AAC

1
AAC

• Towards Priority Actions for Market Development
• for African Farmers
• AGRA/ILRI Conference
• Nairobi 13-15 May 2009
• The Venture Capital experience
• Tom Adlam
• CEO, AAC

2
Content

• Background, Mission and Targets
• Investment Philosophy and Products
• Deal Structure
• AAC Investment Proposition
• AAC Value Creation
• AAC Experience
• Africa Seed Investment Fund
• Conclusion
•  

3
Background

• Reasons to be cheerful
• Commodity prices and global demand for food
• Technology improvements
• Less governmental interference
• Domestic market growth

4
Mission Targets

• Mission
• To be a leading agribusiness-focused investment
  fund in Africa that delivers positive financial
  returns to its investors, supports its investees
  through the provision of affordable and flexible
  capital, and has a high social and development
  impact on smallholder farmers and rural
  economies, thereby encouraging greater investment
  in the agriculture sector
•  Targets
• To earn a minimum gross return of 11 per annum
  on funds invested
• To mobilize increased investment capital of at
  least an additional 5 million into the East
  African agricultural sector through partnerships
  with other investors and
• For our investees to reach, by 30 June 2012, at
  least 150,000 smallholder households in East
  Africa with an income benefit per household of at
  least 100 per annum.

5
Investment philosophy
1. Demographic pressures are increasing. 2.
Young people need employment opportunities. 3. We
need to increase support to Small Growing
Businesses which create jobs. 4. It is very hard
to build a successful business when the financing
risk is high. 5. There are very few examples of
great businesses which have successfully managed
growth on a base of high cost debt finance. 6.
Long term, flexible and affordable finance is
required.
Optimal financing mix
high
Debt finance
Financing risk
Equity finance
low
low
high
Business risk
6
Investment products

• Appropriate instruments for investee businesses
• Debt finance in functional currency at
  near-commercial rates to businesses which have
  positive cash flow and good potential DSCR
• Quasi-equity instruments structured as loans but
  including a PL based variable interest premium
• Equity finance to higher risk businesses (eg
  start-up or early in business lifecycle with high
  reinvestment requirements)
• Co-financing opportunities with investment
  partners active in the region
• Leverage AAC capital
• Risk-sharing

7
Deal Structure

• Debt and quasi-equity and Equity instruments are
  preferred by Investees
• Average deal size is about 500,000
• Expected gross US return on current portfolio
  10 /- 1
• Strong spread of investments throughout
  agriculture value chain

8
AAC Investment Proposition

• Strengthening the weak elements in the value
  chain
• Risk High High
  Medium Medium
  Medium
• Need High High
  High
  Medium High
• Interest High Low
  Medium Medium
  High

Farming inputs
Production
Marketing and sales
Harvest, store distribute
Food processing
Peripheral businesses
AAC Investment
9
AAC Value Creation

• Able to invest instruments which best suit the
  business
• Leverage contacts with lenders and equity
  investors
• Credible partner for future exits like IPO

• Participate in building effective strategy

• Access to network of managers assist in
  recruitment

• Reputation for transparency integrity/business
  principles
• Introduce high standards of corporate governance
  and financial management
• Maximise shareholder and exit values
• Appoint industry experts to Investee Board

10
AAC Experience on Aspects that weaken the Value
Chain

• High input and transaction costs
• Conflict between market access and commercial
  viability
• Donor influence (the something-for-nothing
  approach)
• Land fragmentation
• Small holder reliance on rainfall/nature
• Lack of access to working capital from Banks
• Lack of access to other sources of capital
• Weak regulation and enforcement
• Difficulty in movement of goods across the
  regional borders
• Too much emphasis is placed on farmers needs
  rather than on the competitive challenges
  confronting agribusiness value chainsLow
  education levels among farmers
• Lack of systems and poor financial management
• Poor corporate governance
•  

11
Africa Seed Investment Fund

• Objectives
• 1. To provide affordable and flexible risk
  capital to seed companies operating in East
  Southern Africa (Ethiopia, Kenya, Malawi,
  Mozambique, Rwanda, Tanzania, Uganda and Zambia)
• 2. To provide Business Development Support to
  build healthy long term viable businesses able to
  attract additional capital to the seed sector
• Targets
• 1. To earn a minimum gross return of 8 per annum
  on funds invested
• 2. To mobilize increased investment capital into
  the East African agricultural sector through
  partnerships with other investors and
• 3. For our investees to reach, by 30 June 2016,
  at least 1 million smallholder households in East
  Southern Africa with an income benefit per
  household of at least 100 per annum.

12
Conclusion
Given the growing levels of food insecurity and
reduced margins for the African farmers, farmers
must be given opportunities to diversify and
increase their income levels. This is pivotal to
the poverty reduction strategies of all countries
in Sub-Saharan Africa. AAC recognizes that the
transition from subsistence agriculture to market
oriented and high value commercial agriculture is
critical for the survival and development of
sustained economic opportunities for small
farmers and agro-processors in greater East
Africa (Including Ethiopia, Rwanda, Zambia
Malawi).   We are dedicated to providing
affordable and flexible risk capital to
enterprises which encourage agro-diversification
and improve access to the market in so doing
enabling smallholder farmers realize value from
their efforts. tom.adlam_at_aac.co.ke www.aac.co.ke