Role of Ventre Capital for transition economies

1、FinancingInnovativeBusinessesinTransitionEconomies:TheRoleofVentureCapital–OpportunitiesandChallengesFrancisJ.SkrobiszewskiAdvisortoCAPS,USAIDArmeniaFormerManagingDirector,HungarianInnovativeTechnologiesFundAdvancingInnovationECA2007Yerevan,ArmeniaSeptember18,2007DrawingontheExperiencesoftheEnterpriseFund’sHungarianInnovativeTechnologiesFundIssuesinCreatingPE/VCFundsforECARegion•Achievingcriticalmassofcapital–Toattractandsupportinvestmentprofessionals–Tocoveroperatingcosts–BlendVCandPEstrategie。

2、sinsinglefund?•StructureofFundandgeographicalscope•IsEcosystem/InstitutionalInfrastructuresufficienttosupportventureinvesting?•Sourcesofcapitalinfaceofundefinedrisks–Needforpubliccapitalasa“catalyst”•EnoughsuccessstoriesCentralEurope–circa1989•DevelopedIndustrializedEconomies•StrongEducationalTraditionsinScience,Math,EngineeringandMedicine•GreatUniversities/SkilledTechnicians•CommandEconomyInefficiencies•RiskAverseCitizenry,butSomeEntrepreneurial•AbsenceofBusinessManagementSkillsandCapitalCapita。

3、l,ProfessionallyEmployed,WasNeededtoFuelLocalBusinessGrowthCapital,ProfessionallyEmployed,WasNeededtoFuelLocalBusinessGrowthUSG’sEnterpriseFundModel•$240millionofpublicmoneyforPAEFand$60millionforHAEF•Asprivately-managedinvestmentfirmstofinanceemergententrepreneurswithequityanddebtcapital•InPAEF’s10yearsofoperations,--itinvested$200Mequityin50Polishcompanies--provided$300Minloansto10,000SMEs--extended$180Minloanstoover30,000“microenterprises•By2006,PAEF’s“privatized”managementteamhadraised~$1.6b。

4、illioninprivateinstitutionalcapitalforinvestmentinPolandandregion–plus,PAEF’ssuccessesattractedcompetingfunds!•Raisingadditional$40Minprivatecapital,HAEFputtoworknearly$125millionintheHungarianeconomy,andcreatedHungarianInnovativeTechnologiesFundtodemonstratepossibilitiesinhigh-techventurecapitalinvestingInvestorsinTransitionalEconomiesFaceDauntingChallenges•“NoRoadmaps”and“CollapseofTimeframe”–Lackofinfo/unknownrisks/duediligencedifficult–Difficultypricingdeals,securingandvaluingassets•LittleEc。

5、osystem/InstitutionalInfrastructure–Laws/regs,judicialenforcement,taxregime–Unsophisticatedentrepreneurs,lackingmanagement–Businesspracticesnotconducive•UnderdevelopedCapitalMarkets–HowtoachieveCapitalAppreciationandgetEXITS?AndforVCs,GreatScienceDoesNotAlwaysTranslateintoSuccessAndforVCs,GreatScienceDoesNotAlwaysTranslateintoSuccessEntrepreneurs-InnovatorsDoNotSucceedinaVacuum•Market-DrivenDemand•InstitutionalInfrastructureandIncubation–Conducivelawsandregs,judicialenforcement,taxes–Facilitatio。

6、n,supportandguidance–Managerialskills,MISandgoodbusinesspractices–Buildingrelationships/linkages/networks•VentureCapitalProperlyEmployedCompareConditionsinWorld’sGreatest,MostSuccessfullEconomiesCompareConditionsinWorld’sGreatest,MostSuccessfullEconomiesHungarianInnovativeTechnologiesFundModel•HAEFlaunchedHITFwaswithdevelopmentalfundingin1999toestablishprofessionalventurecapitalinvestmentcapabilitiesandproveconcept–“ThatthereisrealopportunityinHungary(andbyextensiontheCEEregion)forseed/earlystag。

7、eequityfinancingforsmallerentrepreneur-innovatorsdevelopingnewtechnologieswithglobalmarketpotential.”•ByHAEF’swind-downin2003,HITFhad:•Generatedover400proposals,~65inbiotech•Closed7deals•Co-investedwithmajorinternationalinvestmentfunds•EstablishedasolidreputationinitsnicheRoleofProfessionalVentureCapitalist•NotonlyBringCapital•IdentifyBestIdeas•SupportandCreateManagement•AddCommercialJudgment–Internationalcontacts–Marketingandsales–Goodmanagementpractices(financial,HR,etc.)–FundraisingRewardsHav。

8、etoBeCommensuratewiththeRisksRewardsHavetoBeCommensuratewiththeRisksTechnologyKnowsNoBordersÆCompetitionIsGlobal•Products/servicescanbeconceivedinonecountry,producedinsecondandsoldinthirdcountry•HITFsoughttoovercomelimitationsinHungarianmarketby:•FocusingonnewtechnologieswithGlobalMarketPotential•Partneringwithlargerinternationalinvestmentfunds•IntelCapital•Soros-affiliatedfunds•TechnoVentureManagement(TVM)•Investingthroughoff-shoreparentcorporationwithR&DfocusedsubsidiarylocatedinHungary•N-Gene。

9、inUSA•AXXIMAinGermanyCreatingDisciplined,ProfessionalInvestmentOrganizationMadetheseDealsPossibleCreatingDisciplined,ProfessionalInvestmentOrganizationMadetheseDealsPossibleSomeLessonsLearnedfromEFsandHITFExperience•Privatesectorapproach,backedbypubliccapital,oftenneededtotakeearlyrisks–especiallyinhigh-tech–andtoacceleratedevelopmentbyassessingneedsofprivatesectoranddesigningmarket-responsivesolutions.•Thiscatalystatmicro-economiclevelsupportsworkablepolicyframework,laysfoundationforinvestingan。

10、ddemonstratesopportunityattractingprivatecapital•FundamentalsaresamewhetherinBudapestorBoston;inECAorUSA•Criticalmassofcapitalisneeded•ProfessionalFundManagerswithanequitystakeinthedealsareCOMMITTEDtoprotectingthecapital–theyarenotshort-term“projectmanagers”SomeLessonsLearnedfromHITFExperience(con’t)•Technologyhasnoborders,soinvestmentshouldnotberestrictedgeographically,butbycapabilitytomanageit•Smallmarketsofferashortageofexperiencedco-investors,andlimitedstrategicinvestorsareinterestedinbuyingl。