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Venture Capital in Eastern Europe – theory and reality

This summary provides an overview of venture capital in Eastern Europe, focusing on the experiences of MTVP MartinsonTrigon, a leading investment vehicle. It delves into the team, investment profile, portfolio, and the venture capitalist's life cycle. The article also debunks popular myths about venture capital and analyzes the Baltic VC landscape and Russian tech investments.

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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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