Lisbon 26th September 2013
Key learnings of managing COMPETE-supported Venture Capital fundsFIN-EN Meeting in Lisbon
Lisbon 26th September 2013
Lisbon 26th September 2013
Espírito Santo Ventures in brief
• Solidity and experience• Venture Capital funds management company, with 13 years industry experience • Integrated in BES Group, with full autonomy in investment and divestment decisions• Over EUR 250 million in assets under management, in 5 active funds• A seasoned team of experienced professionals
• Clear investment focus and strong expertise• Focus on areas of great challenge and growth: CleanTech, Information Technology and Healthcare &
Well-being• Clear investment criteria and strong investment selection capabilities
• Global reach• Global deal flow, with no geographic restrictions• Strong global VC partnership, reinforcing the flow of attractive investment opportunities, attracting foreign
investment to Portuguese companies and opening doors for all portfolio companies
• Commitment to value delivery• Investments in 53 companies, 8 trade sales, 2 IPOs• Strong engagement in the management of the portfolio companies• Active investor relationships
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New fund
ESV II
ESV III
ESTV
• Funds for early stage investment in Portugal attracting investments with strong potential• “Inovação e Internacionalização” – €10m for growth companies, 5 investments to date• “ISTART I” – €3m for seed financing, 7 investments to date
13 years experience in Venture Capital investmentOver €250m under management
• Our core global VC funds, ESV II and ESV III• ESV II – €88.5m, 18 investments, working on divestment phase (3 exits to date)• ESV III – €75.3m, 17 investments, closing in on the end of its investment period (2 exits to date)
• Planning for new international funds and initiatives• Structuring new international VC fund, with initial closing in 2014
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222000 …
Inovação e InternacionalizaçãoISTART I
• The inception: Espírito Santo Tech Ventures – ESTV • Organized as a VC holding company in 2000• €70m invested in 12 companies, between 2000 and 2004
1Solidity and Experience
Lisbon 26th September 2013
Clear investment criteria forEspírito Santo Ventures’ Funds
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2Clear investment focus and strong expertise
The company must:
Companies that can only deliver incremental change can not create a significant value
• Be the best in its field, with a unique business model or technology
• Have a global addressable market of at least USD $ 1 billion
Companies addressing a local or a small niche market will remain local or small in their impact
• Have knowledgeable, honest and resilient managers
An outstanding technology is not sufficient to drive a company’s success if it isn’t led by the right people
• Offer a valuation potential of at least 5x, in the medium term
A very significant return to our investors is key to the success of our venture investment activity
Lisbon 26th September 2013
Our funds invest in areas that are closely related with what we believe to be the XXIst century global challenges
Environment, demography and global development
A clear focus on three areasof great challenge and potential growth
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• Diagnosis and therapeutic procedures and devices to increase the quality of the modern extended life expectancy
• Healthy food and beverages
The increase in lifespan and the aging of the population are creating new healthcare needs
We invest in technologies to solve these problems and increase the well-being and quality of this extended life
Healthcare and Well-being
• Information technologies• Communication technologies• New payment solutions• Semiconductors• Electronics
Technologies to facilitate the communication and optimize the business relations and processes will play an important role in global development
We invest in technologies and processes that can create significant value in bridging individuals and organizations
Informationtechnology
• New / renewable energy sources• New efficient and non polluting
industrial / agricultural processes• Energy efficiency• Desalination and water efficiency• Natural resource efficiency
Global warming is raising awareness about the need to preserve and recover air, water and soil quality
We invest in technologies that can support a sustainable and environment-friendly development
CleanTech
2Clear investment focus and strong expertise
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Extensive experience in investing worldwide – portfolio companies
3Global reach
Long standing experience in investing and co-investing with some of the best VCs in different markets provides a rare knowledge of best-in-class venture practices
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A consistent growth in national investment opportunities, with no loss of quality
2006 2007 2008 2009 2010 2011 2012
316377 427
Number of Investment Opportunities directed to ESV by geography
Portugal Europe North America Other
Source: Espírito Santo Ventures’ deal flow database
52 70110
233
488532
670
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IT51%Cle
an-Tech
28%
HC &
Well-be-ing
21%
Software28%
Hardware/Comms/Semicon
13%
Services9%
Renewable energy8%
Energy efficiency6%
Materials & Construc-tion8%
Environment and waste
6%
Food & Nutrition5%
Diagnostic5%
Therapeutic4%
Biotech & Drugs4%
Lifestyle3%
Classified deal flow from Portugal – 2010/2013 (simplified)
A unique knowledge of the Portuguese startup community
By Region – predominance of tech centers in Lisbon and the Northern regions
By Stage – Even distribution with preponderance of seed/early stage
By Area – More than half of the deal flow is IT-related
Porto
Coimbra
Leiria
Lisboa
Aveiro
Madeira
Açores
Porto
ViseuCoimbra
Leiria
Lisboa
Aveiro
Madeira
Açores
Trás-os-MontesE
Alto Douro
Minho
Beira Interior
Ribatejo
Alentejo
Setúbal
Algarve <3,0%3,0% << 10,0%10,0% << 15,0%15,0% << 33,0%>33,0%
Deal flow by region 2010/2013
Seed30%
Early stage24%
Growth31%
Late stage15%
Classified deal flow from Portugal – 2010/2013 (simplified)
Source: ESV deal flow database
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Venture Capital investment plays an important role in society
Successful Venture-backed companies show evidence of superior economic importance and greater resilience through the downturn
0%
11%
21%
Source: National Venture Capital Association – Venture Impact - The Economic Importance of Venture Capital-Backed Companies to the U.S. Economy
Other benefits, at a domestic level, include aspects like catalyzing knowledge and IP, creating qualified jobs, capturing wealth (through exports),
or attracting foreign investment
-2.0%
-3.1%
Employment growth – VC-backed companies vs.
US private employment
1.6%
-1.5%
Revenue growth – VC-backed vs US Sales
Through the downturn: 2008-10
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Our portfolio is proof of that role
Growing business of our portfolio companies...
...impacting their respective employment numbers
Source: Espírito Santo Ventures, portfolio companies
At the time of investment
2012 At the time of investment
2012
89
315
69
29538
118
35
94
90
200
32
56
Sales volume of ESV portfolio companies (M€)
ESV III - investments between 2008 and 2012
ESV II - investments between 2006 and 2008
"Fundo I" - investments between 2000 and 2002
At the time of investment
Dec 2012 At the time of investment
Dec 2012
1,320
3,466
1,320
3,366817
1,719
583
1,1652,391
3,556
515
865
Number of employees in ESV portfolio compan-ies
All companies Portuguese companies All companies Portuguese companies
217
632
135
445
4.528
8.741
2.418
5.396
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ESV is managing two fundsparticipated by COMPETE
ISTART I proving the concept of seed financing in Portugal
In 2009 ESV was approached by IST’s Management Board to establish a financial instrument to promote entrepreneurship in the University
• Coincided with the launch of the COMPETE process and matched the objectives of its Seed investment component
The €3m fund was established in early 2012, aiming to support technology-based projects by researchers from any Portuguese university or research institute
• Up to €300k investment per company
Innovation and Internationalization (“I+I”) Fund supporting early stage companies
The application to a COMPETE-supported fund was born of a joint will between ESV and BES in late 2009
The €10m fund was established in early 2012 to support early stage companies with a strong focus on internationalization
• Up to €1,5m per company, per year
45%
20%
35%Privateinvestors
50%50%
Lisbon 26th September 2013
Seven ISTART I investments, to date, from several sources of deal flow
Main deal flow source institutions for ISTART IInstitutions with an ISTART I portfolio company
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ISTART I
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I+I Fund supporting early-stage companies with ambitious internationalization plans
Innovation + Internationalization
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Investment from these funds has helped unlock investment from other investors, including foreign
Corporates VCsBusiness Angels/ Institutional investors
ISTART I / I+I assumed a lead/co-lead role in almost all deals
Co-investors in ISTART I and I+I portfolio companies
Foreign investors
Lisbon 26th September 2013
Improving the effectiveness of the capital to be deployed means maximizing…
...the attractiveness to private investors, including international
...the attractiveness to the best fund managers
...the economic impact of selected companies
Ensure that investors' best interests are protected by minimizing any limitations that in any way limit the ability of the funds to provide financial returns
Ensure that fund managers are rewarded in line with the market, so as to attract the best fund managers, those who offer the capacity to adequately deploy the funds
Ensure that only (and most of) the companies who offer a large potential of impact are supported, and they are supported to the fullest extent possible
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Lisbon 26th September 2013
Review strictness of the geographic limitation• Supporting “Portuguese companies”, is about supporting companies created in
Portugal that create and retain value in our country• Often, as part of their development process and for the best reasons, the best
companies will be motivated to move HQ abroad• Preventing investment or imposing exits in those cases is not in the company’s or
the investors’ best interests
Recognize the need and gain the ability to support the best companies through their development
• Inability to provide support past a certain stage or amount (including across funds) is not in the company’s or the investors’ best interests
Strive to incentivize good deployment, not necessarily fast deployment• Current fee structure creates the incentive to quickly call and deploy the capital
Ensure competitiveness of the offer to funds managers• A competitive fixed and variable fee structure• Trust and verify, rather than imposing disproportionate reporting requirements
A few practical suggestions toimprove current practices
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Lisbon 26th September 2013
In short, experience in investment supported by COMPETE has been positive and should be amplified
It has enabled the creation of Venture Capital funds, vital to the development of the economy
It has succeeded in attracting private investors into those funds
It has been deployed in a number of high potential companies• Successfully making the transition between academia and the business world• Helping highly innovative companies grow internationally
It has succeeded in attracting foreign investment into these companies
A positive experience that should be amplifiedWhich is in line with the rise in demand and in investor interests
Still, there are opportunities to improve the effectiveness of the capital to be deployed
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