 65% of respondents (n=444)   which would have increased social instability (crime) as the major barrier by 10% Figure 6: Diaspora are already investing in startups, many of which are based in the Caribbean Have  you  previously  invested  in  a  start-­�up  or     early  stage  company?   Where  was  the  start-­�up  based?  (Select  all  that  apply)   Yes   40%   Caribbean   57%   Accredited   Accredited   Investors   69%   Investors   39%   Yes   Caribbean   No   60%   Others   50%   Accredited   Accredited   Investors   31%   Investors   67%   No   Others   0   20   40   60   80   0   20   40   60   80   %  of  respondents   %  of  respondents   (All  n=435)   (All  n=176)   (Accredited  Investors  n=26)   (Accredited  Investors  n=18)   Source: infoDev Caribbean Diaspora Survey, April-May 2013 7 Figure 7: Diaspora investors take a regional view and are not biased to their country of origin Respondents by country of affiliation vs. country they are interested in investing Country  of  affilia.on  (n=635)   Country  interested  to  invest  in  (n=385)   80   80   %  interested  in  inves.ng  in  country   %  affiliated  with  country   62%   60   60   40   34%   40   65%   24%   20   15%   15%   13%   20   11%   11%   7%   6%   8%   9%   6%   7%   5%   21%   10%   7%   4%   3%   3%   4%   3%   4%   3%   0   2%   2%   1%   1%   0   Guyana  Grenada   Hai.   Dominica   Jamaica   T&T   Barbados   St.  Lucia   St.   Bahamas  An.gua  Cayman   Belize   DR   Suriname   KiCs  &   &   Nevis   Barbuda   %  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   Source: infoDev Caribbean Diaspora Survey, April-May 2013 These findings are also perplexing as practically This is in stark contrast to the actual desires of the all focus group and interview participants noted diaspora investor community, who take a regional awareness of deals as a critical missing link in their view for their portfolios. When asked about the attempts to make an investment, suggesting that countries in which they are interested in making a platform that showcases interesting business investments, diaspora investors always listed more venture opportunities could serve as a critical than one country, providing further evidence match-maker for increased investment flows. that they are seeking to make deals in multiple destinations beyond their country of primary At present, these matches are made almost affiliation (See Figure 7). entirely through friends and family (86 percent of investors learned about their investment opportunity through this source); however, such matches limit the diaspora to a narrow universe of potential deals. 8 Figure 8: Investors interested in a variety of sectors Sectors diaspora have invested in Sectors diaspora are interested in What  sectors  were  the  Caribbean  start-­�ups     What  sectors  are  most  aGracHve  to  invest  in?   (that  you  funded)  in?  (Check  all  that  apply)   Check  all  that  apply)   Entertain.,  leisure,  music   19%   Entertain.,  leisure,  music   32%   Business  consul?ng   18%   Business  consul?ng   15%   Agriculture   17%   Agriculture   41%   2.4x   F&B  and  tobacco   15%   F&B  and  tobacco   29%   Culture  and  arts   14%   Culture  and  arts   29%   Educa?on   14%   Educa?on   37%   2.6x   Retail,  wholesale   13%   Retail,  wholesale   12%   Real  estate   13%   Real  estate   33%   Healthc.,  �tness,  pharma   10%   Healthc,  �tness,  pharma   27%   Manufacturing   10%   Manufacturing   16%   Marke?ng,  PR   10%   Marke?ng,  PR   11%   Mobile  plaMorms,  internet   9%   Mobile  plaMorms,  internet   30%   3.3x   Private  equity   2%   Private  equity   7%   Green  energy  &  tech   1%   Green  energy  &  tech   40%   40x   Venture  capital   1%   Venture  capital   7%   0   10   20   30   40   0   10   20   30   40   %  of  respondents   %  of  respondents   (n=88)   (n=400)   Source: infoDev Caribbean Diaspora Survey, April-May 2013 Historically, diaspora investments in startups case of green energy and technology, future have been in a number of sectors ranging from investment interest is forty times greater than entertainment and the arts to consulting and retail actual investment history. A need for business to real estate and manufacturing. These interests incubation services that target entrepreneurs in are also shifting with the times. Looking forward, the green energy and mobile applications sectors sectors such as green energy, mobile applications, is therefore important in meeting the demand and education and agribusiness are most attractive interests of diaspora investors. among diaspora investors (See Figure 8). In the 9 Conclusions Undoubtedly, the Caribbean region is viewed as reducing the barriers to and improving the avenues a destination with a great sense of opportunity for engagement. The diaspora can indeed play and hope among the diaspora community. The an important role in the Caribbean region’s survey has shed light on the Caribbean diaspora’s development story – but it will require leadership characteristics and investment interests. The to lower barriers to engagement, facilitate diaspora is a sizeable, well educated, and affluent structured opportunities and increase information demographic population whose large majority transparency. is interested in engaging even more back home. There is investment interest towards both specific Caribbean countries and sectors. This willingness and ability to engage represents a significant untapped potential for Caribbean nations through 10 11 worldbank.org/lac 12