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High-tech venture capital in the Baltics

High-tech venture capital in the Baltics. ALLAN MARTINSON Managing Partner. No alternative to knowledge economy. The Balts are used to 5-9% growth rates Equal to doubed GDP in absolute terms in every 6-8 years

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High-tech venture capital in the Baltics

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  1. High-tech venture capital in the Baltics ALLAN MARTINSON Managing Partner

  2. No alternative to knowledge economy • The Balts are used to 5-9% growth rates • Equal to doubed GDP in absolute terms in every 6-8 years • To sustain this growth we need to increase productivity 10-15% per employee per annum • Productivity gains in traditional industries will be slowing down in coming years • Unless we discover (more) oil or conduct a succesful war against rich neighbors our only option is to rely on our brains • High-tech and high value-add: • IT service industry (MicroLink): 3-4 X over traditional industries • Top-class high-tech industry (SAF Tehnika): 7-8 X over traditional industries • High-tech startups: low to medium

  3. No real Baltic high-tech industry yet • Baltic ICT industry is mostly a service industry focused on local clients • Increasing competition, growth limits • Offshore programming industry relatively small • Competitive advantage will further disappear • Electronic manufacturing industry adds little value • Thousands of people employed (Elcoteq, Ekranas etc) but value-add often very small • Real high-tech: Tens of startups but no real success stories besides Skype or SAF Tehnika

  4. The lacking growth hormone • High-tech industry means: • Tens and hundreds of interlinked high-tech enterprises in clusters • Synergy between univesities and businesses • Well-developed financing market • Well-developed labor market • Venture culture • Baltic high-tech ventures tend to stop growing when reaching 0.5-1 m EUR in revenues and size of 10-30 employees • Lack of certain “growth hormone”?

  5. Components of high-tech hormone • Economy = enterprises = enterpreneurs • Knowledge economy = knowledge enterprises = knowledge enterpreneurs • There will be no dramatic change unless • Baltic enterpreneurs and capitalists discover high-tech as Next Big Thing • The governments declare Knowledge Economy their top priority • Univesities turn faces to business and vice versa • Venture capital industry emerges

  6. Baltic high-tech venture capital • Baltic private equity market: ~15 participants plus occasional excursions by Nordic and European PE players • Mostly generalist funds • Occasional investments to ICT: MicroLink, Sonex, Alna, IT, Helmes etc • Very little number of investments into high-tech startups • ~10 business angels • Investments ranging from 50000-1000000 m EUR • Doc@Home and Celecure (Rainer Nõlvak) • LDI (Endel Siff) • … • Most startup financing from “friends and family” • Government support is limited to R&D and export subsidies and loans • No dedicated high-tech VC insofar • Martinson Trigon Venture Partners to fill the void

  7. Venture Capital: a human business • What makes a succesful venture capitalist? • Listening skills • Ability to recruit management • Qualitative analysis skills • Coaching and advising skills • Financial and technical skills are rated the least important • Source: Human Capital Aspect of Venture Capitalists by Ignite Associates

  8. The first dedicated high-tech VC in the Baltics • 20-30 m EUR fund, the first closing in January 2005 • Investment geography: the Baltics and Russia • Investment focus: • growth and consolidation of existing ICT and media industries • Early growth capital for high-tech companies • Investment criterias: • MTVP understands and likes the business • Values and culture of the team, ability to execute • Unique competetive advantage • Strong business plan, strong growth opportunities • Good risk/reward ratio

  9. Government venture capital • Controversial discussions whether the government shall participate in high-tech VC • Contra: • The government shall not enter business • Risk of failure and corruption • Lack of experience • Pro: • All developed economies do have state VC structures (Sitra, Industrifonden, Singapore VCs etc) • Government VC helps to overcome market disruption in high-tech financing • Better than grants and loans as it targets the enterpreneurs • Needed to send a signal to enterpreneurs • Estonia: state VC concept developed by public-private task force with Ministry of Economy and but has failed to receive support from Ministry of Finance

  10. Thank you!Ačiu!

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