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CAPITAL VENTURE How KFK can fill in the financing gap on the Polish high-tech market TMT Ventures, 27/02/2008 1/13 How are we positioned in terms of innovation? European Innovation Scoreboard Innovation leaders 0,8 SE FI CH Summary Innovation Index 0,7 Followers 0,6 DK JP US UK LU NL 0,5 FR AT IE EU 25 0,4 NO IT 0,3 HR 0,2 0,1 CZ HU SK LV BG RO PL Catching-up Trailing 0 -4 -3 -2 -1 0 1 2 3 4 5 6 Average growth rate of SII, % Source: (MERIT) and the Joint Research Centre (Institute for the Protection and Security of the Citizen) of the European Commission 2/13 Venture capital is clearly associated with innovation… Correlation between VC and ICT Source: Yozma after USA Census, OECD, IVC Research Center, CBS 14% Israel ICT share in GDP 12% 10% Korea Ireland UK 8% USA Japan Sweden 6% France 4% 0,0% 0,1% 0,2% Canada 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% VC investment in ICT as % of GDP ICT = Information and Communication Technologies 3/13 …but small companies receive little attention from VC investors ► Average deal size is increasing year by year ► There is a clear and continuing trend towards regionalisation of PE/VC in CEE ► Seed and start-up investments are outside the focus of most PE/VC funds => SMEs have very limited access to equity funding 4/13 ‘Death valley’ is a serious problem capital needs owner, family funding 'DEATH VALLEY' time idea seed and start-up growth mature growth, expansion Source: prof. dr inż. J.G. Wissema, Technostarters, why and how? 5/13 This all means an equity gap An equity gap means that the market fails to provide enough equity financing for small investment projects ► ► ► Equity gap results from relatively high cost of preparing and monitoring of small projects as compared to those large ones. Additionally, small projects usually carry higher further discourages managers from investing. risks, which On the other hand, small innovative projects can also produce above-average rates of return. 6/13 Response to the equity gap ► KFK is a holding fund that was established with the aim to reduce the equity gap persistent on the Polish market. ► KFK invests in VC funds targeting Polish SMEs. ► We target professional management teams with experience in VC-related investments and the focus on innovative and high-growth projects. 7/13 KFK as a holding fund ► As a holding fund, KFK invests in VC funds which target small and medium-sized companies. In the coming years, our investment portfolio will grow to around 20 VC funds. Companies Private investors VC Fund VC Fund Public Investors (EU) NCF VC Fund … ~ 20 funds 8/13 Our investment process ►We have designed our investment process to meet best practice that works at recognized fund-of-fund investors Tender launch Analysis of Offers Deal fulfilment Monitoring Exit •Preparation of •Formal analysis (checking out •Negotiations of •Accomplishment of •Exits from portfolio tender terms for completeness of required documents) investment agreement investment agreement funds announcement (offer form, key conditions of investment agreement) • Primary financial & legal •Signing of analysis of documents (VC funds resulting in a short list that includes 1 to 5 best offers investment agreement •VC fund financials •Complying with •Gathering of offers •In-depth financial & legal analysis (meetings with management teams from short list and presentation of their offers, due diligence of offers financial resources to the fund according to the drawdown schedule •Tender •Final choice of •Transfer of information standards by VC fund •Use of state aid offers 9/13 Our investment activity ► Investment activity commenced in 2007 ► 2 portfolio funds: BBI Seed Fund and Helix Ventures Partners (MCI) ► Joint cap of those two funds is PLN 100 million. Focus on early-stage high-tech projects ► Next bidding procedure: April 2008. PLN 150 m at disposal, 3x as much as in the first round 10/13 KFK as a part of the financial market VC funds Business incubators Companies KFK Public markets Technology parks Institutional investors 11/13 KFK in 3 – 5 – 7 years Joint investments of KFK and private investors PLN 1 270 m PLN 960 m 21 FUNDS 168 companies 16 FUNDS PLN 600 m 128 companies 10 FUNDS 80 companies in 3 years in 5 years in 7 years 12/13 Thank you Krajowy Fundusz Kapitałowy S.A. Racławicka 131/2u 02 – 117 Warszawa Tel: +22 823 8821 Fax: +22 823 8823 [email protected] www.kfk.org.pl 13/13