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Venture Capital in Eastern Europe – theory and reality

Venture Capital in Eastern Europe – theory and reality. Allan Martinson Managing Partner MTVP. MartinsonTrigon – summary. AS MartinsonTrigon: ~12 m EUR investment vehicle Founded in 2005 1st fund of Martinson Trigon Venture Partners Geography: the Baltics and Russia

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Venture Capital in Eastern Europe – theory and reality

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  1. Venture Capital in Eastern Europe – theory and reality Allan Martinson Managing Partner MTVP

  2. MartinsonTrigon – summary • AS MartinsonTrigon: • ~12 m EUR investment vehicle • Founded in 2005 • 1st fund of Martinson Trigon Venture Partners • Geography: the Baltics and Russia • 4 investments signed by far, 2 in works • 4 professionals + Trigon Capital investment bank • Next fundraising in late 2006

  3. The Team • Allan Martinson, Managing Partner • Founder of the Baltic News Service in 1990 • CEO of MicroLink, the largest Baltic technology holding in 1998-2004 • Member of boards in >10 TMT companies • Joakim Helenius & Trigon Capital • The largest Baltic investment bank • ~500 m EUR under management • AM, CF and direct investments • Andres Susi, Associate • Sven Nuutmann, Associate • Pekka Sivonen, Chairman of the Investment Committee

  4. MartinsonTrigon’s investment profile • Typical investment between EUR 0.5-3m (average EUR 2m) • In syndicates with other VC’up to EUR 10 m • Strong control either through majority stake or strong minorities + shareholders agreements • Extensive support to the management • Earnout & option schemes • Holding period 3-5 years • Exits through strategic sale or IPO

  5. Offshore programming in Russia Portfolio • IT services and data communications in Lithuania • Music TV franchise in the Baltics • CRM collaboration technology company in Russia/USA

  6. What is Venture Capital?

  7. Stakeholders of VC industry Ideas Companies Enterpreneurs Venture Capitalists Strategic buyers or stock market $ $ $ $ VC investors

  8. Venture Capitalist’s life cycle • Fundraising • Up to 2-3 years of selling the story and concept to the fund’s investors • Pipeline generation • Active and passive search of potential investee companies in interesting industries • Less than 1% of reviewed companies will get investments • Early negotiations, signing of term sheet • From 1 month to several years • Due diligence and final negotiations • From 3 to 9 months • Signing and closing of investment • Holding period • 2-7 years • Exit • Closure of the fund • Typical lifetime 7-10 years

  9. What is Venture Capital? • VC industry produces mature companies from raw ideas and young teams by adding finances, experience and contact network • VCs are human and always invest into humans, not into companies • Taking in venture capital is an orchestrated marriage

  10. Popular myths about VC • Myth: VC is long-time, strategic partner • Fact: VC is short-to-medium time financial investor • Myth: VC invests into good companies or business plans • Fact: VCs invest into good teams in rising industries • Myth: VC invests into R&D • Fact: Less than 10% of VC money ends up in R&D, 90% in commercialization • Myth: VCs like seed stage companies • Fact: In most cases, VCs prefer later stages • Myth: VC will have all his time for my company • Fact: Typical VC with 10 companies can spend 80 hours/year on a company

  11. MTVP’s 5 evaluation criterias • Do we believe into the people and the team? • Does the company target a fast-growing market? • Does the team have competitive advantage over competitors • Do we understand the business and add value? • Are the risks reasonable?

  12. Baltic VC landscape • Two dedicated high-tech funds: • MartinsonTrigon (2 Baltic investments) • ASI Private Equity (3 Estonian investments) • Occasional investments by generalist PE players • Mostly into IT services and telecom companies • Handful of angels • ~10-20 angel investments • No direct presence of foreign VC funds • State-sponsored VC programs in Estonia and Latvia

  13. Russian roulette • 4 high-tech VC funds operating locally: • Russian Technologies, MTVP, Intel Capital, ABRT • U.S. VCs have done ~10 deals (Bessemer, Insight Partners, Merifin etc) • IT and telecom investments by general PE • Up to 10 success stories • Rambler Media, RBC, Aelita, Acronis etc • State-sponsored VC initiatives under way ($550m) • Hundreds of companies available for pipeline • Growths 50-200% p.a. • Finances, accounting, reporting, taxes usually in mess • Strong global ambitions, often not matched with management experience

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