Editorial: Demand for venture capital exceeds current supply

According to research commissioned by the Venture Capital Trust Fund (VCTF) between 2019 and 2020, demand for venture capital in Ghana far exceeds the current supply.

For instance, the SME sector requires around US$15billion to meet its financing needs – a stark contrast to the US$70million available in venture capital funds.

The Fund’s General Manager, Percival Ofori Ampomah, acknowledged this significant gap, stating: “We currently do not even have 10 percent of the required capital. As a result, VCTF is aiming to secure US$120million by 2030 in order to establish a self-sustaining venture capital ecosystem”.

This highlights the VCTF’s strategy to address systemic issues and attract sustainable financing.

To achieve self-sustainability, VCTF projects that it will require an additional US$10million annually from government over the next few years.

Although VCTF has already received US$40million from the Ministry of Finance under the Ghana Economic Transformation Project (GETP) to establish new funds, the long-term goal is to secure a stable, permanent source of funding that ensures continuous support for small- and medium-sized enterprises (SMEs).

One of the significant challenges VCTF faces is a preference among foreign investors to domicile funds in Mauritius rather than Ghana. This has resulted in a substantial portion of investment capital remaining offshore, despite being directed toward projects within Ghana.

Mr. Ampomah highlighted that over 90 per cent of VCTF funding currently comes from foreign sources, with local investors slowly gaining interest due to a great­er understanding of venture capital and private equity.

Venture capital funds (VCF) are one of the main development finance tools pivotal in providing patient capital, fostering entrepreneurship and economic development, particularly in emerging markets where traditional financing may be scarce.

The Venture Capital Trust Fund was established under the Venture Capital Trust Fund Act 2004 (Act 680) in 2015. However, Mr. Ampomah explained that VCTF’s immediate focus is revising the Act to align it with the current economic landscape.

He explained the need for legislative reforms to update the Venture Capital Trust Fund Act, which has become outdated after two decades. For example, the current Act still references the National Reconstruction Levy, a funding source that was repealed years ago.

Hence, policymakers will be extensively engaged next year to push for changes that will create a more sustainable funding framework for the trust fund.

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