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Venture Capital in Kazakhstan
Several investment funds have operated in Kazakhstan since its independence. The situation today is different from that which existed before the currency crisis in that occurred in neighbouring Russia in August 1998. At that time there were more funds than exist today. Some had already raised capital but withdrew after the crisis; others were in the process of raising funds and were liquidated or substantially cut back on their profile and investment program in the aftermath of the crisis.
This article will focus on the main venture capital funds that remain today. 
Today there are three funds that both remain active and have a reasonably high profile as foreign investors, two are sponsored by the European Bank for Reconstruction and Development (EBRD), these are the Eagle Kazakhstan Fund (formerly GIMV Kazakhstan Post-Privatisation Fund) and the AIG Silk Road Fund. There is also the Central Asian American Enterprise Fund, which is sponsored by the US Government.
These funds typically invest in small and medium enterprises representing many industries in Kazakhstan, and usually have similar exclusions such as gambling, strong liquor and tobacco and weapons industries. The funds seek to make equity or combined debt–equity investments ranging from $1 to $10 million. The average length of investment is between 4 to 6 years and exit strategies vary.
The Eagle Kazakhstan Fund (formerly the GIMV Kazakhstan Post-Privatisation Fund (the KPPF)
The Eagle Kazakhstan Fund (formerly the KPPF) is a Venture Capital Fund created with funding from the European Bank for Reconstruction and Development (EBRD). The Eagle Kazakhstan Fund has a total capital of e33m of which e30m is provided by EBRD to invest new capital in small and medium sized companies in Kazakhstan. Eagle Venture Partners is the manager of the Fund. Eagle Venture Partners is a consortium of investment companies that include GIMV, Corpeq, Rabobank, Ewic-West and Sigefi. GIMV, a Flemish investment company quoted on the Brussels Stock Exchange with a market capitalisation of more than $1.5 billion, has also committed to invest up to e3m alongside the Fund. Eagle Kazakhstan Fund is also supported by a Technical Assistance grant of e20m provided by the European Union (EU)’s technical assistance (TACIS) program. This grant covers the Fund ‘s operating costs and is used to support the Fund’s pre-investment due diligence process and provide post-investment technical support to the Fund’s invested companies. The EU’s support enables the Eagle Kazakhstan Fund to deploy legal, financial, environmental and marketing experts to evaluate investment proposals. Additionally, the EU’s technical assistance is used to monitor and add value to companies in which the Eagle Kazakhstan Fund has already invested, by providing marketing, accounting and other kinds of support. 
It is important to note that the Eagle Kazakhstan Fund is one of a family of similar regional venture funds (RVFs) that have been established across the CIS and Eastern Europe. The EBRD also has its own separate programs in Kazakhstan that it manages directly and which provide finance for enterprises in Kazakhstan and include direct investment in large enterprises, project finance, on-lending and micro credits. 
The Eagle Kazakhstan Fund started operations in Kazakhstan in April 1996. The Eagle Kazakhstan Fund can invest in both start-up and existing companies. The Eagle Kazakhstan Fund’s current portfolio includes joint ventures that are exclusively with Kazakhstani enterprises as well as joint ventures with partners from the United States, Great Britain, France and Belgium.
The fund was renamed in early year 2000 from the GIMV Kazakhstan Post-Privatisation Fund to the Eagle Kazakhstan Fund after merging with three Russian venture funds that are also funded by the EBRD.
The Eagle Kazakhstan Fund’s investment criteria may be summarised as follows:
• It invests in small and medium sized companies, whose state ownership does not exceed 33% of their equity capital.
• It can invest between $0.3m and $5m in a single project but is most interested in projects requiring $2-5m of finance.
• It cannot own more than 54% of the shares of any company (49% EBRD, 4.9% GIMV).
• It cannot invest in certain industry sectors such as weapons, strong liquor, tobacco production, gambling and financial services.
At least two thirds of the money that Eagle Kazakhstan Fund invests in a company must be to provide new financing and therefore a maximum of one-third may be used to buy out existing shareholders.
The Eagle Kazakhstan Fund invests primarily with the purpose of taking an equity position in a company, but may also give loans either to support its equity investment or loans that are convertible. These loans are frequently granted with a grace period. Eagle Kazakhstan Fund however seeks a good overall rate of return on its total debt-equity investment in any one company.
The initial planned life of the Eagle Kazakhstan Fund is ten years. Within a period of 4-6 years following its investment, the Fund will seek to sell all of its shares.
The Eagle Kazakhstan Fund provides ongoing support to its investees, is an active investor and seeks to add value through its participation on the Board of Directors and the use of consultants paid for from the EU funded Technical Assistance grant.
In fact, the Eagle Kazakhstan Fund’s ability to be able to fund large amounts of post-investment support, using its large TACIS grant is an important distinguishing factor compared with the other venture capital funds in Kazakhstan. Examples of the support the fund has provided for its investee enterprises have included: finance directors, MIS/ accounting system implementations, International Accounting Standard audits, technical and production experts, marketing directors, market research and trade partner search and introductions.
The Eagle Kazakhstan Fund’s target industry sectors are bottling, brewing, wine and soft drinks, confectionery, distribution, food processing, franchises, packaging, pharmaceuticals, telecommunications, information technology, internet and oil service companies.
Investment targets must have good management and a good business plan. In addition, the following criteria make a firm more attractive as a potential investment target: significant growth prospects for their product or service; local production/import substitution; good brands; good marketing and distribution. 
The Eagle Kazakhstan Fund also welcomes opportunities to co-invest along with a foreign investor that will add value to the enterprise by committing management expertise and experience to enterprises in Kazakhstan.
The Eagle Kazakhstan Fund has now invested over 40% of its e33m capital in six companies. These are:
• FoodMaster - $2.8m debt and equity investment in a dairy and juice producer, packager and distributor based in Almaty.
• Rainbow Paint- $3.9m debt and equity investment in a start-up paint factory in Almaty.
• Spectrum - $2.2m debt and equity investment in an Almaty-based mobile trunk radio company.
• UKPF (Ust-Kamenogorsk poultry factory) - $3.9m debt and equity investment in a privatised poultry farm, in Ust-Kamenogorsk.
• Bauta - $2.1m debt and equity investment in a water desalination and packaging facility in Bautino on the Caspian Sea
• Rustam - $0.7m debt and equity investment in a cereal processing facility in Ust-Kamenogorsk.
The AIG Silk Road Fund (SRF)
The SRF is a $70 million long-term direct equity investment fund. Designed to invest in Kazakhstan, Azerbaijan, Kyrgyzstan, Turkmenistan, Uzbekistan, and Tajikistan, the SRF has offices in Almaty, Kazakhstan and Baku, Azerbaijan.
Typically, the SRF invests in equity ranging from $3-10m where it takes a “significant minority” equity interest, usually ranging from 20-49%. In larger transactions, the SRF can access capital in other AIG investment entities to increase the size of its participation to $50m. The SRF is a temporary investor. Within a period between 2 to 5 years following its investment, the SRF seeks to sell its shares to the other investors.  
The SRF employs an “active” approach to its investment, usually seeking Board representation and opportunities to enhance the long-term value of the companies in which it invests. This may come in the form of helping to raise additional financing, arrange strategic partnerships, or in providing a “sounding board” for strategic business decisions.
The SRF is one of eleven emerging market direct equity funds managed and sponsored by AIG Capital Partners, a wholly owned AIG subsidiary. With total capital of nearly $6.5 billion and teams totalling over 120 private equity professionals, these funds currently operate in major emerging markets in the CIS, Eastern Europe, Asia, and Latin America. In each of these funds, AIG has directly contributed a minimum of 10% of the capital base. 
American International Group (AIG) is a major provider of financial services. AIG Capital Partners’ investment approach is straightforward. It seeks to combine strong local presence in each market with AIG’s global network. Within this framework, it maintains a disciplined investment focus on management, market, and company fundamentals. 
Central Asian-American Enterprise Fund (CAAEF)
The CAAEF is a privately managed profit-oriented venture capital institution. Its objective is to facilitate the establishment of market economies in the former Central Asian Republics of the Soviet Union by investing in small and medium-sized businesses in Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. The CAAEF provides financing to commercially viable small and medium-sized enterprises. CAAEF also has a Micro Loan Program that provides loans to the smallest entrepreneurs. The CAAEF welcomes the participation of international partners willing to provide risk capital, management expertise, and new technology to businesses in Central Asia. It supports companies that wish to develop a long-term presence in Central Asia and explore new markets for U.S. exports.
Since starting operations in 1994, the CAAEF has disbursed more than $73 million in equity and loans to over 400 businesses and entrepreneurs in the five countries of Central Asia. Individual transactions vary from large equity investments in new manufacturing facilities to micro loans for commercial traders plying their wares in the bazaars. The CAAEF currently provides financial support through two mechanisms:
• Equity and debt financing to medium-sized enterprises, with a strong bias towards new projects involved in manufacturing products for export or import substitution and providing financial support in amounts ranging from $100,000 to a general ceiling of $5 million; and
• A Micro Loan Program targeted to assist small entrepreneurs.
While equity investments have represented the largest component of the CAAEF’s financial support in the past, problems with the performance of many of the investee enterprises led, in early 1999, to the CAAEF reigning back its direct equity investments, and moving to a more cautious investment approach, using instead mainly convertible loans which allowed it to take collateral and produce some current income. Also, due to currency convertibility problems in Uzbekistan, the Fund has effectively withdrawn from the area and is focusing most of its current efforts in Kazakhstan.
A greater emphasis is now placed on financing existing businesses to assure their continued growth and development. Start-up enterprises will still be considered for financing, but they will represent a smaller percentage of the CAAEF’s total portfolio. Experience has shown that start-ups require extensive management support; while the CAAEF will continue to provide such technical assistance, it will rely on the involvement of strategic partners experienced in the given industry to lead these efforts.
In common with other funds, CAAEF’s portfolio companies’ recent difficulties have been the result of inexperienced management, inadequate marketing, and extenuating circumstances beyond their control. By restricting the number of new investments in start-ups and relying on partners, the CAAEF expects to significantly improve its portfolio’s performance while reducing the need for further reserves.
The CAAEF is a proactive investor, seeking solutions and opportunities to the myriad challenges that face each business. Technical assistance is provided to the management of each company; if the company’s efforts are unsuccessful, the CAAEF will recruit professional managers from the region for those companies that lack strategic partners.
As the CAAEF looks for new opportunities in financial services, distribution, healthcare, and other sectors experiencing rapid growth, critical investment criteria will include management strength, prospects for the sector, and the level of government intervention. Experience has clearly demonstrated that weakness in any one of these areas can fatally flaw the best potential opportunity.
The Venture Capital Industry in Kazakhstan differs from that in North America and Europe. Once an investment has been made, in North America or Europe, the role of the venture capitalist is usually limited to monitoring the progress of the investment.  In Kazakhstan there is a lack of experienced management and marketing skills are weak, this means that the Venture Capitalist frequently has to play a significant active management role in the enterprise in which he has invested. There is a often therefore a strong preference amongst Venture Capital Funds to co-invest with a foreign investor that will be able to take responsibility for the management of the enterprise, therefore easing the burden on the Venture Capitalist.

Table of contents
Kazakhstan - Resource Management  Boris Zilbermints, Ian Dunderdale 
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