Role of Ventre Capital for transition economies

FinancingInnovativeBusinessesinTransitionEconomies:TheRoleofVentureCapital–OpportunitiesandChallengesFrancisJ.SkrobiszewskiAdvisortoCAPS,USAIDArmeniaFormerManagingDirector,HungarianInnovativeTechnologiesFundAdvancingInnovationECA2007Yerevan,ArmeniaSeptember18,2007DrawingontheExperiencesoftheEnterpriseFund’sHungarianInnovativeTechnologiesFundIssuesinCreatingPE/VCFundsforECARegion•Achievingcriticalmassofcapital–Toattractandsupportinvestmentprofessionals–Tocoveroperatingcosts–BlendVCandPEstrategiesinsinglefund?•StructureofFundandgeographicalscope•IsEcosystem/InstitutionalInfrastructuresufficienttosupportventureinvesting?•Sourcesofcapitalinfaceofundefinedrisks–Needforpubliccapitalasa“catalyst”•EnoughsuccessstoriesCentralEurope–circa1989•DevelopedIndustrializedEconomies•StrongEducationalTraditionsinScience,Math,EngineeringandMedicine•GreatUniversities/SkilledTechnicians•CommandEconomyInefficiencies•RiskAverseCitizenry,butSomeEntrepreneurial•AbsenceofBusinessManagementSkillsandCapitalCapital,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~$1.6billioninprivateinstitutionalcapitalforinvestmentinPolandandregion–plus,PAEF’ssuccessesattractedcompetingfunds!•Raisingadditional$40Minprivatecapital,HAEFputtoworknearly$125millionintheHungarianeconomy,andcreatedHungarianInnovativeTechnologiesFundtodemonstratepossibilitiesinhigh-techventurecapitalinvestingInvestorsinTransitionalEconomiesFaceDauntingChallenges•“NoRoadmaps”and“CollapseofTimeframe”–Lackofinfo/unknownrisks/duediligencedifficult–Difficultypricingdeals,securingandvaluingassets•LittleEcosystem/InstitutionalInfrastructure–Laws/regs,judicialenforcement,taxregime–Unsophisticatedentrepreneurs,lackingmanagement–Businesspracticesnotconducive•UnderdevelopedCapitalMarkets–HowtoachieveCapitalAppreciationandgetEXITS?AndforVCs,GreatScienceDoesNotAlwaysTranslateintoSuccessAndforVCs,GreatScienceDoesNotAlwaysTranslateintoSuccessEntrepreneurs-InnovatorsDoNotSucceedinaVacuum•Market-DrivenDemand•InstitutionalInfrastructureandIncubation–Conducivelawsandregs,judicialenforcement,taxes–Facilitation,supportandguidance–Managerialskills,MISandgoodbusinesspractices–Buildingrelationships/linkages/networks•VentureCapitalProperlyEmployedCompareConditionsinWorld’sGreatest,MostSuccessfullEconomiesCompareConditionsinWorld’sGreatest,MostSuccessfullEconomiesHungarianInnovativeTechnologiesFundModel•HAEFlaunchedHITFwaswithdevelopmentalfundingin1999toestablishprofessionalventurecapitalinvestmentcapabilitiesandproveconcept–“ThatthereisrealopportunityinHungary(andbyextensiontheCEEregion)forseed/earlystageequityfinancingforsmallerentrepreneur-innovatorsdevelopingnewtechnologieswithglobalmarketpotential.”•ByHAEF’swind-downin2003,HITFhad:•Generatedover400proposals,~65inbiotech•Closed7deals•Co-investedwithmajorinternationalinvestmentfunds•EstablishedasolidreputationinitsnicheRoleofProfessionalVentureCapitalist•NotonlyBringCapital•IdentifyBestIdeas•SupportandCreateManagement•AddCommercialJudgment–Internationalcontacts–Marketingandsales–Goodmanagementpractices(financial,HR,etc.)–FundraisingRewardsHavetoBeCommensuratewiththeRisksRewardsHavetoBeCommensuratewiththeRisksTechnologyKnowsNoBordersÆCompetitionIsGlobal•Products/servicescanbeconceivedinonecountry,producedinsecondandsoldinthirdcountry•HITFsoughttoovercomelimitationsinHungarianmarketby:•FocusingonnewtechnologieswithGlobalMarketPotential•Partneringwithlargerinternationalinvestmentfunds•IntelCapital•Soros-affiliatedfunds•TechnoVentureManagement(TVM)•Investingthroughoff-shoreparentcorporationwithR&DfocusedsubsidiarylocatedinHungary•N-GeneinUSA•AXXIMAinGermanyCreatingDisciplined,ProfessionalInvestmentOrganizationMadetheseDealsPossibleCreatingDisciplined,ProfessionalInvestmentOrganizationMadetheseDealsPossibleSomeLessonsLearnedfromEFsandHITFExperience•Privatesectorapproach,backedbypubliccapital,oftenneededtotakeearlyrisks–especiallyinhigh-tech–andtoacceleratedevelopmentbyassessingneedsofprivatesectoranddesigningmarket-responsivesolutions.•Thiscatalystatmicro-economiclevelsupportsworkablepolicyframework,laysfoundationforinvestinganddemonstratesopportunityattractingprivatecapital•FundamentalsaresamewhetherinBudapestorBoston;inECAorUSA•Criticalmassofcapitalisneeded•ProfessionalFundManagerswithanequitystakeinthedealsareCOMMITTEDtoprotectingthecapital–theyarenotshort-term“projectmanagers”SomeLessonsLearnedfromHITFExperience(con’t)•Technologyhasnoborders,soinvestmentshouldnotberestrictedgeographically,butbycapabilitytomanageit•Smallmarketsofferashortageofexperiencedco-investors,andlimitedstrategicinvestorsareinterestedinbuyingl