The ESTER Project Early Stage Finance Triggering for Eastern Regions

Transcription

1 The ESTER Project Early Stage Finance Triggering for Eastern Regions Vittorio Modena - University of Pavia Valdis Avotins Latvian Investment and Development Agency

2 Presentation Outline PART I - Introduction! Partnership, Objectives and General Methodology PART II Tangible results! Results in Estonia and Slovakia! VC scheme and master plan in Latvia (by Valdis Avotins) PART III Intangible results! Awareness raising and dissemination activity! Results of studies in Italy and Israel

3 Presentation Outline PART IV - European added value and value for the participants! European added value! Benefit to the participants PART V Good practices! The Yozma programme! The Technology Incubators programme! The Latvian VC scheme (already mentioned) PART VI Wishes, Vision and Recommendations! Regarding the ESTER project! In general

4 ESTER Partners The University of Pavia Connect Estonia National Agency for SMEs Slovakia The University of Haifa Mr. Yigal Erlich Prof. Morris Teubal Latvian Development Agency Bic Bratislava

5 Objectives "# Planning for effective sources of seed and venture capital in Estonia, Latvia and the Slovak Republic $# Submitting formal proposals for the launch of new programmes to the relevant authorities in the three countries and the EC

6 General Methodology (1/2) "# Studying the current situation in the three Eastern European Countries, their business environment, legal framework, industrial potential and venture capital availability. $# Understanding the background conditions in the three countries through the interview of market actors

7 General Methodology (2/2) 3. Extrapolating the success factors from the Israeli Yozma and Technological Incubators programmes both from IFISE and ESTER 4. Studying of the EC state-aid regulation. 5. Planning for the most suitable public schemes for the promotion of venture capital sources 6. Submitting the same to regional, national or EC authorities

8 Part II Tangible Results

9 Results in Slovakia (1/2) "# A first proposal for a VC scheme based on the Yozma programme was presented last winter by the ESTER team. The proposal was rejected, but now it was revised and negotiations are continuing this month. The Slovak team is in constant contact with the Ministry of Finance (temporary also MoE). $# SR has converted! 40 m that were not used from the previous public funding schemes, and the ESTER team is proposing to create funds being based on the following structure: State budget: 50 % EIF: 25 % Private investors 25 % Private management

10 Results in Slovakia (2/2) %# A master plan for early stage financing is being finalized. &# The responsible for the Slovak general plan for innovation and the head of the National Agency for SMEs have personally attended the Tel-Aviv meeting and are well aware of the project, its results and the other Israeli models.

11 Results in Estonia 1. The concept of a VC scheme including a single Estonian National VC Fund (around 32m!) was started prior to the ESTER project. The ESTER team questioned the existing model and proposed to include a fund of funds programme in the scheme. Negotiations are still in progress and we hope to direct at least part of the allocation to a fund of funds scheme. 2. An early stage financing master plan is on its way including a proof of concept scheme. 3. A delegation of the technology transfer offices of Estonian technical universities were dedicated a special training session led by Yeda TTO CEO.

12 Results in Latvia and the Latvian VC scheme "# A 15m! VC scheme was designed and promoted by ESTER. It was approved by the Ministry of Economy and the EC and is managed by LGA. $# A master plan for early stage financing in Latvia %# A technology incubators programme (providing seed funds) including a think for a month preseed programme was presented at the Riga workshop last month and is expected to be approved before the end of the year.

13 Results in Latvia and the Latvian VC scheme Details by Valdis Avotins of the Latvian Development Agency

14 PART III Intangible results

15 Awareness raising and dissemination activity (1/2) "#Targeted dissemination to prominent policy makers occurred since the very beginning of the project and will last well beyond the end. All relevant policy makers in the three countries are aware of ESTER and its results. $#Presentation of results of the project at various stages to more than 20 international workshops %#Around 2000 visitors to the website

16 Awareness raising and dissemination activity (2/2) 4. More than 10 press articles 5. Two academic publications and more to come '#Interest was shown from several other New Europe regions (Czech republic, Central Pomerania, Bulgaria). (#Cooperation with X Network for early stage financing, joint workshops, cooperation with TRANSACT etc.

17 Insights from Israel (1/2) Incubators Programme - Evolution and privatization of the Incubators Programme - Entrepreneurs appreciate the Technological Incubators Programme especially for: 1. Initial capital 2. marketing knowledge (still not enough) 3. contacts and business negotiation with foreign entities - Technological incubators programme in the business cycle.

18 Insights from Israel (2/2) - VC/start-ups co-evolution - The Israeli innovation system - Other Israeli success stories (such as the Yeda of the Weizmann institute and Naiot incubator)

19 Insights from Italy (1/2) The desirability of different public incentives - Different kind of investors are attracted by different kind of incentives - Small countries are not well known among far investors - Exit is a primary concern (lack of secondary markets does not help)

20 Insights from Italy (2/2) The different potential in the Automotive and Software entrepreneurs perspective - Automotive firms are less likely to be interesting for VC investors -Automotive firms managers know less and are less interested in VC -The Software sector in general seems to be more attractive than the Automotive and its manager more interested in VC investment.

21 PART IV - European added value and benefit for the participants

22 European Added Value 1. A methodology for early stage planning in eastern regions 2. Models of early stage master plans and VC scheme involving public-private partnership 3. A VC scheme likely to be suitable to several NMS regions

23 Added Value for Partners -The eastern countries: Team making, process of planning and promoting with all market actors -Coordinator: excellent experience for project methodology and interaction with other programmes -Israeli team: further insights into their mature innovation system

24 PART V Good practices

25 The Yozma Programme (1/3) 1992 No Venture Capital Funds Success in R&D - Failure in Marketing Few IPOs,, No M&As Lack of international involvement VC 2005 ~60 Venture Funds $10B raised by VCs $21B M&A deals #3 in Nasdaq Cisco, IBM, Intel, Microsoft American & ROW VCs

26 The Yozma Programme (1/3) Mission To create the venture capital market in Israel Method To entice the private sector and foreign investors to set up new VC funds To participate in the inv. Committee in the new VC funds To secure an obligation of the new VC funds to invest in start- up companies in Israel Accomplished through Establishment of a $100M investment company Use of proceeds Establishment of 10 drop down funds together with strategic partners. 15 Direct investments

27 The Yozma Programme (1/3) Basic principles Investment of $8M in each drop-down fund (minority position) A 5 year option to Yozma s partners to buy out the Government s s share at predetermined conditions Results 8 out of the 10 drop-down funds have exercised their option and bought out the Government 9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquired The Israel Venture Capital industry has been established

28 Yozma Drop-down Funds FUND CAPITAL MANAGED ($MM) Original size Today Eurofund Gemini Inventech JPV Medica Nitzanim-Concord Polaris Star VERTEX Walden ,035

29 The Technological Incubators Programme (1/2) - Located all over Israel, including Periphery - Some of them are situated near Academic Institutes - Built an infrastructure to exploit entrepreneurial resources - $300K for 2 years / project - $170K/year support for incubator operations

30 The Technological Incubators Programme (2/2) - 24 incubators, 13 of them privatized - Around 1000 projects incubated since % of projects continue after incubation period -5-6 projects in each incubator every year INTEGRATED APPROACH!

31 PART VI Wishes, Vision and Recommendations

32 Recommendations Involve decision makers in the project from the beginning Transfer and adapt principles, not entire programmes Interact with other programme (e.g. structural funds) Let local partners lead the process

33 Wishes & Visions (ESTER) -Continue the ESTER project for one more year to cover the planning period of structural funds until the end of 2006 (continuity is important for any good project) -Extend the methodology to other regions in Europe -Extend the scope of the project to technology transfer offices

34 Wishes & Visions (General) -Directing more structural funds to R&D and innovation -Public sources of seed funding available for any good initiative in Europe -Create few, but strong secondary markets in Europe.

35 Thanks to -The ESTER partners -The European Commission -Our three officers -All those who were involved one way or another

36 Contact Vittorio Modena Università degli studi di Pavia Sportello Università-Imprese Via Mentana 4, Pavia Tel

37 How to trigger growth of new technology based entrepreneurship planning for early stage capital and incubation support measures in Latvia Valdis Avotins, ESTER Project Manager Edinburgh, 37 October 7, 2005

38 Existing situation Dynamic growth but from low starting point, mainly based on primitive process innovations One of lowest GDP level in EU Mainly export of low processed materials with low value added Competitive advantages not fully utilised Necessity to increase commercial output of knowledge potential and knowledge usage Poor NTBC development and technology transfer capacity 38

39 VC Program s objectives Facilitate entrepreneurship promoting access to risk capital financing Facilitate the establishment and development of new venture capital funds, motivate them invest in SME`s by offering state aid to private investors Attract foreign private investors to invest in Latvia Risk Capital in Latvia 39

40 PPP: Founding of VC Fund Fund of Funds Limited by 70% or 5,0 million! Private Investors At least 30% of total investment in new VC fund Budget 15.0 MEUR State Support to Private Investors Target : 50/50 Investment Fund ~ million! Decisions Private management 7-10 years 3 new funds Maximum investment about 1m! in one project Maximum 285k! in the first investment tranche 40

41 Return Distribution Mechanism "#Fund s management expenses; $#Repay the original capital invested by private investors; %#Repay 25% of the original capital invested by the state; &#Priority return (hurdle rate) on private investors capital (6%); )#Repay the remaining 75% of the state s invested capital; '#Hurdle rate return (6%) on the state s invested capital; (#Remaining profit, if any to private investors and FMC Program launched by LGA : 41

42 B. The designed draft Growth4Future Scheme 1. Technology incubator grant 2. Pre-seed grant Think for month 3. Seed soft loan Management companies or Operators of TI s private companies providing space & infrastructure, management and S&M advice, basic business services and private investment structuring in exchange for equity position in the tenant company Target groups: Potential entrepreneurs from industry Potential entrepreneurs from academia Repatriating scientists and R&D personnel Regional inventors Tested in Israel, with WB experts, EU experts, local expert panels 42

43 New forms of Business Incubation in late 1990s has been driven to multiply the number of succesful, fast-growth, high technology businesses in US a) Its led by serial entrepreneur; b) it has its own seed fund drawn from founder s own, VCF or corporate partner s capital; c) it may have specific sector focus Conventional incubators offer heat, light and dial tone, but Smart Venture Investment claim to offer more, developing ideas and incubating them in-house as well as providing late seed capital and A, B and C round investment. Incubation today is seen as a way in which capital can be efficiently applied to support new technology businesses Gill D., Martin C., Minshall T., Rigby M. Funding Technology. Lessons from America

44 1. Technology Incubator grant 9 year program (3x3 support periods) Public private partnership model Decisions made by TI private operators (PO) Grant is paid to TI operator as 30% (150 k EUR) fixed rate and 35 keur per one tenant, minimum 2 tenants are required, quarterly payments Public grant up to 100% (max. 500 k EUR) of TI s annual budget Based on Venture business not traditional incubation! 44

45 2. Pre-seed: TFM to validate a business plans before starting a new company and to leverage private equity finance in later stages To provide confidence An individual person with a business project entailing fast growth (turnover increase to at least 40-50% per year) for 0-24 months Fellowship financing covers up to 100% of eligible costs, 1 month Form of intervention Performance based grants up to 3 keuro 45

46 3. The seed program I &II Investment management: TI PO Recipients young (<6 month) SMEs after business concept validation I stage proof of concept fund: to validate business concept, study market and produce prototype; max soft-loan is 20 keur if statutory capital is paid; 100% publicly financed max soft loan 280 k EUR, matching with private equity investment 70%:30%, incl. seed I soft loan (total budget 400 k EUR) converts to non-refundable grant in the case of failure Project duration 1-6 / 6-24 months when sales appear, 5% from annual turnover should be paid back until all loan is repaid Would you apply as TI PO? - 5 from 10 would apply: 2F and 3 Local! 46

47 Existing/ approved Launch expected Planning initialised in 2006/7 OTHER SUPPORT Fast growth entrepreneurship promotion TTO IPR protection in start-ups Market exposure MARKET INTELLIGENCE NEW PRODUCTS BUSINESS SUPPORT FINANCING TFM schem e SEED SCHEME TECHNOLOGICAL INCUBATION START-UP SCHEME VENTURE CAPITAL SAP Ideas Validation Prototyping Fast growth 47

48 48 Thank you for attention!