IT industry representatives were briefed on the rationale of venture capital and ways to attract such IT-oriented investments to Jordan, at a technical strategy workshop last week, a statement by the REACH Initiative said.
Although capital represents the backbone of any type of business, it alone can not guarantee the success, sustainability and growth of a business unless augmented with the necessary technical and managerial know-how, the statement said.
“Venture capital is a highly specialized field of business in which institutional and private investors invest through professional managers in high growth start-up or early stage businesses, offering both financing and an array of administrative, marketing, legal and financial assistance,' explained Thomas C. Gibson, an AMIR Program consultant and co-facilitator of the workshop.
In remarks highlighting the difference between capital obtained from the traditional financial system and venture capital, Gibson stressed that the latter involves high risk since there is generally no collateral secured by the venture capitalist to cover losses in case of failure of the business, which is the case with respect to bank loans. Moreover, a venture capitalist seeks high returns from selling shares after several years of growth of the value of the investment, rather than immediate returns.
The workshop also reflected on the history of venture capital in the United States as having surfaced in the fifties through two basic mediums: Wealthy families who invested, for value growth potential, in small businesses that were successful but had limited capital; the Small Business Investment Companies (SBICs), a government-sponsored body of funds established in 1958 to provide professionally managed capital to riskier small companies.
“Small is how everything starts. The mechanisms that prompted the venture capital industry in the United States are ideal to further establish and expand the IT industry in Jordan, especially at this early stage of its evolution,” Gibson said.
The workshop highlighted three main elements, which venture capitalists look for in any business. The first and foremost is management in terms of having a management team possessing the necessary skills, integrity, track record, commitment and a solid knowledge of the business. The second is growth potential and the third is exit potential, which relates to the ability to sell shares, especially when the value of the initial venture capital multiplies.
In conclusion, recommendations were made to develop the venture capital industry in Jordan, calling for aligning the legal infrastructure and developing its human resources and the establishment of additional small business venture funds to create a larger number of growth-oriented companies.
The workshop was sponsored by Int@j and the information technology sector in Jordan. Held at the Zara Convention Center, it was the eleventh in a series of 12 technical workshops that come on the heels of REACH 2.0, a review process of the REACH 1.0 Initiative. — ( Jordan Times )
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