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Planning Session 2 The creation of Seed Capital Funds for Italy 4th IFISE Meeting

Planning Session 2 The creation of Seed Capital Funds for Italy 4th IFISE Meeting. Milan, 1 st March 2002. The issues. Legal framework: EC laws for R&D and public financial support Government R&D policies: general R&D framework coming from the will of central government

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Planning Session 2 The creation of Seed Capital Funds for Italy 4th IFISE Meeting

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  1. Planning Session 2The creation of Seed Capital Funds for Italy4th IFISE Meeting Milan, 1st March 2002

  2. The issues • Legal framework: EC laws for R&D and public financial support • Government R&D policies: general R&D framework coming from the will of central government • Management Company establishment: new managers for new seed funds • Fundraising: use private raised funds reducing risk with public support (Fund of Funds model) • Entrepreneurship creation and Technology Transfer: the role of public incubation system and University • Exit way: what kind of link between Seed Capital Funds and VC Funds?

  3. Seed Capital: The model LEGAL FRAMEWORK R&D policies for Technologies SEED CAPITAL FUNDS FUNDING FoF Public support (PPP) EXIT •VC funds (+PE) Private Managers Entrepreneurship levels

  4. Legal Framework • It is vital to convince the government that the development of the Seed High Tech Sector “is good” for the economy: demonstrate the social/economic impact on the national/regional economy • The first public money/incentives should activate seed capital funds • If they succeed a virtuous cycle of “success stories” and good impact on the economy is activated, then the government will be willing to keep on running the programme (more money/more incentives) • When the market is stable, then the private investors could come in fully and the government should withdraw

  5. New managers and new funds • In Italy, the early stage activity seems to be mostly oriented towards the start up industry. Only few investments are made in seed projects. • The relationship with the VC world seems not to exist, and a link is now not active because of different approach to the firm: companies coming from seed projects are not seen as ready to be backed by VC’s • The creation of new management companies committed to seed capital activity is very highly recommendable to fill this lack of operators • The importance of the role of Banca d’Italia act for the reduction of capital requirements of Management Companies (promoted by Universities and research centres) investing in new high tech firms • The role of regional policies to cover the MC start up costs

  6. The fundraising • Funds raised for the VC activity is enough, but it is not invested in seed projects • The way to redirect part of these funds towards seed activity is to adopt the Fund of funds model, in order to create a critical mass of funds to put into smaller funds able to commit towards small seed projects: • 1. Use the “one dollar to one dollar” basis to attract private money with public money (PPP)  risk reduction • 2. Activate effective collaboration with European Investments Fund to catch a 30-40% sum for the FoF • 3. Catch public money to fund part of the project (but not let the public institutions run the funds) • Public and Private money managed by private professional new MC

  7. The Demand side: entrepreneurship creation • We can observe that, nevertheless the Italian R&D total expenditure p.a. on GDP is about one half of the EU average (i.e. 1,04% vs. 1,92%), what we really need is to transform the excellence research result into business • The role of local entrepreneurship promotion activities played by the numerous incubation systems and public agencies (such as Sviluppo Italia) • The role of University incubators and technology transfer offices: we need a more formal coordination of these actors • Increase the entrepreneurship consciousness of researchers/scientists and promote incentives to set up companies

  8. Final issues… • Create a sound solid connection between Seed capital funds and VC funds • It is important to back the seed project in order to make it acceptable by the future VC who will take the equity stake • The first Euro million is a public-private matter • Activate a network with Universities, Public incubation system and government authorities to declare a formal framework programme with declared goals • Control mechanism for incubation activity: more money to incubators which gained “high reputation”

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