1 / 30

Results of the Ester Project in Latvia

Results of the Ester Project in Latvia. Valdis Avotins, LIDA Salamanca Joint Workshop, June 23, 2005. Agenda. NIP Need : Market failure Risk capital program Technology incubator & seed program Questions. G oals of the innovation strategy. RIS Latvia. 22 experts’ evaluation.

goldy
Download Presentation

Results of the Ester Project in Latvia

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Results of the Ester Project in Latvia Valdis Avotins, LIDA Salamanca Joint Workshop, June 23, 2005

  2. Agenda • NIP • Need: Market failure • Risk capital program • Technology incubator & seed program • Questions

  3. Goals of the innovation strategy RIS Latvia

  4. 22 experts’ evaluation Research infrastructure Innovation Assistant Prototype Risk Capital FF EMP Tech Incubator, liaison offices, seed CoE IPR

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

  6. Good investment environment • Rapid GDP growth • “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 • Wall Street Journal Index of Economic Freedom • Rank 28, Score 2.31, (Israel Rank 33, score 2.36) • The overall tax burden of GDP is only 29.1%

  7. Background conditions • Low general entrepreneurship activity • Lowest amount of SME’s in EU (18 on 1000 inhabitants; EU average 51/1000) • Low share of innovative enterprises • 20% (incl. adoption) compared to EU average of 45% • Share of high-tech products in export ~6% • Employment in mid-to-high-tech is 23% of EU average • Lack of appropriate financial instruments for the needs of high-tech/ innovative companies at early stage of their development

  8. Jaffa Oranges vs. Software(1992-2001) 3500 3000 2500 Software Citrus 2000 exports ($millions) 1500 1000 500 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Dr.Eli Opper, Chief Scientist

  9. A. RISK CAPITALSCHEME Reasonable investments in LVL 0 ... 10,000 ... 25,000 ... 50,000 ... 100,000 ... 250,000 ... 500,000 ... 1 m ... 2.5 m ... 5 m ... NLBDF 33 projects BSEF, BALTCAP, NCH, BALEF 34 projects 1995 First risk Capital investment 1995 – 2004 67 projects financed via Risk Capital No Start-up investments No Seed money

  10. Sources for Deal flow • Heritage from USSR at the end of 90`s • 30.000 academic scientists • 13.000 engineers involved in R&D • Large brain gain opportunities • Higher education institutions • Infrastructure • 6 R&D Centers of excellence • 20 Technology and industrial parks • EU grants

  11. 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 private investors to invest in Latvia Risk Capital in Latvia

  12. How? • Public Private Partnership • Budget 14.5m € (75% from ERDF) • Public investment in a Fund • Up to 70% (target 50/50) • No more than 5.5m € in the single Fund • State Support to Private Investors

  13. Fund of Funds Limited by 70% or 5,7 million€ Private Investors At least 30% of total investment in new VC fund Target : 50/50 Investment Fund ~ 8 ... 10 million € Founding of VC Fund 3 new funds

  14. Investment Fund • Partnerships with life cycle for 7 to 10 years • Managed by private management company • Business decisions made by private investors • State support to private investors

  15. Selection of Fund Managers Open tender procedure, main criteria: • Experience andprofessionalism of teammembers • Business plan • Involved private investors and amount of private funds

  16. Decision-making procedure Investment committee (representatives of all investors, one member from FF) Venture Capital Fund ~ 8 ... 10 million€ SME 1 SME 2 • • • SME 10-15

  17. Restrictions for investment • SMEs registered in Latvia • Maximum investment 1m € in one project • Maximum 300k € in the first investment tranche • Time between trenches at least 12 months • Some sector restrictions (EU regulations)

  18. Return DistributionMechanism • 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

  19. B.The designed draft Growth4Future Scheme • Technology incubator grant • Pre-seed grant – Think for month • Seed soft loan Target groups: • Potential entrepreneurs from industry • Potential entrepreneurs from academia • Repatriating scientists and R&D personnel • Regional inventors 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 Tested in Israel, with WB experts, EU experts, local expert panels

  20. New forms of Business Incubation in late 1990s has been driven to multiply the number of succesful, fast-growth, high technology businesses in US • Its led by serial entrepreneur; • it has its own seed fund drawn from founder’s own, VCF or corporate partner’s capital; • 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. 2000

  21. Political Goals • Improve the competitiveness of Latvia by facilitating development of high & medium tech industries; • Create a potential for participation in future technologies (prestige, future competitiveness); • Development of new sustainable export industries (Israeli & Finnish experience); • Create economic champions/ change the attitude of society towards technology commercialization.

  22. Background Existing market gap for early stage investment and low local entrepreneurial spirit results in few investments particularly in high growth Start-ups The Need:sharing investor risk to encourage investments and increase the number of high growth start-up companies Solution: outsourced integrated service to motivated professional venture teams

  23. Side measures for Deal flow • Entrepreneurship motivation scheme - outflow of 300 busines ideas, 100 marketing plans, 50 business plans; • Reposition of entrepreneurial culture : • by informative seminars, work shops, presentations, publications in media, etc; • Awareness creation program; • “Think for month” (pre-seed grant); • Innovation assistant grant scheme; • motivation scheme for inventors in universities and R&D institutes; • Innovation courses and innovation MBA program in RTU; • Technology transfer centre; • Business labs and Liaison offices in universities; • Ventspils school of entrepreneurship (Chalmers model)

  24. 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% fixed rate and 35 kEUR per one tenant, minimum 2 tenants are required, quarterlypayments • Public grant up to 75% (max. 500 k EUR) of TI’s annual budget • Based on Venture business not traditional incubation!

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

  26. 3. The seed program • Investment management: TI PO • Recipients – young (<6 month) SMEs after business concept validation • max300 K EUR soft loan, matching with private equity investment 70%:30% • converts to non-refundable grant in the case of failure • Project duration 6-24 months • when sales appear 5% from annual turnover should be paid back until all loan is repaid

  27. Return • Return: • Number of incubators and their capacity utilized • Number of newly created technological companies • Number of companies graduating from TI • Number of successful IPOs, M&As, investments in the next rounds • Total private investment attracted to the companies

  28. Selection criteria • For SMEs • Registrated commercial entityin LR, younger than 6 months, planned growth over 50% • Not yet in market, IPR owner or exclusive user • High- or medium-tech • Explicit orientation towards global market (export) • Worked out draft business or / and technology plan • Manageable company • Significant milestones for 24 months • For TIs operators • TI management experience and professionalism of team members in new high growth SMEs creation • Business plan • Amount of offered financing • Planned running costs per SME, share of private co-investment

  29. Thank you for attention!

More Related