Faculty of Economics and Management
University of Sfax, Tunisia
BEL HADJ TAREK
Faculty of Economics and Management of Sfax, University of Sfax, Tunisia
Faculty of Economics and Management, University of Sfax, Tunisia
University of Sfax - Faculty of Economics and Management (FSEGS)
Visit for more related articles at Journal of Internet Banking and Commerce
Venture capital is a form of financing that a company can get. These are "temporary and minority equity participation in unlisted companies to subsequently generate capital gains. Translation of American term "venture capital. Venture capital in the strict sense concerns, meanwhile, that the only interventions in capital in new enterprises or in the creation phase "It is a kind private funding, unlike the financing of listed companies. The rationale of venture capital is that it is sometimes one of the only sources of major funding that a company can get for it. Other sources, such as loans from banks are often too difficult to obtain for a new business, as these sources consider some business projects are too risky. Starting a business environment that requires greater dynamism in investment and entrepreneurship, venture capital, a structured and organized in Tunisia, plays an important role in the financing chain and supporting businesses including innovative SMEs which constitute the most dynamic sector of the economy. In this report, we believe that venture capital is an important segment for the financing of SMEs in Tunisia it is imperative to develop in the direction of a better contribution to the scheme of financing of SMEs.
Venture Capital, Entrepreneurial Projects, Tunisian Risk Capital Investment Company
Venture capital, has an investment process based on risk to the concerted action of entrepreneurs and investors and that accelerates the benefit of both parties, the transformation of a technical asset in technological or commercial advantage, and more specifically, by creating value. It therefore remains a key player in the development and growth projects, particularly those based on knowledge oriented technologies, and therefore an essential source and an important factor of modern growth. The venture capital companies are the main source of funds, mainly in the form of equity capital for entrepreneurial projects in initial phases. The main incentive for this high risk investment is unusually high returns they are likely to achieve this generally compensates for the too high risk that characterizes the entrepreneurial projects invested. This type of financing is intended to help projects develop; there is actually a specific financial intermediation.
The analysis I trials to develop in this work is likely to take stock of the places SME financing methods in Tunisia by focusing the analysis on venture capital and involvement in the business and financing plan after driving a medium-term prospective study to assess future potential of this financial segment to generate future scenarios of evolution of this sector in Tunisia.
This work will consist of two main parts. The first part will be devoted to the study of risk capital in the world and in Tunisia through its role as innovative companies financed with high growth potential and with the difficulty of finding the second part needed. The funding will treat capital contribution of risk to finance entrepreneurial projects.
The main feature of venture capital is that, as the name suggests, it involves a lot of risk for the financer. This is because there are generally no guarantees to its investments. It can either make lots of money or lose its investment. This is why investors normally choose to invest in innovative companies and high growth potential. The yield in the form of surplus value (the difference between the purchase price and the resale price of participation) must obviously be very interesting, since the risk is very large.
The equity investors in venture capital are in the form of equity or quasi-equity, that is to say that venture capitalists have a significant influence and control over decisions and funded company policies. In "equity" means is that the two actors - the company funded and venture capitalist - are (almost) on the same footing.
This is generally not a single individual who invests in venture capital, but venture capital companies, venture capital funds or business subsidiaries. They invest in the form of equity, such as common or preferred shares, options, subscription rights - which give priority to the oldest shareholders on the purchase of new shares placed on the market by the company - or debentures - which are like bonds, but without guarantee.
Venture capital typically occurs in the early days of the company as seed capital, venture capital creation and development, which is sometimes referred to equity in the latter case. There are also forms of financing through venture capital during the recovery, redemption or merger of companies.
The main advantages of venture capital for the company are mainly related to the flexibility engendered by stabilizing its financial structure thanks to venture capital. As there is no (or little) short-term repayment, the invested capital can be used exclusively for the acceleration of the company. In addition, it is often the main source of funding available for a new business or an ambitious project.
Venture capital also gives access to the contractor's experience and business network / venture capital (s). This last advantage against constitutes a drawback for some entrepreneurs, who want to be masters of the decisions and policies of their company. Another drawback of venture capital investment is the obligation of the contractor to submit a very detailed business plan to investors, and to pass all stages of the selection made by the latter. For investors, the main advantage is of course that they can make lots of money on the resale of their participation, but the main drawback is that they can also lose their investment if the project proves a failure.
The companies of venture capital developed fitness’s and particular tools to face the difficulties which can hinder the route of creation in first phases. They are generally considered as being the only investors capable of selecting projects, of structuring the financing and of advising the promoters of the projects. In fact, of the point of view of the theoretical literature, the venture capital presents the mode of financing the most adapted to the entrepreneurship, certainly, the contribution of the funds of initiating also live in more than financing, to adapt the entrepreneurial projects in the rules (rulers) of good governances and transparency, to put at their disposal invaluable liquid assets and to clear a sufficient profitability.
The capital initiating is defined as being «the major seed». C' is the financing well upstream to the starting up of the company. The objective of this fund rising is to prove the feasibility of the idea or the project. The purpose of this stage is to allow the elaboration of the development plan or the business plan (Business-plan) to convince investors to financier the launch of a new project .
Qualified as capital feasibility, the capital initiating (priming) serves then for financier the premature stages of a project or that of an entrepreneur which tries to convince the stakeholders of the feasibility of its idea of the project, one else of a promising which wants be helped to draft a business plan.
The funds of initiating are then intended, in the initial development of the project and in the demonstration of its reliability by developing its business plan which will be later treated. This document, allows to have a synthetic vision of the project to convince and make sensitive the company of venture capital of the importance and the profitability of the project and bring him (it) consequently to financier the project.
The circumstances of this phase are financed by stockholders' equity or resources resulting from close friends to know the capital of closeness, money coil him (it) which refers to the parent (relative), the friends, colleagues invest (surround) more at least durably in the company outstanding discounted bills of creation. Certainly the appeal to the outside financing is almost impossible, unless the project presents a specific interest. From then on, the possibilities which offer themselves to the entrepreneurs limit themselves to the personal funds. The most likely investors at this stage are:
The entrepreneur himself who acts with his ways. The local capital (love money) comes from relatives namely parents or friends.
• The investors deprived as the business angels: the latter supply a financing with essential stockholders' equity in the first years when during the phases of development of the company, they also bring to the entrepreneur their experiences (experiments), their advice (councils) and the access to their relational network. The businesses angles represent an important component of the process of financing of the creation of the company in particular in phase of initiating .
The Business Angels: The Main Players
Be interested in the phase of initiating takes place essential, because it is the phase which teaches the emergence of companies and which handles the main difficulties of financing. However the private investors where Business angels play a key-role during the initiating. Outre the fact that they supply a financing with essential stockholders' equity in the first years of new business start-up. They also bring to the entrepreneur their experience (experiment), their advice and the access to their relational network.
It is generally experimented entrepreneurs who acquired strong skills in varied economic. Their fields of activity business skills cover the big domains to know finance, industry, communication, computing, marketing, commercial, and management.
Yet, the funds of initiating are venture capital funds dedicated to innovative companies in hardly contained technological and playing the role of first deliberate actor to participate in the financing of the company, whether it is during the creation of the company or during the first tour: the company can have a few months, if it has been created, in two or three years.
To better understand the specificities of financing by Tunisian venture capital in particular in phase of initiating we chose to make a case study at four SICARs to know (Investment company with Venture capital) Tunisians dedicated to the financing of the innovative projects in the said stage of initiating This SICARs is as follows: the SODINO (Company) of development and investment of the NORTHWEST), The SIDCO (Company of investments and development of the west central region), the SODIS (Company of investments and development of the South) and the FRDCM (Fund(Collection) of reconversion(retraining) and development of the Centers Appearances.
Our will is to understand even more than does not allow it the literature, worth knowing the mechanism of granting of venture capital and the specificities of intervention of this mode of financing to encourage the entrepreneurship in Tunisia. In other words, to do it, we chose to lead a qualitative study.
Fayolle  specifies that "the vision of the research in entrepreneurship has marked epistemological and methodological consequences, its consequences direct the researchers to a type (chap) of combining for the approaches and for the longitudinal, deductive, qualitative, constructivist methods which it will be necessary to us to spread on numerous cases". From then on, the choice which we made is based on the case study, as strategy of appropriate search.
Justification for the Choice of the Case Study as a Research Method
In this search as we specified it, we are going to be interested in the questions of types ("how and why?". The choice of the qualitative method is more particularly the case study remains a logical asset(trump card), it also joins in answer to the report of Bygrave which, analyzing the state of the search in entrepreneurship, underlines with strength the drift and the limits of certain quantitative researches which lead to commonplace conclusions.
Bygrave indicates for example that too many searches are guided by constraints purely bound to the too intensive use of the software (SPSS) or by subjective answers to multiple-choice questionnaires which few of investigated make occupied take time to complete. So our choice of the case study as the method of search is at the same time deductive and inductive.
At this level, she is similar to the approach hypothetico deductive. But she is inductive in what she grants a very big opening to the researcher in front of phenomena to be arrested on ground. Plus exactly, the latter in the latitude to collect quite given susceptible to help him to understand better the phenomenon which he observes, the abstract frame.
Besides, contrary to the classic hypothetico deductive approach which recommends a random choice of the sample to allow a generalization of the results, the cases are rather chosen according to the principle of the deliberate sampling. The case is selected compared to the wealth of the information which the researcher estimates to be able of collecting, while taking into account determined theoretical dimensions beforehand to mark out the selection of case to be studied. L' data analysis is not based on statistical tests, but rather on techniques of qualitative nature.
Thus it is advisable to underline that the appeal to the qualitative methods in particular the case study were the object of an interest growing in entrepreneurship, because "many thorough questions of the entrepreneurship are rarely approached and numerous are the important questions which can be handled only through methods and through qualitative steps" .
At the end to solve the problem of search, we have the opportunity to lead a qualitative study of case of the investment company to Tunisian venture capital (SICARs). Our approach on ground of search was translated by some personal and preliminary contacts with the first one responsible for this SICAR which facilitated the made an appointment with the staff the aforementioned SICARs. We also called on to the method of collection of data corresponding to the interview, by basing itself on the technique of the survey.
In this report, this technique tends to stimulate the spontaneity of the interviewee by knowing that the latter has inevitably no representation aware of the sought information. Grawitz  assert that «the interview is a process of scientific investigation, using a process of verbal communication, to collect information, in connection with the fixed purpose".
The obtained information is collected thanks to the answer of the responsible first ones SICARs. Besides the interview, a daily communication with their staff allows us to collect more information. Thanks to a continuous dumping on the ground, three sources were used mainly to know maintenance with the staff, the participating observation of the fact that our interactions with the staff of Sicard thanks to our continuous presence, an interview and an analysis of documents.
The seed capital involves the provision of funds for innovative projects under development which are at the stage of development of a product or in companies that have not completed their development and have strong potential growth. So this specialized funds in the capital contribution to innovative projects. They participate in the first round of financial table of business creation projects, before marketing the product, completion of the development phase or qualification of their technical.
Concurrently with the implementation of these funding structures, the Tunisian government seeks to encourage entrepreneurship by creating boot in specialized funds to defend the upstream financing barriers. The Entrepreneurial Assistance Program has a new support measure for the initiation of innovative companies. This is among the activities planned by the Tunisian strategy for research and innovation. Certainly the most difficult steps to take are the first of which, that of the boot, at this stage the support is critical because the risk is very high and business prospects still too distant to interest private investors is to reduce these barriers that the measure of business was driven boot.
This method of financing by risk capital, aims to stimulate entrepreneurship, supporting the creation and development of enterprises. It aims to financial boot technology business projects.
The Investment Policy in Tunisian SICARs
SICARs Tunisia invested in projects and young companies that are at the stage of initiation, or participated in the creation of the company. The fund may also follow the business in case of a capital increase of the company meet the development requirements.
Areas of Focus
SICARs Tunisian invests in all sectors. Certainly any industry can benefit from the contribution of capital seed provided that the project has an innovative nature.
• In the technology sector levels in IT, multimedia, innovative services, electronics telecommunication field
• Services of the living: pharmaceuticals, food industries
• Industry: Metals, mechanical
• Energy saving: solar energy, electric power
Co-take Strategy with the Project Sponsors
The SICAR do not just provide the funds needed to boot a project from a project idea, a patent, a product or a formula. The SICAR, and through the experience of their team in the venture capital and the contribution of external experts it will open slightly assists project promoters:
• Project formulation
• The demonstration of the technical feasibility of products
• The estimate of the potential demand and the market
• The definition of the size of the company to create
• The determination of the first objectives
• The formalization of the development strategy
• The formalization of the financing plan
• The development of a credible business plan
Each time the decision to invest stopped; Sicard the work to establish with the project proponent a partnership able to promise to actively support the company founded in the early years of development.
The Investment Committee
For each fund, it will be created an investment committee which assists the team in terms of project selection. Their knowledge and the sale of shareholdings. This committee will be composed of representatives of the most important subscribers.
The Advisory Committee
This committee is responsible for:
• Approve the innovative nature of the company and its technology component
• Assess the impact of the product on the market; whether this product meets consumer expectations and the investment committee lightning on the potential market size and capacity of the company.
• Accompany the promoter in the first years of activities
• In close collaboration with the advisory committee, each SICAR will endeavor to establish a partnership with each company creation
• As much as possible, and in agreement with the promoter, a number of council consommatif Angel or business will be assigned to the project as a mentor
The seed capital is not intended to continue in the business. His intervention can only be ad hoc and limited in time. After a reasonable course, the output will be held in concentration with the developer. There was even an outflow recorded, which seems normal for funds, the oldest four years and which have the characteristic of systematically intervene in first round, two to three years. The stock output mode normally is an important output perspective.
For their involvement in the financing of entrepreneurial projects upstream, undertakes to employ their assets in equity investment projects to invest. The upstream project is appropriate, we must take the necessary financial resources to survive. This is the seed funding itself, certainly the seed fund comes as most entrepreneurs suffer from a lack of financial resources to undertake. Similarly, this phase is too risky, and is characterized by the inaccessibility of bank credits to crack the problem of lack of financial resources.
Seed Funding of Positioning by the Tunisian SICARs
As we have indicated, the seed funds are venture capital funds for innovative projects and technology-intensive, capital of qualified feasibility, seed money is used to fund projects in early phases, or that of an entrepreneur who wants to prove the feasibility of their business idea. In other words, funds raised will be devoted to the initial development of the project and to demonstrate its feasibility in developing a business plan.
By acting as a first institutional player to participate in the financing of the company, either when creating or in the early rounds, the company may have a few months if it just created two or to three years. Primer funds account for amounts that can range from 100 to 250 KD. The amounts of seed funds are low compared to the survival phase (500 KD 2.5 R), the take-off phase (2.5à10 MD), mature stage (10 MD). Their role is to financially support the project during the first years of his life to enable him to get his first references and achieve considerable revenue, which will make visible in the market and is likely to attract classic venture capital funds.
The fact that venture capital funds move their intervention more downstream of the business of life led the seed money to develop them as their field of SME financing. In principle the firings Fund however retain a fundamental characteristic, to make their first investment in the first round of funding, but they are the more obliged to participate, also for refinancing rounds. The role of SICAR can spread the role of an incubator, it must appear in the board of the company funded for their first two or three years and then pass the succession risk capital funds classic.
In fact it can be seen that the ignitions fund manager of SICAR management cusp present in the Board of funded companies already four or five years old.
Intervention Methods of Tunisian SICARs
The seed funding plan is characterized by its complexity along with its sensitivity. Therefore, the SICAR can occur in three phases namely pre-boot phase, in seed, and finally in the industrialization phase and marketing which is the third round of financing.
The Pre-boot Phase
This phase allows bringing the first evidence on technical and commercial viability of the project to have a certain reality of existence. While the pre-seed is fundamental to the life of the enterprise, the company is not legally created and the contractor has not relied on financing the project, it gives her more time than money is a pre-boot. The particularly sensitive milestone for which it is almost impossible to raise capital outside Love-money. The mission of SICAR is during this phase:
• Conduct feasibility studies of the project idea, regarding the commercial feasibility, technical and financial
• Build and show the first draft of development plan that will raise seed funds
As this phase requires the expenditure required to finance the completion of patents; the Sicard may intervene to support response and patents:
The Seed Stage: Following Pre-boot, it is the phase of the boot which is a step that can prove this time, the actual penetration of the project and the mastery of production on an industrial scale. This milestone also validates the business plan, and to lay the foundations of a strategy to expand the market for targeted customer segments. This is actually a formalization of the project as a demonstration of the technical feasibility of the product, to estimate the potential market demand and to define size of the company to create. Each of the two mentioned phases will lead to limited funding in amount and in duration.
The Industrialization and Commercialization Stage: After priming, the company has become able to contact his environment, including financing structures namely SICAR, banks, industrialists, business angels. During this phase, the business plan was written, a little ambitious and motivated team was recruited, the company's funds run low and the company is required to assert and prove its business plan, this requires raising funds by SICAR, banks and business angels. The funds invested in this stage are considerable; they dilute a bit more the capital of the new company, giving it the opportunity to contact more partners.
The funds necessary to support projects to marketing are very high, where other post-boot support agencies must take the fall as industrial, banks, business angels as the classic risk capital financing at the level of development and transmission phases.
As we have discussed in previous chapters while relying on the work of Ati et al.  which deals with the process of granting of risk capital by the Tunisian SICAR, one can observe that this process seems to valid the case of Tunisian SICAR, because they contain various funding phases that diversify depending on the life cycle of the financed company.
The Exploration Phase
The exploration stage, she examines the way in which the capitalist entrepreneur belly and meet and come into contact? We posed this question to SICARs personnel; the answer was as follows: "the project files are managed primarily through the intermediation of financial structures like banks if they cannot meet the needs of new promoters especially if they require intense guarantees . Similarly, exploration can be done by looking for activities on land, through the creation lounges conferences or corporate Wednesday. This does not exclude other sources of clients including the new technology of information and communication to be defined by strong advertising".
The Pre-selection Phase
The records that were filed at the headquarters of SICARs will undergo an initial study in pre-selection phase; this phase is to verify some filing formalities of files; it is actually a stage on which the venture capitalist makes a slight verification of certain formalities which should be met by the sponsor. This phase is to select a small number of files for later evaluation. One of the selection means is to check if the developer meets the target of the SICAR, that target is defined by the industry, the size of investment and geographical location. The selected folders will be subject to a thorough selection.
The Depth Selection Phase for the Folders Accepted on First Reading
This phase involves a thorough study by the investment committee. Certes, the business plan or development plan is the basic document that requires the contractor to project into the future, to set its own goals, to verify the feasibility of the project, to assess the risks involved and the clear value through profits. The business plan must convince the investor, in the case of Tunisian SICARs, the Angels business are the main investors. The business-plan is drawn up by the creators, it must be accessible and realistic, despite its detail, it should be clear and concise, detailed without being dispersed.
The Investment Committee of each SICAR requires that this document should include a clear plan of action, together with reliable information. This document must be readable for an investor who is not necessarily expert considered. It domain must be explanatory because it is the qualitative and quantitative translation of the draft submitted by the creators to the investment committee . The qualitative clearly outline the choices, objectives and project strategies. The quantitative sort the numerical consequences (income statement, forecast balance sheet, cash flow statement, forecast cash flow plan) objectives and thus determine how to implement and the corresponding financing needs. It will then indicate the different types of internal and external financial resources produced and researched by the project. This plan made in a first phase of 3 to 5 years will be updated as events likely to affect its direction.
The Tunisian SICAR requires the business plan must contain the following information:
• An executive summary, which provides essential information and key business plan. It highlights the elements that will create value.
• An overview of the project which involves the genesis and development of the project. It will be described the procedures and the proposed model to achieve business objectives.
• An analysis of the economic environment in which the project with a study of the competition and the market takes place.
• The characteristics of the product or service, as well as the technology used by highlighting the competitive advantages described in terms of market share, revenue, profitability, with their development perspective.
• The human, organizational resources and knowledge.
• Operationally, which reported on the research, development, industrialization, marketing plan, strategy and structure?
• A detailed financial analysis which indicates the profitability of operations, profitability of operations, sought financing, profitability for investors on the value created.
• A risk analysis and opportunities of the project.
• A review of possible exit strategies for investors.
Stage Studies for Approved Records
During our communication- with the investment committee members SICAR and after an interview with them, we could identify the main project selection criteria to invest in the SICAR for this final phase. Certainly, the ability to select good projects is the essence of the competence of the investor. This selection is a crucial step for each SICAR, insofar as it is the origin of the constitution of its portfolio.
The selection of projects to invest is made by an investment committee, which must consider innovative test project.
The innovative test project remains, according to the selection strategy of projects to invest in the studied SiICAR, the implementation of a product good or service or a new or significantly improved process, a new method of marketing or a new marketing method or a new organizational method in project practice. The strategy SICARs Tunisian, can match all scientific and technological operations, organizational, financial and commercial that actually operate or are intended to reduce the implementation of innovations.
Intermediation SICARs, seems to bring a solution to the problem of financing such projects. Its strategy is defined by the funding propers.
Funds in projects where there is growth potential port. In a communication with one of the investment committee members SICARs. He says an innovative project to project qu'se is mainly characterized by:
• Specific financial needs
• A high risk with uncertainty
• While investment in real assets can be integrated and partly funds lost, because this sector is too risky in any kind of failure is irreversible
• The entablature in time, sometimes it is not possible to abandon a project, but in general it is waiting much better. Certainly it 'has a cost, but we must compare future argans generated by the project to invest
• The quality of the entrepreneur entrepreneurial team
• This is the most important trait to invest a project by SICAR. True, the entrepreneur has to deal with his profile, generally technology
• The entrepreneur must master his task. As a founder, it should able to lead the project to success
Marketing strategy, it reflects the richness via differentiation, positioning and value creation on the market, the identification of loaves and attitude to compete effectively, the innovative character of a project can cross with the strategy marketing of a project to be of use.
Monitoring and Support for Post-investment Records
In close cooperation with the Advisory Committee, the SICAR strive to establish a partnership with each company. As much as possible, and in agreement with the promoter, advisory board member or a business Angel is assigned to the project as a Mentor.
The records that are the subject of a final selection by the committee will be accompanied and followed up until the maturity phases. The primary objective is to provide entrepreneurs with the means to access the resources necessary to develop the project more recently to gain autonomy to make it suitable for managing long-term business. With it’s monitoring, the project can establish partnership relations with its external environment . Once invested the decision taken, the SICAR is working to establish a partnership with the developer to even allow it to actively support the company founded in the early years of development is its role as more funding.
Primer fund regulation play the supporting role before the legal establishment of the company. At this stage each SICAR helps project sponsors to finance their projects and strengthen their teams often especially a technological component, but lack of competence. It should be emphasized that among the requirements of a follow-up strategy in Tunisian SICARs is that the young shoots still have uncertainty about the identification of the application, the technique used, the usable resources and management of. A company creating innovative case has a greater need for monitoring and it generates, in the end, more valuable than non-innovative classical business (Table 1). Thus monitoring can acquire legitimacy intentional, certainly the strong concern of the Tunisian SICARs after project funding allows a minimum level of legitimacy, this can only be acquired by active monitoring to circumvent the youth disability or novelty. The following table synthesizes disbursements of Investment Companies in Risk Capital (SICARs) in 2013.
|Regional SICARs||Number||Amount (in thousands of dinars)|
|Total disbursement creation||18||7552.800|
|Total disbursement development||23||11263.075|
Table 1: The summary table of structure of disbursements of Investment Companies in Risk Capital (SICARs) in 2013.
Based on the data presented by the table, we note that banking investment companies in risk capital are the main financing actors for investment projects. More than half of these projects (24 projects out of 41 projects) have benefited from funding for the development and creation and reaches 16416,957 thousand dinars. Moreover, investment companies in risk capital and funds more heavily contribute in number and volume in the financing of development projects in relation to funding for the creation. Of the total 41 projects, 23 projects received development funding against 18 newly created. This contribution reached thousands of dinars 11263.075 thousand of dinars for a total disbursement of 18815.875 thousand of dinars.
The case study we conducted in SICARs Tunisian specialized in priming of funds allows us to value the effort can have a SICAR for the boost entrepreneurship...
During this work we tried to show entrepreneurial project funding specific risk capital by anyone interested in the process, because it has initial funding itself. Certainly the seed fund comes as most developers are suffering from a lack of financial resources needed to undertake a project.
In general, we see good prospects for the venture capital industry. Based on current growth forecasts, the pace of progress of new technologies and the globalization of forecasts ongoing investment opportunities in startups, R & D companies, companies that promote progress in companies have to invest to keep their systems up to date and adopt the latest technologies will continuously increase. Thus, in this increasingly complex world, an excellent knowledge of information systems is becoming vital for a venture capital company.