Transferring success programmes to New Member States in Europe and obtained results Eng. Vittorio Modena, University of Pavia V. Modena - EDE Conference, Sofia - November 28, 2005
ESTER Objectives ESTER is aimed at transferring the success factors from the Israeli experience in early stage financing to three New Member States: Latvia, Estonia and the Slovak Republic for the creation of suitable venture capital sources V. Modena - EDE Conference, Sofia - November 28, 2005
Partnership University of Pavia National Agency for SMEs Slovakia Connect Estonia University of Haifa Mr. Yigal Erlich Latvian Investment & Development Agency Prof. Morris Teubal Bic Bratislava V. Modena - EDE Conference, Sofia - November 28, 2005
The Latvian VC scheme V. Modena - EDE Conference, Sofia - November 28, 2005
Latvian Venture Capital Scheme Outline(1/3) The programme "Aid to the risk capital of small and medium-sized commercial companies “ was planned and promoted by the ESTER team in Latvia (Latvian Investment and Development Agency) financed by the local Ministry of Economy and the European Regional Development Fund. V. Modena - EDE Conference, Sofia - November 28, 2005
Latvian Venture Capital Scheme Outline (2/3) o o 15 Million Euros for the period 2005 -2006 will be provided by the Ministry of Economy in Latvia and the ERDF to match private funds. Private funds are expected to cover 30% of the funds. The task is to ensure the creation and functioning of at least 3 risk capital funds for SMCC (Small and Medium Commercial Companies) operating in Latvia. V. Modena - EDE Conference, Sofia - November 28, 2005
Latvian Venture Capital Scheme Outline (3/3) Fund of Funds Private Investors Limited by 70% or 5, 0 million € At least 30% of total investment in new VC fund Target : 50/50 Public Budget 15. 0 MEUR 3 new funds Investment Fund ~ 8. . . 10 million € Maximum investment about 1 m € in one project Maximum 285 k € in the first investment tranche V. Modena - EDE Conference, Sofia - November 28, 2005 Private management 7 -10 years
Latvia Venture Capital Scheme – Incentive o 1. 2. 3. 4. 5. 6. 7. Profit distribution The management company The private investors until they are repaid The public sector until it has repaid 25% of its investment Investors are paid until they get 6% yearly profit The state is repaid the remaining 75% The state receives 6% profit All other profits are distributed between the investors and the management company V. Modena - EDE Conference, Sofia - November 28, 2005
Latvia Venture Capital Scheme Transferred principles (from the Yozma Programme) 1. Funds are privately managed 2. Public sector only contributes “passive money” 3. Funds are sectorally neutral 4. As little bureaucracy as possible 5. Strong incentive to investors and managers V. Modena - EDE Conference, Sofia - November 28, 2005 –
Latvia Venture Capital Scheme (Strategy) Detected Situation Decision Uncertain high-tech deal flow Flexible scheme Limited amount of available public monies Three funds (ensuring right size) Scarce presence of skilled management Strong incentive to the management companies Uncertain return from early stage financing Strong incentive for investors in the funds V. Modena - EDE Conference, Sofia - November 28, 2005
Latvia Venture Capital Scheme (transferring experience) 1. Local partners are crucial 2. A long study on the local system 3. A long process for creating a common language 4. Final adaptation of principles V. Modena - EDE Conference, Sofia - November 28, 2005
The Yozma Programme, or how to build a venture capital industry from scratch V. Modena - EDE Conference, Sofia - November 28, 2005
The Yozma Programme (1/2) 1992 • No Venture Capital Funds • Success • Few in R&D - Failure in Marketing IPOs, No M&As • Lack of international involvement VC 2005 • ~60 Venture Funds • $10 B raised by VCs • $21 B M&A deals • #3 in Nasdaq • Cisco, IBM, Intel, Microsoft… • American V. Modena - EDE Conference, Sofia - November 28, 2005 & ROW VCs
The Yozma Programme (2/2) Basic principles: • Investment of $8 M in each drop-down fund (minority position) • A 5 year option to Yozma’s partners to buy out the Government’s share at predetermined conditions Results: • 8 out of the 10 drop-down funds have exercised their option and bought out the Government • 9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquired • The Israel Venture Capital industry has been established V. Modena - EDE Conference, Sofia - November 28, 2005
Yozma Drop Down Funds FUND CAPITAL MANAGED ($MM) Original size • Eurofund • Gemini • Inventech • JPV • Medica • Nitzanim-Concord • Polaris • Star • VERTEX • Walden 20 25 20 20 25 210 V. Modena - EDE Conference, Sofia - November 28, 2005 Today 90 550 40 675 130 280 945 900 250 175 4, 035
Contacts/references Email: vmodena@libero. it IFISE Project http: //ifise. unipv. it ESTER Project http: //www. unipv. it/ester/index. html V. Modena - EDE Conference, Sofia - November 28, 2005
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