History of Enterprise Funds
ENTERPRISE FUNDS OF THE EARLY 1990s
After the fall of the Berlin Wall in November 1989 and the collapse of the Soviet Union on December 25, 1991, 29 countries in the former Eastern bloc began the transition from centrally-planned to market-based economies. Realizing that these new states lacked the financial sector capacity necessary to support this historic transition, the United States Congress authorized nearly $1.2 billion for the U.S. Agency for International Development to establish 10 new investment funds, collectively known as the “Enterprise Funds,” covering 19 countries in Central and Eastern Europe and the Former Soviet Union.
For each fund, USAID identified and the White House designated an independent Board of Directors to serve on a pro bono basis and guide the Fund’s strategy and provide supervisory oversight. Although many challenges were encountered, including slow starts and organizational difficulties, after 20 years of operations throughout Europe and Eurasia, collectively these ten Enterprise Funds have been successful both in accomplishing their original economic development objectives and achieving substantial financial returns, although there has been significant variation in the performance of individual funds.
2011: Second Wave of Enterprise Funds
Until recently, the Enterprise Fund model had not been replicated within USAID as an economic development tool. However, in early 2011, the events characterized as the “Arab Spring” led to a renewed interest in the potential use of this model in countries in the Middle East undergoing economic and political transitions.
In May 2011, Former President Barack Obama announced that he would seek authority to create an Enterprise Fund to promote the development of the Egyptian private sector and catalyze investment in promising small and medium-sized enterprises (SMEs). Upon authorization and following the earlier Enterprise Fund model, the United States launched the Egyptian-American Enterprise Fund (EAEF) in 2013, a private corporation seeded with U.S. government funds to promote the development of Egypt’s private sector.
THE IMPACT OF ENTERPRISE FUNDS
The United States’ efforts to promote a stronger business climate in Egypt are best achieved in cooperation with strong partners. Just as prior Enterprise Funds successfully created parallel private investment funds to co-invest in investment opportunities, the Egyptian-American Enterprise Fund will create similar funds to attract sovereign and private investment. Sovereign governments and impact funds can play a critical role in facilitating co-investment by offering to match U.S. government funds and making introductions to local private investment pools that may also be interested in co-investment opportunities.
Enterprise Funds are one of few development programs to achieve sustainable, economic developmental impact while leveraging limited investment resources to generate significant program income to endow long-term, host country Legacy Foundations, and ultimately return a significant portion of their original grant funds to the U.S. Treasury.
The following is a summary of the substantial economic and developmental impact provided by USAID of the Funds of the 1990s as of 2013:
$1.2 billion of U.S. government funding has been invested in developing funds in 19 countries.
$1.7 billion of net proceeds realized from successful investments have been reinvested by the Funds, allowing them to leverage the use of their initial funding.
$6.9 billion of private capital was raised from outside the U.S. government based on the convincing value proposition of the Funds.
A total of $9.8 billion in capital has been raised from all sources over the lifetime of the Funds.
Significant developmental capital has been provided to SMEs and entrepreneurs operating in early-stage transition countries where private investment capital was limited or non-existent. This contribution has helped create environments in which the culture of private enterprise could flourish.
In 2011, the U.S. Congress authorized the creation of the Egyptian-American Enterprise Fund as a private corporation with up to $300 million to promote the development of Egypt’s private sector. Over the last several years, the Fund has stayed on track to fulfill its mission by supporting five, first-time fund managers that have helped EAEF invest in over 100 companies, with plans to support additional Egyptian-led funds and companies in the near future.
President Barack Obama and the U.S. Department of State champion an initiative to establish EAEF
U.S. Congress passes legislation to form EAEF and seed the fund with up to $300 million
James Harmon is appointed Chairman of EAEF
The EAEF-USAID grant agreement is signed
EAEF selects LCP as its primary investment advisor
EAEF leads a consortium of international investors to finance the $100 million acquisition of Fawry, the largest electronic payments service company in Egypt
EAEF acquires a majority stake in Sarwa Capital, the largest non-banking, consumer finance company in Egypt
EAEF invests $1.2 million in Smart Medical Services, a healthcare-tech startup
EAEF invests $10 million in Egypt’s largest VC firm, Algebra Ventures, a fund supporting the launch of Egyptian tech start-ups
EAEF invests $10 million in Tanmeya Capital Ventures, a first-time PE firm focused on small- to medium-sized enterprises
EAEF invests EGP 10 million ($0.6 million) alongside Egypt Ventures and the International Finance Corporation in regional start-up accelerator Flat6Labs’ new EGP 100 million Cairo Fund, which will directly support 100 early-stage start-ups over five years
EAEF acquires a significant minority stake in Orchidia, Egypt’s leading manufacturer of generic eye medicine
EAEF invests $3 million in woman-led healthcare start-up Dawi Clinics, a chain of clinics providing comprehensive medical services
EAEF invests in Misr Hytech Seed International, the leading producer of proprietary corn seeds in Egypt, as part of a consortium that includes Helios Investment Partners, a leading pan-African PE firm
EAEF invests in Nermien Ismail Schools Group, a leading K-12 private school developer and operator in Egypt
EAEF sells part of its stake in Fawry’s IPO
EAEF becomes signatory to the International Finance Corporation (IFC) -led Operating Principles for Impact Management, a new market standard for impact investing
DEC EAEF commits additional $30 million to TCV
WHO declares COVID-19 a pandemic
EAEF commits additional $1 million to Flat6Labs Cairo
EAEF invests in Hassan Allam Utilities, an investment platform for power, renewables, and water-related opportunities in Egypt
IMF approves $5.2 million financing for Egypt in response to COVID-19
EAEF invests in Abu Auf, Egypt’s largest specialty retailer
EAEF co-invests in Al-Tayseer Healthcare Group, the largest healthcare provider in the Nile Delta region
EAEF commits $50 million to the first independent fund of its long-time investment advisor, Lorax Capital Partners
EAEF lends $10 million to Fawry Microfinance to support micro, small and medium-sized companies impacted by COVID-19
EAEF commits $15 million to Algebra Ventures Fund II and $20 million to Ezdehar Management Fund II
Russian invasion of Ukraine begins
Egypt to host COP-27 Climate Conference