Two new venture capital investment funds in Costa Rica will inject up to $400 million into small and medium-sized enterprises

These are the first two venture capital investment Funds in Costa Rica

A Venture Capital Investment Fund (FICR by its Spanish acronym) is a new financial tool in the Costa Rican capital market. It can be understood as an investment portfolio in which a group of investors pools resources to promote a common objective, which, in case, is to stimulate the growth of small and medium-sized companies

Grupo Mutual manages these first two FICRs under the name of Mutual SFI (Investment Fund Management Company) and FCS Capital as the professional manager. These venture capital investment funds in Costa Rica are called the FICR Tourism Sector (aimed at tourism companies) and FICR Business Advance (aimed at companies from any sector of the economy).

The Minister of the Economy, Francisco Gamboa, pointed out that “from the pillar of business support, we see the new financing tools such as venture capital investment funds in Costa Rica as fundamental to promote the business growth we have been addressing. We wish to see small companies become medium-sized and the medium-sized ones large”.

“This novel financial instrument in the current local capital market seeks to encourage SMEs to boost their growth. This furthers our efforts in promoting the private sector to generate more and better quality jobs,” said Gamboa.

For his part, César Restrepo, general director of the Costa Rican Stock Exchange (BNV), indicated that “we are facing a milestone for the Costa Rican capital market, after work that began in 2019 and that involved a long path of legal and regulatory approvals. Finally, venture capital investment funds in Costa Rica will see the light.”

“In the case of these first two funds, they focus on raising resources that will go directly to SMEs, which represent 98% of the country’s business community,” he added.

What is a FICR?

A FICR is a financial instrument duly regulated by the General Superintendency of Financial Entities (SUGEVAL), which allows the transfer of resources from investors to companies. It is also a source of financing for companies and an alternative for the diversification of the portfolio of professional investors.

Yancy Cerdas, general manager of Mutual Valores Puesto de Bolsa, commented that these funds would allow local and international professional investors to have an innovative instrument to diversify their investment portfolios through venture capital investment funds in Costa Rica.

“Grupo Mutual, as a financial conglomerate with its triple bottom line philosophy. It seeks to help boost the country’s growth by channeling resources from institutions with investment capacity in sophisticated products to companies that require funds to grow their operations. This allows the creation of job opportunities and tourist attractions and even supports foreign investment. It is expected that, at the end of the fund’s investment process, the promoted companies will have acquired the capacity to become future market issuers and thus contribute to strengthening the Costa Rican capital market,” concluded Cerdas.

General characteristics of the FIRC:

• FICRs are instruments regulated by SUGEVAL and managed by an Investment Fund Management Company (SAFI).
• Each FICR has an investment policy that is defined in its prospectus.
• SAFI hires professional managers.
• SAFI appoints an Investment Committee to ensure compliance with the investment policies and rules.

How do these first two FICRs work?

Allan Rodríguez, president of FCS Capital, emphasized that the main objective of these first two venture capital investment funds in Costa Rica is to identify companies that, before the coronavirus pandemic, had a solid track record. Due to the situation of the last two years, however, these companies had results that adversely affected their financial condition. This is why they require other innovative sources to obtain financing.

“For entrepreneurs, it is challenging to be able to compete internationally with companies that have much healthier capital structures and are more complex. Therefore, the risks are more aligned concerning the way they are funded. In Costa Rica, there are only two possibilities: to go to a bank or to the owner, from his resources to capitalize his company. Therefore, the idea is to develop venture capital investment funds in Costa Rica,” Rodríguez pointed out.

Who can participate in the scheme of these venture capital investment funds in Costa Rica?

Company requirements to access FICR resources

• Must be considered SMEs according to the Ministry of Economy, Industry, and Commerce (MEIC) definition.
• It must belong to the tourism sector or any other economic sector.
• Must demonstrate at least five consecutive years of operation.
• Must be committed to adopting good Environmental, Social, and Governance (ESG) practices.

The resources obtained can be used for:

• Working capital.
• Capital investment
• Cancellation of liabilities.

Recipients of the funds cannot use them for cash out (exit of one or several current partners of the company).

How does the Development Banking System (SBD) participate?

The Development Banking System will become one of the investors in these FICRs with an amount of USD $2 million as part of raising resources to inject capital into SMEs from various sectors of the economy. In addition, one million dollars will be invested in the Tourism Sector Fund, and the other USD $1 million will go to the Business Advance Fund.

Benefits for companies

• The FICRs will provide new resources for the promoted company.
• They will provide support on issues of best corporate governance practices.
• They will offer support in the development of a strategic plan.
• They will generate more value for the current partner and the Investment Fund.

Company commitments

In the case of capital:

• Right to appoint one or more members of the Board of Directors.
• Right of veto on sensitive issues for the company.
• Strengthen the quality of financial information.

In case of debt:

• Commitment to covenants or guarantees.