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Investing in TT / Acceleration October 2015 – ISTANBUL J DARCY 1 EIF Current Investment Focus Involved throughout the business cycle Technology Transfer Accelerator Strategic Challenges Technology Transfer Proof of Concept Business Angels Seed Stage Instruments to stimulate innovation, competitiveness and cross-border investment European Commission Resources Investing in VC funds Early Stage Business Angels Fill funding gap left by institutional investors EIB / EIF Resources Investing in Growth Capital Expansion/ Development Capital Support VC ecosystem and decrease dependency on public finance Mezzanine Lower Mid-Market Catalyse hybrid debt finance for growth Member States / Private Sector Resources 2 EIF resources “ EIF manages resources from different stakeholders European Investment Bank Risk Capital Mandate (RCM) EUR 5bn Mezzanine Facility for Growth (MFG) EUR 1bn ” European Commission Competitiveness and Innovation Framework Progr. (CIP) EUR 1bn allocated to equity and guarantees Risk-Sharing Instrument (RSI) EUR 120m National & Regional Funds 20 European and regional Funds-of-Funds including Germany, Portugal, Spain, Turkey, UK 14 Holding Funds supported by structural funds EUR 1.3bn Progress Microfinance EUR 200m 3 Bridging the gap between research and the market R&D University / Research Organisation Technology Transfer Marketable Product “technology IP” “prototype IP” Spin-out Market Licensing Collaboration (contract research) IP / Idea 4 Catalysing commercialisation Research organisations / TTOs are key counterparts Engage with industry, develop partnerships, and encourage contract research Become active participants in longterm TT vehicles / funds Outsource with qualified and experienced partners willing to work in close collaboration Build networks to meet economic reality; inward looking vs. outward Research organisations to provide commitments for participating in TT structures, financially and / or with other resources Identify and work with trusted (fund) managers who can help select the best opportunities with commercialisation potential 5 EIF TT Transactions Norway: Sintef Research commercialisation / TT Sweden: Karolinska Development Business Creation and Acceleration Sweden: Chalmers Innovation UK: Cancer Research Technology Latvia: Imprimatur Capital, Seed and VC fund Lithuania: Strata/Mes Business Angel Co-investment fund UK: UMIP Premier Fund UK: IP venture fund UK Lithuania: Practica Incubator and follow-on fund Belgium KU Leuven CD3 Bulgaria : Eleven Start-up accelerator Belgium: NausecaBusiness Angel fund Bulgaria : LaunchUp Start-up accelerator 3T (Telecoms Institutes) Turkey : Diffusion - ICT France: Inria IT2: Digital technologies Elaia (Applied Maths – ENS, Dauphine, Collège de F, X) Greece: Openfund, Seed Fund Greece: Piräus Fund, Seed Fund 6 Research Commercialization / TT • Based on innovative / disruptive technologies • Partnering with Research • Projects and IP licensing • Spin-out funds TT Fund Fund-of-Funds managed by EIF [90%] funding University 1 University 2.. Tech Park 1 Science Lab 2.. Deal sourcing Private Investors TT Fund Private Manager Investors TT Fund [10%] funding Expertise contribution Patents Licenses Spin-offs Start-ups Industry Contacts IP / patent experts Test Labs Corporates 8 Business incubation and acceleration • Development of innovative businesses • Bases on innovative ideas and business models • Incubators • Accelerators • With Business Angels Acceleration and Seed Fund Fund-of-Funds managed by EIF Selection Max [90%] contribution Acceleration and Seed Fund Fund Manager Acceleratio n Compartme nt Pre-Seed Seed Compartmen t Seed Min [10%] Private Investors contribution Start-up 10 Snapshot 11 BA Co-investment Facility Structure Fund-of-Funds managed by EIF In case of EAF: (a) EIF as advisor to umbrella structure (b) Local Advisor if needed BA Co-investment Facility (e.g. EAF national compartment) Selection 50/50% Business Angel 1 (Trustee) Business Angel 2 (Trustee) Trust Co-Investment Agreements Full delegation of investment decisions, monitoring, exit; definition of co-inv. terms & guidelines 50/50% Trust SMEs 12 EIF challenges • Find the appropriate counterpart (linked with knowledge provider / acceleration) • • • • Small amounts, legal framework, time spent… High added-value! Contribute to a system Get 2014 – 2020 EU Funding! 13 BACK UP SLIDES 14 EIF TT investments Vintage Year Investment Country Fund Size (EUR m) EIF investment (EUR m) % Fund France Belgium Belgium UK Sweden UK Sweden Belgium Belgium France France France UK UK France UK France France Norway EU EU EU EU EU EU 38 15 8 37 17 38 36 16 43 21 35 45 30 31 30 36 57 40 27 44 60 55 50 25 30 4.3 4.5 4 18 9 11 27 8 15 10 15 20 15 10 10 24 15 12 12 20 30 22.5 20 10 12 11% 30% 50% 49% 53% 29% 75% 50% 35% 49% 43% 44% 50% 32% 33% 67% 26% 30% 44% 45% 50% 41% 40% 40% 40% 864 358 42% 8 12 18 11 11 9 10 14 93 7.6 9 6 8.5 11 9 7 9.3 67.4 95% 75% 33% 77% 100% 100% 70% 66% 957 426 TT Funds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2001 2003 2006 2006 2008 2008 2009 2010 2011 2011 2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 ….2014 TOTAL T-Source Louvain Vives I Leuven CD3 (Centre for Drug design and Discovery) IP Venture Fund Chalmers Innovation Seed Fund Manchester UMIP Premier Fund Karolinska Development Leuven CD3 II (Centre for Drug design and Discovery) Louvain Vives II Telecom Technologies Transfert (3T) Demeter Cleantech seed fund Elaia Alpha fund Cancer Research Tech (CRT) Pioneer Fund Rockspring INRIA IT Translation IP Venture Fund II Grand Ouest d'Amorcage Sante Auriga Bioseeds IV SINTEF Venture IV "TT Fund" (confidential) in progress "TT Fund" (confidential) in progress "TT Fund" (confidential) in progress "TT Fund" (confidential) in progress "TT Fund" (confidential) in progress "TT Fund" (confidential) in progress …………….. Business Incubation / Acceleration Funds 26 27 28 29 30 31 32 33 2009 2010 2012 2012 2012 2012 2012 2012 TOTAL TOTAL Strata/Mes Imprimatur Nauseca Practica Eleven Lauchub Openfund Piraeus Lithuania Latvia Belgium Lithuania Bulgaria Bulgaria Greece Greece 15 Selected EIF Transactions: Research Commercialization and TT Manager Operation Embedded Chalmers Innovation Seed Fund in University Karolinska Development Fund size EIF invest Spinouts (mEUR) (mEUR) 17 9 v 36 27 v Louvain Vives I External Licensing IP Single Research centers v Multiple Research center v Proof-ofConcept Funding v v v Location Sweden Sweden v v Belgium v v Belgium Louvain Vives II 43 15 v Leuven CD3 I (Centre for Drug design) Leuven CD3 II (Centre for Drug design) 8 4 v v v v Belgium 16 8 v v v v Belgium Manchester UMIP Premier Fund 38 11 v v UK IP Venture Fund I 37 18 v v v UK TT Fund 30 … v v v UK v v v France T-Source v Demeter Cleantech seed fund 35 15 v v v France Elaia Alpha fund 45 20 v v v France Rockspring 31 10 v v v UK CRT 30 15 v v UK v v 16 IP markets 17 Selected Transactions: Business incubation and acceleration Fund size (mEUR) Business Angel Strata/Mes 8 v Imprimatur 12 Nauseca 18 Practica 11 Eleven 11 Lauchub 9 Openfund 10 Piraeus 14 Operation Incubator Accelerator Seed Fund v Follow-on Funding v Institution Building/Developing market v Lithuania v Latvia Country Belgium v v v v Lithuania v v v v Bulgaria v v v v Bulgaria v v Greece v v Greece v 18 Accelerators • Starting companies from scratch • Small investments (about EUR20k) in a large number of startups • Incubation phase to elaborate BP or build prototype • Demo day: present businesses, find investors, mentors, business partners, exchange experience…. • Follow on financing from the Accelerator (up to EUR 200k) • Organization and investment lead by experienced entrepreneurs and investment professionals • International setup • Creates an environment of entrepreneurship with mutual support • Attracts plenty of interests at large corporates Acceleration & Seed Fund - Process ACCELERATION STAGE Application Window Application process: Fully online, held every 3 – 4 months or continuous Indicative investment: EUR [25,000 – 50,000]* Equity share: ~10% Stage term: 3-12 months Goal: Working prototype, beta version Selection & Funding *Depending on the sector focus and market characteristics Acceleratio n SEED STAGE Graduation day SEED Portfolio Seed investments in other companies Indicative investment: up to EUR [xx] (including follow on investments). Substantial portfolio share in startups from acceleration stage Equity share: 30 - 49% (on aggregate) Stage term: 12-24 months Goal: Commercialization, internationalization Incubators • • • • • • • • • • • Starting companies from scratch Small investments (about EUR10k to 30k) in start-ups Incubation phase to elaborate BP or build prototype Specialized support organized by the Incubator (funding, legal, accounting, marketing,…) Network of entrepreneurs, located in the incubator Follow on financing by the incubator (up to EUR 200k) Connected to a VC fund, managed by the same manager Organization and investment lead by experienced entrepreneurs and investment professionals International setup Creates an environment of entrepreneurship with mutual support Attracts plenty of interests at large corporates Co-Investment Funds • Managed by experienced managers with full alignment of interest (substantial investment by the fund manager <5%) • Co-investments with Business Angels and other qualified investors • Investments in early stage companies or start-up companies • Specialized support organized by the Co-investor (funding, strategic advice, marketing,…) • Network of entrepreneurs, managed by the fund manager • Leverage of fund monies with qualified third party funds • No fundraising necessary for the fund manager • Fund investment strategy for relatively short fund terms Co-Investment Fund Structure Fund-of-Funds managed by EIF Ca. [95%] committed by the FoF Ca. [5%] committed by the Fund Manager Selection Fund Manager -Sourcing of co-investors -Compliance check on coinvestors Private Co-investors Co-Investment Fund [50%] of the capital in a transaction [50%] of the capital in each transaction SMEs 23 Indicative Timelines 12 mths First Screening Understand concept Based on preliminary questionnaire / concept note Second Screening Due Diligence Investment readiness Stress testing and verification Physical meeting (typically in Luxembourg), opportunity to articulate investment opportunity, understand EIF EIF team conducts on site visits (min. 2 days). May, or may not lead to term sheet Board Approval Legal documentation After EIF BoD approval, legal docs drafted on behalf of Manager. EIF review Importance of legal counsel 24 Long-term, sustainable vehicles with like-minded investors Close collaboration of investment vehicle with TTO Access to good science IP adequately protected under relevant legislation No direct financing of research Governance - no investor involvement in investment decisions Independence and non-competition of management team Adequate incentives to management team Alignment of interests with long-term focus, up to 15-20yrs Min critical size ca. EUR 20-30m. EIF can fund up to 50% 25 Manchester: Largest UK University Research Budget Manchester University / UMIP Premier Fund ■ 10 year Limited Partnership. ■ Managed by VC firm: MTI partners ■ GBP 32 m raised. 18 months between first pitch to EIF and first closing in 4/2008 CD3 (K.U.Leuven) - Next Generation Licensing - Empowering Universities Leuven CD3 (Centre for Drug Design and Discovery) ■ Partnership with university ■ Managed by TTO ■ Invests in drug development projects Drug development process steps Target ID Target Screening validation Lead ID CD3 portfolio UNIVERSITIES • Chemical libraries • Structura l biology •… CD3 Pre-clinical Optimisation Clinical I development • Bench synthesis • Parallel synthesis • Early toxicology •… Clinical II Clinical III PHARMA/BIOTECH COMPANIES CD3 addresses a demand from both ends of the chain ■ from Universities: be able to offer more finished drug candidates to the industry ■ from the Industry: enrich their pipeline with more proven candidates IP Group: Bringing together 12 Universities 26 Spin-Outs in Three Years IP Venture Fund UK ■ Co-investment fund (seed, post-seed financing) ■ Critical mass reached through a network of universities ■ Liquidity vs listing Deal flow and critical mass SINTEF Venture IV Due diligence 30 Taking the lid off EIF’s Due Diligence process (1/5) First Screening Second Screening Due Diligence Board Approval Partner institutions Market Investment strategy Dealflow Potential Investors Investment process Team Track record Governance Management co. Economics Remuneration / incentives 31 Taking the lid off EIF’s Due Diligence process (2/5) Partner Institutions Metrics: research budget, peer group comparisons, invention disclosures, IP filed, IP awarded, growth rates, commercialisation income, encumbrances, 3rd party agreements Structure: organigramme of TTO, roles, ownership of TTO Policies: IP policy, rules, regulations, ownership rights Activities: industry co-operations, advisory services, contract research, etc. Financials: for TTO, revenues, royalty income, grants, licenses, cost of sales, gross profit, operating costs, gift aid, dividends Market / competitors Trends: in targeted sectors, challenges faced, evolution in previous years Competitors: for financing, other sources of finance, private / public Demand side economics: analysis and evidence of demand for targeted projects Investment strategy Licensing / spin-outs: proposed route for commercialisation Strategy: geographical focus, stage focus, sectors, investment sizes, followon and reserve policy, holding periods, role in financing rounds Fund size: justification for size through bottom-up analysis, min / target / max size, modification to strategy according to size scenarios Target profiles: criteria for investment targets (company profiles) Co-investors: envisaged co-investors at different stages of investments Exits: strategies based, for example on previous examples 32 Taking the lid off EIF’s Due Diligence process (3/5) Dealflow and pipeline Origination: source of projects, networks (formal and informal), privileged / preferential access, rights of first refusal, option rights Fees: payments in lieu of access to pipeline Historical analysis: e.g. 3-5 yrs evolution of dealflow by source, sector, etc. Selectivity ratio: historical examples / experience Potential investors Sponsors: main investors , anchor investors , special rights (e.g. fees, carry, information, co-investment, etc.) Names / profiles: like-minded, long-term investors with soft and hard commitments Investment process Process: origination, screening, project / deal review, due diligence, deal approval, deal structuring, negotiation, deal completion, contracting third parties Decision-making bodies: which bodies, or individuals take final decisions at each stage, delegations foreseen Team investment: investment to fund, e.g. 1%, 2%, 5%, absolute amount, split between team members (see also remun. / incentives) Fundraising strategy: list of other potential / targeted investors, status of contacts, potential commitments Pipeline: of current and future opportunities 33 Taking the lid off EIF’s Due Diligence process (4/5) Team Track Record Composition: envisaged team responsible for managing fund, key individuals from TTO / other, secondees, new recruits (profiles) Previous funds: metrics, vintage, total size, fund cash flows, net and gross IRR, LPs, amounts Profiles / CVs: Full CVs of team members and key individuals, specific dates, positions held, achievements Companies: for previous / current funds, dates of investment, investment at cost, FMV (EVCA), gross multiples, forecast exit dates, exit scenarios Experience: collective team experience in IP management, licensing, creation of companies, investing,, strategy, consulting, etc. Team collaboration: yrs worked together, prior collective working relationships Workload: time commitment to fund vs. other activities, activity allocation, other board seats Board members: CVs Individuals: Track record of individuals, other investment / relevant activity (e.g. licensing deals) Partner institutions: licensing and spinout company creation, notable success stories (e.g. nobel prizes), products developed Governance Structure: e.g. UK-LP, SCR, FCR, NV, SPRL, SICAR, KB, etc. Relationships: Overall structure and relationships between governing and decision-making bodies. Role and function of each of the bodies. Specific individuals involved and respective voting powers and rights CoI: Conflict of interest management, for example with (other) investors in fund, any investor (LP) involvement in decisionmaking Advisory board: composition, largest investors, etc. 34 Taking the lid off EIF’s Due Diligence process (5/5) Management co. History: evolution, founders, key dates and events in development, significant changes in organisation, strategy, ownership Legal status: capital structure, ownership Regulation: how management company shall be regulated, adherence to AML/KYC Economics Budget: detailed forecast budget for management company over lifetime of fund, under different scenarios, e.g. min / target / max size Management fee: justification for level of management fee, use of fees, fee offsets Remun. / incentives Alignment of interests: team investment to fund aligns with investors, long-term time horizon, team stability / instability Remuneration: detailed breakdown of remuneration for all team members including base salaries, bonuses Evolution: historical evolution of remuneration for individual team members in previous years Incentives via carry: repartition of carry to individuals, unallocated carry if applicable, carry to partner institution(s) 35 EXAMPLES 36 Technology Transfer Financial Facility (TTFF) “ provide support for attainment of proof of concept, help prototyping and initial development, through to growth ” PoC http://ec.europa.eu/programmes/horizon2020/en/h2020-section/access-risk-finance PoC + Seed Operation EUR 100 – 250k Up to EUR 750k Up to EUR 3m Available to TTOs No co-investment Co-investment 30% Co-investment 60% Evaluation 4-5wks Pilot EUR 60m 37 Key features of TTFF • European Investment Facility (not a subsidy programme) • Imperative of commercialisation: industry/investment community involved from the earliest stages • Rigorous governance: professional, independent decision-making at every step • Legal robustness, simple, cost-effective 38 EAF mandates as of today EAF Germany: Virtual structure within ERP/LfA mandates managed by EIF Volume 70m€ (ERP/EIF 60m€, LfA/EIF 10m€) Top-up to 135m€ (ERP/EIF +60m€, LfA/EIF +5m€) about to be signed/in final negotiations EAF Austria: Compartment of EAF SICAR structure advised by EIF, AWS supporting as sub-adviser Volume 22.5m€ (AWS 15m€, EIF 7.5m€) EAF Spain: Compartment of EAF SICAR structure advised by EIF Volume 30.0m€ (Axis/ICO 10m€, Neotec 10m€, EIF 10m€) New compartments to be set-up early 2015 EAF Netherlands: 45m€ (DMEA/PPM Oost and EIF via DVI), EAF Irelands: 20m€ (Enterprise Ireland 10m€, EIF 10m€) 39 European Angels Fund- Structure* Public Mandator Public Mandator Public Mandator 1 Mandators / Investors Private Investor Private Investor Private Investor 1 EIF / EIB Institutional Investor Institutional Investor Institutional Investor 1 LP Commitments Umbrella Structure with European Angels Fund national Compartments EAF EAF Compartment 1 Compartment 2 … EAF Compartment X EAF Co-Investment under CFAs Intermediaries Portfolio Companies * Structure is currently being set-up and not operative yet. BA 1 Trust (Trustee) PU n PU 3 PU 2 PU 1 … BA n Trust (Trustee) PU n PU 3 PU 2 PU 1 … EAF Compartment n