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Results of the Ester Project in Latvia

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Results of the Ester Project in Latvia Valdis Avotins, LIDA Salamanca Joint Workshop, June 23, 2005 – PowerPoint PPT presentation

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Title: Results of the Ester Project in Latvia


1
Results of the Ester Project in Latvia
Valdis Avotins, LIDA Salamanca Joint Workshop,
June 23, 2005
2
Agenda
  • NIP
  • Need Market failure
  • Risk capital program
  • Technology incubator seed program
  • Questions

3
Goals of the innovation strategy
RIS Latvia
4
22 experts evaluation
Research infrastructure
Innovation Assistant
Prototype
Risk Capital FF
EMP
Tech Incubator, liaison offices, seed
CoE
IPR
5
Existing/ approved Launch expected Planning
initialised in 2006/7
Entrepreneurship promotion
Market exposure
MARKET INTELLIGENCE
OTHER SUPPORT
TTO
IPR protection in start-ups
NEW PRODUCTS
BUSINESS SUPPORT
TECHNOLOGICAL INCUBATION
TFM scheme
START-UP SCHEME
VENTURE CAPITAL SAP
FINANCING
SEED SCHEME
Prototyping
6
Good investment environment
  • Rapid GDP growth
  • Latvia is ranked among the top ten counties
    worldwide in terms of business start up time and
    length of bankruptcy procedures. Doing Business
    in 2004, World Bank
  • Wall Street Journal Index of Economic Freedom
  • Rank 28, Score 2.31, (Israel Rank 33, score 2.36)
  • The overall tax burden of GDP is only 29.1

2000 2001 2002 2003 2004
6.9 8 6.4 7.5 8.5
7
Background conditions
  • Low general entrepreneurship activity
  • Lowest amount of SMEs in EU (18 on 1000
    inhabitants EU average 51/1000)
  • Low share of innovative enterprises
  • 20 (incl. adoption) compared to EU average of
    45
  • Share of high-tech products in export 6
  • Employment in mid-to-high-tech is 23 of EU
    average
  • Lack of appropriate financial instruments for the
    needs of high-tech/ innovative companies at early
    stage of their development

8
Jaffa Oranges vs. Software (1992-2001)
Dr.Eli Opper, Chief Scientist
9
A. RISK CAPITAL SCHEME
Reasonable investments in LVL 0 ...
10,000 ... 25,000 ... 50,000 ... 100,000 ...
250,000 ... 500,000 ... 1 m ... 2.5 m ... 5 m ...
BSEF, BALTCAP, NCH, BALEF 34 projects
NLBDF 33 projects
1995 First risk Capital investment 1995
2004 67 projects financed via Risk
Capital No Start-up investments No Seed
money
10
Sources for Deal flow
  • Heritage from USSR at the end of 90s
  • 30.000 academic scientists
  • 13.000 engineers involved in RD
  • Large brain gain opportunities
  • Higher education institutions
  • Infrastructure
  • 6 RD Centers of excellence
  • 20 Technology and industrial parks
  • EU grants

2001 2002 2003
Institutions 36 37 49
No of students 110.500 118.944 127.656

11
Programs objectives
  • Facilitate entrepreneurship promoting access to
    risk capital financing
  • Facilitate the establishment and development of
    new venture capital funds, motivate them invest
    in SMEs by offering state aid to private
    investors
  • Attract private investors to invest in Latvia

12
How?
  • Public Private Partnership
  • Budget 14.5m (75 from ERDF)
  • Public investment in a Fund
  • Up to 70 (target 50/50)
  • No more than 5.5m in the single Fund
  • State Support to Private Investors

13
Founding of VC Fund
3 new funds
14
Investment Fund
  • Partnerships with life cycle for 7 to 10 years
  • Managed by private management company
  • Business decisions made by private investors
  • State support to private investors

15
Selection of Fund Managers
  • Open tender procedure, main criteria
  • Experience and professionalism of team members
  • Business plan
  • Involved private investors and amount of private
    funds

16
Decision-making procedure
Investment committee (representatives of all
investors, one member from FF)
Venture Capital Fund 8 ... 10 million
SME 1
SME 2
SME 10-15

17
Restrictions for investment
  • SMEs registered in Latvia
  • Maximum investment 1m in one project
  • Maximum 300k in the first investment tranche
  • Time between trenches at least 12 months
  • Some sector restrictions (EU regulations)

18
Return Distribution Mechanism
  1. Funds management expenses
  2. Repay the original capital invested by private
    investors
  3. Repay 25 of the original capital invested by the
    state
  4. Priority return (hurdle rate) on private
    investors capital (6)
  5. Repay the remaining 75 of the states invested
    capital
  6. Hurdle rate return (6) on the states invested
    capital
  7. Remaining profit, if any to private investors and
    FMC

19
B. The designed draft Growth4Future Scheme
  1. Technology incubator grant
  2. Pre-seed grant Think for month
  3. Seed soft loan

Management companies or Operators of TIs
private companies providing space
infrastructure, management and SM advice, basic
business services and private investment
structuring in exchange for equity position in
the tenant company
  • Target groups
  • Potential entrepreneurs from industry
  • Potential entrepreneurs from academia
  • Repatriating scientists and RD personnel
  • Regional inventors

Tested in Israel, with WB experts, EU experts,
local expert panels
20
New forms of Business Incubation
  • in late 1990s has been driven to multiply the
    number of succesful, fast-growth, high technology
    businesses in US
  • Its led by serial entrepreneur
  • it has its own seed fund drawn from founders
    own, VCF or corporate partners capital
  • it may have specific sector focus

Conventional incubators offer heat, light and
dial tone, but Smart Venture Investment claim
to offer more, developing ideas and incubating
them in-house as well as providing late seed
capital and A, B and C round investment. Incubatio
n today is seen as a way in which capital can be
efficiently applied to support new technology
businesses
Gill D., Martin C., Minshall T., Rigby M. Funding
Technology. Lessons from America. 2000
21
Political Goals
  1. Improve the competitiveness of Latvia by
    facilitating development of high medium tech
    industries
  2. Create a potential for participation in future
    technologies (prestige, future competitiveness)
  3. Development of new sustainable export industries
    (Israeli Finnish experience)
  4. Create economic champions / change the attitude
    of society towards technology commercialization.

High growth high-tech company establishment is more expensive and it shows remarkable return after 8-10 years longer establishment cycle specific infrastructure required specific knowledge needed.
22
Background
  • Existing market gap for early stage investment
    and low local entrepreneurial spirit results in
    few investments particularly in high growth
    Start-ups
  • The Need sharing investor risk to encourage
    investments and increase the number of high
    growth start-up companies
  • Solution outsourced integrated service to
    motivated professional venture teams

23
Side measures for Deal flow
  • Entrepreneurship motivation scheme - outflow of
    300 busines ideas, 100 marketing plans, 50
    business plans
  • Reposition of entrepreneurial culture
  • by informative seminars, work shops,
    presentations, publications in media, etc
  • Awareness creation program
  • Think for month (pre-seed grant)
  • Innovation assistant grant scheme
  • motivation scheme for inventors in universities
    and RD institutes
  • Innovation courses and innovation MBA program in
    RTU
  • Technology transfer centre
  • Business labs and Liaison offices in
    universities
  • Ventspils school of entrepreneurship (Chalmers
    model)

24
1. Technology Incubator grant
  • 9 year program (3x3 support periods)
  • Public private partnership model
  • Decisions made by TI private operators (PO)
  • Grant is paid to TI operator as 30 fixed rate
    and 35 kEUR per one tenant, minimum 2 tenants are
    required, quarterly payments
  • Public grant up to 75 (max. 500 k EUR) of TIs
    annual budget
  • Based on Venture business not traditional
    incubation!

25
2. Pre-seed TFM
  • to validate a business plans before starting a
    new company and to leverage private equity
    finance in later stages
  • An individual person with a business project
    entailing fast growth (turnover increase to at
    least 40-50 per year) for 0 - 24 months
  • Financing covers up to 100 of eligible costs, 1
    month

Form of intervention
Performance based grants up to 3 kEuro
26
3. The seed program
  • Investment management TI PO
  • Recipients young (lt6 month) SMEs after business
    concept validation
  • max 300 K EUR soft loan, matching with private
    equity investment 7030
  • converts to non-refundable grant in the case of
    failure
  • Project duration 6-24 months
  • when sales appear 5 from annual turnover should
    be paid back until all loan is repaid

27
(No Transcript)
28
Return
  • Return
  • Number of incubators and their capacity utilized
  • Number of newly created technological companies
  • Number of companies graduating from TI
  • Number of successful IPOs, MAs, investments in
    the next rounds
  • Total private investment attracted to the
    companies

29
Selection criteria
  • For TIs operators
  • TI management experience and professionalism of
    team members in new high growth SMEs creation
  • Business plan
  • Amount of offered financing
  • Planned running costs per SME, share of private
    co-investment
  • For SMEs
  • Registrated commercial entity in LR, younger than
    6 months, planned growth over 50
  • Not yet in market, IPR owner or exclusive user
  • High- or medium-tech
  • Explicit orientation towards global market
    (export)
  • Worked out draft business or / and technology
    plan
  • Manageable company
  • Significant milestones for 24 months

30
Thank you for attention!
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