Private Equity and Venture Capital in Rwanda A study of the Essential Factors a Company in Rwanda Must Have in Order to Receive Private Equity and Venture Capital Financing

Abstract

The aim of this study is to identify factors investors deem to be important when investing in private equity and venture capital in Rwanda. In order to answer that question, a secondary objective is developed. That is to refine the stages of private equity and venture capital investment decision process and identify criteria used in each of these processes. The underlying theoretical framework of this research is based on two models: Tyebjee & Bruno´s (1984) five stage model of VC investment activity and Fried & Hisrich´s (1994) sixstage model of VC investment decision-making. In this study, four private equity and venture capital firms that invest in Rwanda are studied. Fund Management Company (FMC) has a focus on growth capital investment. BDF is a Rwandan fund that has a focus on SMEs with profit, high growth and export potential. Kaizen Venture Partners target distressed companies and focus on turnaround investment. Norfund is a Norwegian Development Finance Institutions (DFIs) focused on profitable and sustainable companies. Based on the results, a 6-stage model of the private equity and venture capital investment process model is developed. The stages are deal sourcing, preliminary duediligence, term sheet agreement, formal due diligence, final negotiations and investment and active ownership and exit. The study found several essential criteria a company in Rwanda must have in order to receive private equity and venture capital financing. First it needs to have growth potential. Second, a good management team is essential. Third, the investment prospect needs to have a competitive advantage. In addition to those essential criteria, private equity and venture capital firms look for companies in industry with growth potential and high-entry barriers.