Afghanistan's First Venture Capital Fund Seeks $50 Million
June 14 (Bloomberg) -- Afghanistan may soon have its first venture capital fund as a former McKinsey & Co. manager tries to raise $50 million as the south Asian country emerges from more than two decades of conflict.
The Afghanistan Renewal Fund will invest in fledgling construction, food, textiles and furniture manufacturing companies, according to a document for potential backers. The Asian Development Bank said it may commit $12.5 million and CDC Group Plc, a government-owned U.K. company, may put in $5 million.
This is a frontier fund,'' said Innes Meek, a director at London-based CDC, which has plowed $1.6 billion into businesses from India to Tanzania. There's clearly a need for finance in Afghanistan, but it may be too early for venture capital.''
The Afghan economy grew 20 percent in the fiscal year ended in March, after expanding 30 percent in the previous 12 months as aid flowed in and a drought ended, according to the International Monetary Fund. The fund will seek to profit as Afghanistan, led by President Hamid Karzai, tries to rebuild its historical role as the crossroads of trade between the Middle East, China and India.
Karzai has estimated it will take about a decade before the country can support itself. The country only opened its first ATM cash machine in January. After Soviet occupation in the 1980s and Taliban rule in the 1990s, about 70 percent of the country's 22 million citizens live on less than $2 a day.
Venture capital is tough enough,'' said Tom Lamb, a managing director at Barclays Private Equity in London, which limits its investments to western Europe. In Afghanistan, the things we take for granted -- a stable political system, laws and accounting -- don't exist.''
Pierre Van Hoeylandt, 33, the German-born founder of the Afghan fund, declined to comment, citing legal restrictions for the fund, which is seeking at least $30 million.
`Leading the Charge'
Van Hoeylandt is betting the risks posed by a war-torn country that lacks extensive paved roads, power and water supplies can be outweighed by the Afghan reconstruction effort, supported by the U.S. and others. About $4.4 billion of aid will roll in this year, about equal to the country's gross domestic product.
We would be an appropriate recipient of venture-capital funding when we move into more mass-made garments and set up a larger-scale factory,'' said Sarah Takesh, founder of Tarsian & Blinkley in Eldorado Springs, Colorado, which employs 300 Afghan women to make fashionable garments for customers in the U.S. Afghanistan started drawing financial support after a U.S.-led military force ousted the Taliban in 2001. A fundamentalist Islamic movement led by Mullah Mohmmad Omar, the Taliban gave shelter to al-Qaeda leader Osama bin Laden, who the U.S. alleges masterminded the Sept. 11, 2001, terrorist attacks on New York and Washington. Adding Opiates A gross domestic product of $4 billion in fiscal 2003 increases to $6.5 billion after adding proceeds from opium products such as heroin and morphine, cultivated from poppies, according to the International Monetary Fund. That makes the Afghan economy about equal to the world's biggest buyout fund, a $6.45 billion pool managed by Blackstone Group LP of New York. The new fund is leading the charge in seeking opportunities that will pave the way for more substantial investment, said Daniel Batchelder, founder of Morning Star Development, a Colorado Springs-based organization that supports Afghan community projects. Everyone stands to win if they produce.'' Van Hoeylandt, who helped advise the Afghan government while working at management consultant McKinsey, is trying to recruit a senior partner from the Afghan diaspora, according to the document to investors. David Meen, a former managing director of McKinsey's Istanbul office will be one of the advisers. Actis Capital LLP, a London-based firm that buys companies in developing countries, is supporting the fund.
`Adventure Capital'
Venture capital firms typically profit by selling businesses to other companies or via initial public offerings. The Afghan fund will seek to sell investments mainly to the managers of the businesses as cash flows grow, the document said.
It may be better to wait for the banking system to expand first, CDC's Meek said. While Standard Chartered Plc, a U.K.-based bank focusing on Asia, opened its first Kabul branch and cash machine in January, it doesn't yet lend money.
Van Hoeylandt started ACAP Partners Ltd. to run the fund last year after working for McKinsey and a stint at Goldman Sachs Group Inc., the world's third-biggest securities firm. He also worked as a reporter for newspapers including Die Zeit on conflicts in Yugoslavia, Somalia and Rwanda.
You've got to hand it to him, he's taking venture capital to a whole new level,'' said Stephen Marquardt, a former head of emerging markets investment banking at Merrill Lynch & Co. It's more like adventure capital.''
