State Aid Program Risk Capital Financing for SMEs

State Aid Program “Risk Capital Financing for SMEs” Valdis Avotiņš Latvian Investment and Development Agency Risk Capital Scheme in Latvia Tel Aviv January 14, 2005 Risk Capital Scheme in Latvia

Good investment environment l Rapid GDP growth 2000 2001 2002 2003 2004 6. 9 8 6. 4 7. 5 9. 2* l “Latvia is ranked among the top ten counties worldwide in terms of business start up time and length of bankruptcy procedures. ” Doing Business in 2004, World Bank l Wall Street Journal Index of Economic Freedom l Rank 28, Score 2. 31, (Israel Rank 33, score 2. 36) Risk Capital Scheme in Latvia 2

Sources for Deal flow l Heritage from USSR at the end of 90`s l l l 30. 000 academic scientists 13. 000 engineers in R&D Higher education institutions 2001 2002 2003 36 37 49 110. 500 118. 944 127. 656 Institutions No of students l Infrastructure l l 20 Technology and Industrial Parks EU grants available Risk Capital Scheme in Latvia 3

Technology & Industrial Parks Risk Capital Scheme in Latvia 4

State Aid Program’s objectives l l 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 Risk Capital Scheme in Latvia 5

How? l l SAP implemented via Fund of Funds Public Private Partnership l l SAP Budget 14. 5 m € (75% from ERDF) Public investment in a Fund § § l Investment Fund § § l Up to 70% (target 50/50) No more than 5. 5 m € in the single Fund Partnerships with life cycle for 10 years Managed by private management company State Support to Private Investors Risk Capital Scheme in Latvia 6

Restrictions for investment l l l SMEs registered in Latvia Maximum investment 1 m € in one project Maximum 300 k € in the first investment tranche Time between tranches at least 12 months Some sector restrictions (EU regulations) Open tender procedure for selecting Fund Management Company Risk Capital Scheme in Latvia 7

Return Distribution Mechanism 1. Fund’s management expenses; 2. Repay the original capital invested by private investors; 3. Repay 25% of the original capital invested by the state; 4. Priority return (hurdle rate) on private investors’ capital (6%); 5. Repay the remaining 75% of the state’s invested capital; 6. Hurdle rate return (6%) on the state’s invested capital; 7. Remaining profit, if any to private investors and FMC Risk Capital Scheme in Latvia 8

Key Milestones Submitted program to EC July, 2004 Approved by EC January, 2005 ERDF Steering Committee (in Riga) February, 2005 Tender for FMC`s Feb-Jun, 2005 Fund rising Jun-January, 2006 Fully invested December, 2008 Risk Capital Scheme in Latvia 9

Contacts Martins Jansons Ministry of Economy martins. jansons@em. gov. lv Dairis Calitis Latvian Venture Capital Association dairis@nluaf. lv Risk Capital Scheme in Latvia 10