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Venture Capital Fund Models for 2007-2013: Learning from Experience

This presentation discusses the importance of venture capital and compares three different models: structural, conventional, and co-investment. It highlights the skills and strengths of YFM Group and the key requirements for successful venture capital funds. The conclusion emphasizes the benefits of VC and loan funds in increasing investment, productivity, and employment. Contact information is provided for further queries.

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Venture Capital Fund Models for 2007-2013: Learning from Experience

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  1. Learning from Experience – Venture Capital Fund Models for 2007-2013Phil Cammerman YFMGroup Development Director

  2. Agenda • The Importance of Venture Capital • YFM Group • Skills & Strengths • Key Requirements • Model 1 – Structural • Model 2 – Conventional • Model 3 – Co-investment • Comparison of Models • Conclusions

  3. The Importance of Venture Capital • EVCA* statistics demonstrate that between 2000 and 2004: • Employment in VC backed businesses has grown by 30.5% per annum – over 40 times the average growth rate of 0.7% pa • 73% of VC backed businesses increased employees by more than 25% per annum • Average R&D expenditure per employee was €50,500 – compared to €8,500 for the 500 most innovative businesses • Over time VC backed businesses contribute large improvements in productivity and GDP * European Venture Capital Association

  4. YFM Group • Privatised in 2003 • Strong Financial Profile • €400 million funds under management • €30 million invested in 2005 into 60 businesses • Wide range of investors • ERDF • 12 UK Pension Funds • 3 Clearing Banks • UK Government • European Investment Fund • Private Investors

  5. Skills & Strengths • Public / Private Partnerships • Intellectual property in delivering small ticket venture and loan capital to SMEs • From Micro Finance (€5,000) to Venture Capital (€1.5million) • Hiring and development of • New teams • New geographic regions • Raised over €300 million in 10 years into a variety of funding structures • Strong investment track record – 17% compound over 20 years • Strong balance street and cash position to support team and facilities development.

  6. Key Requirements • Demand for funds and business support for SMEs • Legal and regulatory structure • State Aids Consideration • Intervention Rates • to be as high as possible • helps risk return for matching investors • Creation of Legacy Funds

  7. Model 1 - Structural ERDF Government Office Regional Office Fund Structural Fund Board Sub Fund C Sub Fund A Sub Fund B Fund Mgr C Fund Mgr A Fund Mgr B Administration Marketing

  8. Model 1 - Structural • ERDF and matched funding partners need to be in place before investing begins • Lengthy process to put in place – 4 years • Cumbersome to operate • Wasteful bureaucracy leads to higher costs • Beware high (> 30%) gearing • Confusion of responsibilities between parties • Examples: • MSIF – Merseyside Special Investment Fund • SYIF – South Yorkshire Investment Fund • PIF – Partnership Investment Finance

  9. Model 2 – Conventional ERDF EIB / EIF Czech Government Fund Fund Mgr SMEs Czech Banks Fund Mgr Czech Institutions

  10. Model 2 – Conventional Limited Partnership • UK Regional VC Model • ERDF (EIF), Banks, Institutions take preferential return • State aids precedent approved • All equity, gearing at a minimum • Relies on strength and track record of fund manager • Flexible • Builds on UK experience • Can take time to put in place • Not suitable for micro and small loan funding • Examples: • Yorkshire & Humber Equity Fund • The Capital Fund • South West Ventures Fund • + 6 Other Funds

  11. Model 3 – Co-investment SME A Inst A Seed Fund Fund Mgr VC Fund ERDF SME B Inst B Loan Fund SME C Inst A

  12. Model 3 – Co-Investment • Quick to set up • Flexibility for seed, micro, loan and venture capital • No gearing an advantage • Enables variety of co-investors to invest depending on the particular investment • Venture Capital Funds • Business Angels • High Net Worth • Banks • Relies on relationships of fund manager with other sources of finance • Lower fees to operate • Example: • North West Business Investment Scheme (Objective 2) in North West UK

  13. Comparison of Models Structural Conventional Co-Investment • Getting Started Quickly • Flexibility • State Aids Precedents • Effect of Leverage • Operational Costs • Legacy Funds • Intervention rate to be as high as possible

  14. Conclusions • VC and Loan Funds • Increases investment • Improve productivity • Increase employment • Increase GDP over time • Large revenue grants to SMEs • Prolong the status quo • Do not incentivise managers to long term growth • Implement ERDF VC and Loan Funds quickly by • Avoiding lengthy bureaucracy • Encouraging flexible matching procedures

  15. Thank you for your attention • If you have any queries please contact: • Phil Cammerman • Email: philip.cammerman@yfmgroup.co.uk • Mobile: + 44 (0) 771 927 910 or • Zuzana McMillan • Email: zuzana.mcmillan@yfmgroup.co.uk • Telephone: + 44 113 294 5000 THANK YOU FOR LISTENING

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