V.Modena - EDE Conference, Sofia - November 28, 2005

Transferring success programmes to New Member States in Europe and obtained results

Eng. Vittorio Modena, University of Pavia

V.Modena - EDE Conference, Sofia - November 28, 2005

ESTER is aimed at transferring the

success factors from the Israeli

experience in early stage financing

to three New Member States:

Latvia, Estonia and the Slovak

Republic for the creation of suitable

venture capital sources

ESTER Objectives

V.Modena - EDE Conference, Sofia - November 28, 2005

Partnership

Bic Bratislava

Latvian Investment & Development Agency

Connect Estonia

National Agency for SMEs Slovakia

University of Pavia

University of Haifa

Mr. Yigal Erlich

Prof. Morris Teubal

V.Modena - EDE Conference, Sofia - November 28, 2005

The Latvian VC scheme

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvian Venture Capital Scheme Outline(1/3)

The programme "Aid to the risk capital of small and medium-sized commercial companies “ was planned and promoted by the ESTER team in Latvia (Latvian Investment and Development Agency) financed by the local Ministry of Economy and the European Regional Development Fund.

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvian Venture Capital Scheme Outline (2/3)

15 Million Euros for the period 2005-2006 will be provided by the Ministry of Economy in Latvia and the ERDF to match private funds. Private funds are expected to cover 30% of the funds.

The task is to ensure the creation and functioning of at least 3 risk capital funds for SMCC (Small and Medium Commercial Companies) operating in Latvia.

V.Modena - EDE Conference, Sofia - November 28, 2005

3 new fundsPublic Budget 15.0 MEUR

Private management

7-10 yearsMaximum investment about 1m € in one projectMaximum 285k € in the first investment tranche

Fund of FundsLimited by 70%or 5,0 million €

Investment Fund ~ 8 ... 10 million €

Private InvestorsAt least 30% of total investment

in new VC fund

Target : 50/50

Latvian Venture Capital Scheme Outline (3/3)

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvia Venture Capital Scheme –Incentive

Profit distribution1. The management company2. The private investors until they are repaid3. The public sector until it has repaid 25% of its

investment4. Investors are paid until they get 6% yearly profit5. The state is repaid the remaining 75%6. The state receives 6% profit7. All other profits are distributed between the investors

and the management company

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvia Venture Capital Scheme –Transferred principles (from the Yozma Programme)

1. Funds are privately managed

2. Public sector only contributes “passive money”

3. Funds are sectorally neutral

4. As little bureaucracy as possible

5. Strong incentive to investors and managers

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvia Venture Capital Scheme (Strategy)

Detected Situation Decision

Uncertain high-tech deal flow

Flexible scheme

Limited amount of available public monies

Three funds (ensuring right size)

Scarce presence of skilled management

Strong incentive to the management companies

Uncertain return from early stage financing

Strong incentive for investors in the funds

V.Modena - EDE Conference, Sofia - November 28, 2005

Latvia Venture Capital Scheme (transferring experience)

1. Local partners are crucial

2. A long study on the local system

3. A long process for creating a common language

4. Final adaptation of principles

V.Modena - EDE Conference, Sofia - November 28, 2005

The Yozma Programme, or how to build a venture capital industry from scratch

V.Modena - EDE Conference, Sofia - November 28, 2005

The Yozma Programme (1/2)

•No Venture Capital FundsNo Venture Capital Funds

•Success in R&D - Failure in MarketingSuccess in R&D - Failure in Marketing

•Few IPOs, No M&AsFew IPOs, No M&As

•Lack of international involvementLack of international involvement•~60 Venture Funds~60 Venture Funds

•$10B raised by VCs$10B raised by VCs

•$21B M&A deals$21B M&A deals

•#3 in Nasdaq#3 in Nasdaq

•Cisco, IBM, Intel, Microsoft…Cisco, IBM, Intel, Microsoft…

•American & ROW VCsAmerican & ROW VCs

1992

2005

VC

V.Modena - EDE Conference, Sofia - November 28, 2005

The Yozma Programme (2/2)

Basic principles: Basic principles:

• Investment of $8M in each drop-down fund Investment of $8M in each drop-down fund

(minority position)(minority position)

• A 5 year option to Yozma’s partners to buy out the A 5 year option to Yozma’s partners to buy out the Government’s share at predetermined conditionsGovernment’s share at predetermined conditions

Results:Results:

• 8 out of the 10 drop-down funds have exercised 8 out of the 10 drop-down funds have exercised their option and bought out the Government their option and bought out the Government

• 9 out of the 15 companies Yozma Venture Capital has 9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquiredinvested in directly, went public or have been acquired

• The Israel Venture Capital industry has been The Israel Venture Capital industry has been establishedestablished

V.Modena - EDE Conference, Sofia - November 28, 2005

Yozma Drop Down Funds

FUND CAPITAL MANAGED ($MM)

Original size Today

•EurofundEurofund 2020 90 90

•GeminiGemini 2525 550 550

•InventechInventech 2020 40 40

•JPVJPV 2020 675 675

•MedicaMedica 2020 130 130

•Nitzanim-ConcordNitzanim-Concord 2020 280 280

•PolarisPolaris 2020 945 945

•StarStar 2020 900 900

•VERTEXVERTEX 2020 250 250

•WaldenWalden 2525 175 175 210210 4,035 4,035

V.Modena - EDE Conference, Sofia - November 28, 2005

Contacts/references

Email: vmodena@libero.it

IFISE Project http://ifise.unipv.it

ESTER Project http://www.unipv.it/ester/index.html