Dr Ju­dith M S Mark

Ac­cel­er­at­ing the rate of in­no­va­tion in Trinidad & To­ba­go (T&T) can be de­scribed as an ur­gent ac­tion to ad­dress a cri­sis. How­ev­er, ac­cess to fi­nance lim­its the abil­i­ty to ad­dress this cri­sis to ur­gent­ly con­vert in­sights in­to con­cepts, con­cepts in­to in­no­va­tions and in­no­va­tions in­to items of com­mer­cial val­ue. Ac­cess to fi­nance is nec­es­sary to sup­port T&T’s in­no­va­tion ecosys­tem and to in­cen­tivise bring­ing in­no­va­tions to mar­ket. What makes fi­nanc­ing in­no­va­tion chal­leng­ing is the risks as­so­ci­at­ed with in­no­va­tions. While in­no­va­tions are not nec­es­sar­i­ly new, there is al­ways nov­el­ty as­so­ci­at­ed with the en­hanced val­ue that prod­uct, ser­vice or process in­no­va­tion brings. In this ar­ti­cle key ar­eas of in­no­va­tion fi­nanc­ing are dis­cussed in the con­text of in­no­va­tions in the SME sec­tor in Trinidad & To­ba­go.

Key Is­sues in Fi­nanc­ing In­no­va­tion In Trinidad & To­ba­go

A di­a­gram of a di­a­gram

Sources of Fi­nanc­ing In­no­va­tion

In­no­va­tion fi­nanc­ing sources in­clude the Gov­ern­ment, pri­vate sec­tor, in­ter­na­tion­al de­vel­op­ment or­gan­i­sa­tions, and in­di­vid­u­als. The cap­i­tal flows from each of these groups de­pend on the role en­vis­aged in the in­no­va­tion land­scape.

Gov­ern­ment funds

The State has his­tor­i­cal­ly been at the fore­front of fi­nanc­ing in­no­va­tion, through seed cap­i­tal, loans and grant fund­ing. The Na­tion­al En­tre­pre­neur­ship De­vel­op­ment Com­pa­ny (NED­CO) has pro­vid­ed mil­lions of dol­lars in mi­cro-loans and grants to small mi­cro, small and medi­um com­pa­nies. Among the re­cip­i­ents were in­no­v­a­tive ven­tures.

The Idea to Idea 2 In­no­va­tion (i2i) Pro­gramme ex­e­cut­ed by Caribbean In­dus­tri­al Re­search In­sti­tute (Cariri) pro­vides grant fund­ing to in­no­va­tors seek­ing ear­ly-stage cap­i­tal. Through this ini­tia­tive fi­nanc­ing is avail­able to as­sist in the ear­ly stage of the in­no­va­tion cy­cle, pri­mar­i­ly for mar­ket readi­ness and tech­ni­cal sup­port.

A sig­nif­i­cant ac­tion pre­vi­ous­ly tak­en by the Gov­ern­ment of Trinidad & To­ba­go to sup­port in­no­va­tion was the es­tab­lish­ment of the Ven­ture Cap­i­tal In­cen­tive Pro­gramme (VCIP) in 1994. The Pro­gramme sought to mo­bilise pri­vate cap­i­tal, us­ing a tax cred­it as the in­cen­tive. The pro­gramme did not yield the de­sired re­sults, lead­ing to its dis­con­tin­u­a­tion, as op­posed to ad­dress­ing the weak­ness­es in pro­gramme de­sign.

In­ter­na­tion­al and mul­ti­lat­er­al part­ners

In­ter­na­tion­al de­vel­op­ment in­sti­tu­tions con­tin­ue to be an im­por­tant source of fi­nance. The In­ter-Amer­i­can De­vel­op­ment Bank (IDB) and IDB Lab have fund­ed in­no­va­tions in dig­i­tal trans­for­ma­tion and in SMEs. Like­wise, the Eu­ro­pean Union (EU) has been in­stru­men­tal in fi­nanc­ing in­no­va­tions in re­new­able en­er­gy and cli­mate re­silience and al­so con­tributed fund­ing for in­no­va­tions in oth­er sec­tors. Oth­er sources of ex­ter­nal cap­i­tal in­clude the Caribbean De­vel­op­ment Bank (CDB) for in­no­va­tions in youth, women-led and high growth busi­ness­es.

The Min­istry of Plan­ning and the En­vi­ron­ment, Shap­ing the Fu­ture of In­no­va­tion Pro­gramme was launched in 2021. The pro­gramme has been de­scribed as a suc­cess sto­ry in pro­vid­ing fi­nanc­ing for in­no­va­tion in T&T. The ini­tia­tive, which was de­vel­oped with US$10 mil­lion in funds from the Eu­ro­pean Union and the IDB Lab, is aligned to T&T’s di­ver­si­fi­ca­tion agen­da and the need for ex­port-dri­ven growth. To date, the pro­gramme, which is man­aged by Cariri, has suc­cess­ful­ly chan­nelled in ex­cess US$ 7.5 mil­lion to SMEs in the fin­tech, ICT, man­u­fac­tur­ing, cre­ative, agri-pro­cess­ing, re­new­able En­er­gy and health sec­tors. The fi­nan­cial in­stru­ments used for the pro­grammes in­clude debt, grant, eq­ui­ty, and blend­ed fi­nance.

Pri­vate cap­i­tal

Pri­vate cap­i­tal, a main source of in­no­va­tion fi­nanc­ing in de­vel­oped mar­kets, is lim­it­ed in T&T. For­mal an­gel net­works, ven­ture cap­i­tal funds and cor­po­rate ven­ture funds are near­ly non-ex­is­tent or ac­ces­si­ble by few. Through cor­po­rate so­cial re­spon­si­bil­i­ty and sus­tain­abil­i­ty ini­tia­tives, an in­creas­ing num­ber of pri­vate com­pa­nies sup­port in­no­va­tion chal­lenges by pro­vid­ing seed or ex­pan­sion cap­i­tal to win­ners of these events.

Banks and mi­crolend­ing agen­cies

De­spite the lim­i­ta­tions in fund­ing ear­ly-stage in­no­va­tions, loan fi­nanc­ing via banks and mi­crolend­ing are im­por­tant in en­sur­ing that in­no­va­tions can ac­cess fit-for-pur­pose cap­i­tal. Those who re­view re­quests for fi­nanc­ing for in­no­va­tions should be knowl­edge­able of how bank loans and mi­cro cred­it can be used in fi­nanc­ing in­no­va­tion.

Fi­nanc­ing Re­search and De­vel­op­ment

R&D funds in T&T in­clude the Re­search and De­vel­op­ment Fa­cil­i­ty (RDF) fund for non-en­er­gy man­u­fac­tur­ing, the Re­search De­vel­op­ment and Im­pact (RDI) Fund at The Uni­ver­si­ty of the West In­dies (UWI) and and the Grant Fund Fa­cil­i­ty (GFF), cre­at­ed to sup­port in­no­va­tion in agro-pro­cess­ing, food and bev­er­age, ICT, and the cre­ative in­dus­tries. The funds were cap­i­talised by the Min­istry of Trade and In­dus­try.

Sec­tor-spe­cif­ic fi­nanc­ing

The Film Pro­duc­tion Ex­pen­di­ture Re­bate Pro­gramme and grants ini­tia­tive have helped lo­cal film­mak­ers ac­cess fi­nanc­ing and in­ter­na­tion­al mar­kets. In­dus­try-spe­cif­ic funds are re­quired in sec­tors where the risk is above-av­er­age, mar­ket re­sponse is un­cer­tain and large sums of cap­i­tal is of­ten­times re­quired ear­ly in the pro­duc­tion cy­cle. Giv­en that the cre­ative sec­tor has been iden­ti­fied for de­vel­op­ment, cap­i­tal suit­abil­i­ty and ad­e­qua­cy are nec­es­sary to en­able cre­ative en­tre­pre­neurs to scale up and high­light lo­cal cul­ture.

Pub­lic–Pri­vate Part­ner­ships (PPPs)

In­creas­ing­ly PPPs have been used glob­al­ly as a means of dri­ving in­no­va­tion. By bring­ing to­geth­er re­sources and tech­ni­cal ex­per­tise from the pub­lic and pri­vate sec­tors, large-scale projects are pos­si­ble. Both par­ties in the PPP re­la­tion­ship con­tribute to­wards re­duc­ing project risk, there­by en­abling eas­i­er ac­cess to ad­di­tion­al sources of cap­i­tal. In the con­text of T&T, PPPs are rec­om­mend­ed for ar­eas that pro­vide T&T with the in­fra­struc­ture re­quired to be glob­al­ly com­pet­i­tive and for fa­cil­i­tat­ing projects that of­fer ma­jor so­cio-eco­nom­ic ben­e­fits. Ex­am­ples, in­clude the use of PPP for the planned up­grade of the port of Port of Spain and for re­new­able en­er­gy and ICT de­vel­op­ment projects. PPPs are tan­gi­ble man­i­fes­ta­tions of a com­mit­ment by gov­ern­ment and pri­vate com­pa­nies to fi­nance and sup­port in­fra­struc­tur­al and com­mer­cial in­no­va­tion.

Ini­tial Pub­lic Of­fer­ings

While an Ini­tial Pub­lic Of­fer­ings can be used to fi­nance in­no­va­tion, dis­cus­sion on this in fur­ther de­tail is de­ferred for a sub­se­quent ar­ti­cle giv­en that IPOs are ap­plic­a­ble for lat­er stage suc­cess­ful com­pa­nies seek­ing pub­lic cap­i­tal for growth. At this stage, the fo­cus is to in­crease the num­ber of in­no­va­tions that can be suc­cess­ful­ly com­mer­cialised and scaled us­ing the right mix of in­no­va­tion fi­nanc­ing in­stru­ments.

The way for­ward

Fi­nanc­ing in­no­va­tion con­tin­ues to be a chal­lenge for in­no­va­tors in Trinidad & To­ba­go. Fac­tors such as lim­it­ed fi­nan­cial lit­er­a­cy, weak in­tel­lec­tu­al pro­tec­tion, lim­i­ta­tion to the use of funds to fi­nance in­no­va­tion due to leg­isla­tive and pol­i­cy lim­i­ta­tions, a bank-loan cul­ture that caus­es in­no­va­tors to pur­sue debt even when it is not well-suit­ed, is­sues of trust, over-re­liance on in­ter­na­tion­al or­gan­i­sa­tions, and lim­it­ed par­tic­i­pa­tion by cor­po­rate T&T and wealthy in­di­vid­u­als in fi­nanc­ing non-owned busi­ness­es, are fac­tors that lim­it the flow of cap­i­tal to fi­nance in­no­va­tion.

The way for­ward lies in cre­at­ing and adopt­ing in­no­v­a­tive fi­nanc­ing mod­els us­ing fi­nan­cial tech­nol­o­gy and nov­el fi­nanc­ing in­stru­ments to as­sist in ac­cess­ing cross-or­der sources of cap­i­tal, strength­en­ing IP frame­works, ex­pand­ing the use of PPPs, mo­bil­is­ing in­dige­nous cap­i­tal by tap­ping in­to di­as­po­ra funds, com­mu­ni­ty funds to sup­port in­no­va­tions at the com­mu­ni­ty lev­el, en­cour­ag­ing the for­ma­tion of an­gel net­works as well as re­think­ing pri­vate eq­ui­ty fund­ing in­clud­ing cor­po­rate ven­ture cap­i­tal. This ap­proach can stem the knowl­edge drain and the loss of the in­no­va­tion ca­pac­i­ty and tal­ent that oc­cur when our in­no­va­tors are starved of the cap­i­tal and con­nec­tions, they re­quire to op­ti­mise the re­turn on their in­no­va­tions.

Re­cent de­vel­op­ments like Afrex­im­bank’s in­ter­est in T&T as well as glob­al de­vel­op­ments which may re­sult in a re­duc­tion of funds from in­ter­na­tion­al or­gan­i­sa­tions present both op­por­tu­ni­ties and threats to the pool of in­no­va­tion fi­nanc­ing in­stru­ments in T&T.