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NORDICS. CIS. BALTICS – REGIONAL GATEWAY. CEE. What should the industry and governments do to promote development of VC and PE in the Baltics? Matts Andersson Baltic M&A and Private Equity Forum Riga 24-25 October 2013.

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  1. NORDICS CIS BALTICS – REGIONAL GATEWAY CEE What should the industry and governments do to promote development of VC and PE in the Baltics? Matts AnderssonBaltic M&A and Private Equity Forum Riga 24-25 October 2013 ESTONIA Tartu mnt. 2, 10145 Tallinn, Tel +372 6650 280, Fax +372 6650 281 LATVIAUlmana gatve 86F,LV-1046 Riga, Tel +371 6721 4225, Fax +371 6735 6395 LITHUANIAJ.Jasinskio 16B, LT-01112 Vilnius, Tel +370 5254 6713, Fax +370 5254 6978

  2. 1. 20 years of PE and VC in the Baltics. A success story? • Investments as % of GDP 2012 was 0,029%. For total Europe 0,264%. VC is close to European average, Buyouts close to the bottom. The group Other CEEs has even lower percentage. A lot has happened: • Recognized asset class • GPs have increased in number and have gained experience by going through economic cycles • Active Associations • Investment banks, Law firms and Auditors have necessary expertise • FDI sector active • Pension system in place and starting to appreciate the asset class • Economic indicators and infrastructure show that the transition phase is passed • Role models through success stories 2

  3. 2. Where does the PE and VC industry stand today in respect to EU initiatives and regulations? • Look at EVCA memorandum dated August 2013, on the subject of: EVCA Public Affairs overview • Then ask yourself – is this how the EU promotes development of the industry? 3

  4. 3. Are the Baltic countries attractive for PE and VC investors? • Take a look at IESE Business School 2013 Attractiveness Index covering 118 countries, where Lithuania is in 43rd place, Estonia in 51st place and Latvia in 60th place • There is some distance to go before catching up with the more attractive countries • Both economic activity and depth of the capital markets are even further behind, only when it comes to taxation and investors protection & corporate governance, the scores improve the profiles 4

  5. 4. Why should one support and develop the VC and PE industry? • PE owned businesses create employment growth • PE invests more in growth and in most cases sells more valuable businesses • PE out-performance is larger than additional leverage and market factors. Ernst&Young study, June 2013 (check ey@com) Ask yourself if challenges and accusations levelled at our industry are warrented. (Now again be careful. Josh Lerner, the Harvard professor, said in September 2013 that: „it is an opaque industry, so investors can make a number of claims that do not bear the slightest scrutiny“) 5

  6. 5. Can you promote the PE & VC industry in isolation from a wider context? NO, you need at least the following characteristics: • A culture that permits creation of wealth and accepts both successes and failures (entrepreneurial environment) • Legal framework and predictability of legislature • Industrial activity and corporate dynamism • Level of education, technology and R&D • Exit mechanisms, IPO market • Understanding of the consequences of globalization 6

  7. 6. Is capital from the public sector invested into PE & VC all important/essential/marginal? • It seems that close to 50% of the European VC-fund investments come from the public sector. Some aspects that could be considered: • Disruption of the market place or correction of market failure • Criteriaattached (eg. SME, and regional/country specific) • A policy that promotes high tech – and that otherwise is hostile to entrepreneurship - will not even produce high tech. All it can come up with is another expensive flop • Micromanagement and over engineering • Fund size and lead time • Recognition of global interconnections • Programs become institutions and power centers with vested interests • Patient, long term investors 7

  8. 7. Are the VC firms doing what they should? • US versus Europe structure and performance • Does the VC model scale? • VC’s as risk takers and innovators • What is the primary source of risk financing? • The term sheets and the shareholders agreements • The ever present valuation debate • Is a handful of large, global firms enough to support a vibrant ecosystem? • Managing international growth 8

  9. 8. Examples for a tool-kit for the public sector • R&D funding and scientific cooperation • Education, up to the highest levels • Information (databanks, advise, publicity) • Financing and sharing financial risks (grants, guarantees, soft loans) • Taxation (deductability and incentive programs) • Legislation (patents, standards, specifications, fund structures, company laws, financial instruments) • Government procurement (orders of research and prototypes) • Government owned companies (innovations and experiments) • Commercial (customs, tariffs, trade agreements, promotions, fairs) • Foreign embassies (commercial attaches) • Activity in international organizations 9

  10. Thank you • Matts Andersson • E: matts.andersson@baltcap.com ESTONIA Tartu mnt. 2, 10145 Tallinn, Tel +372 6650 280, Fax +372 6650 281 LATVIAUlmana gatve 86F,LV-1046 Riga, Tel +371 6721 4225, Fax +371 6735 6395 LITHUANIAJ.Jasinskio 16B, LT-01112 Vilnius, Tel +370 5254 6713, Fax +370 5254 6978

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