Developing venture capital for young startup firms in Morocco

The World Bank
Randa Akeel

Photo: leonori / Shutterstock.com

Businesses, for many the real drivers of job creation, can also be the foundation of wealth and greater economic inclusion of the general population. Jobs or Privileges, a World Bank Group report published in 2014, shows that high-growth startups—or young firms—accounted for all net job creation in Morocco’s manufacturing sector at the time. But, by comparison with older small or medium–size enterprises, young start-ups faced far greater barriers in Morocco to accessing finance.

Morocco’s financial sector still fails to meet the needs of startups because banks cannot finance them without substantial collateral. Alternative financing, such as venture capital well-suited to young firms, is underdeveloped. Venture capital is seed capital, growth equity capital, or capital in the form of a loan provided by private investors or specialized financial institutions.

A report by the Moroccan Association of Equity Investors (AMIC) shows that businesses requiring seed money and venture capital were the recipients of a mere 6% of all investments made in Morocco in 2015, one of the lowest rates of this sort of investment in the Middle East and North Africa region.
The Government of Morocco intends change this by using an initiative known as the Innov Invest Fund to leverage $50 million in financing from the World Bank Group to plug gaps in equity financing for startups. This financing program will be implemented by the Caisse Centrale de Garantie, which will provide pre-seed, seed, and venture capital to innovative young firms.

Investments will be carried out in partnership with private investors through private fund managers, who will play a key role in investment selection. The program will also support training, incubators, and acceleration activities for project developers, both through intermediaries in the financial ecosystem and through strengthening an angel investors’ network.

The overall goal of this program is to develop a critical mass of successful startups to demonstrate the potential this type of investment has, attract more investors to it, and catalyze the venture capital market in Morocco. Public sector involvement to support the provision of venture capital is a tried-and-tested model used by Australia, the United Kingdom, and Singapore. It is an initiative that will drive the potential of many innovative businesses in Morocco.