Download Risk Capital Financing for SMEs

State Aid Program
“Risk Capital Financing for SMEs”
Valdis Avotiņš
Latvian Investment and Development Agency
Risk Capital Scheme in Latvia
Tel Aviv January 14, 2005
Good investment environment

Rapid GDP growth
2000
2001
2002
2003
2004
6.9
8
6.4
7.5
9.2*

“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)
Risk Capital Scheme in Latvia
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Sources for Deal flow

Heritage from USSR at the end of 90`s



30.000 academic scientists
13.000 engineers in R&D
Higher education institutions
2001
2002
2003
36
37
49
110.500
118.944
127.656
Institutions
No of students

Infrastructure


20 Technology and Industrial Parks
EU grants available
Risk Capital Scheme in Latvia
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Technology & Industrial Parks
Risk Capital Scheme in Latvia
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State Aid Program’s objectives


Facilitate entrepreneurship promoting access
to risk capital financing
Facilitate the establishment and development
of new venture capital funds, motivate them
invest in SME`s by offering state aid to
private investors
Risk Capital Scheme in Latvia
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How?


SAP implemented via Fund of Funds
Public Private Partnership


SAP Budget 14.5m € (75% from ERDF)
Public investment in a Fund



Investment Fund



Up to 70% (target 50/50)
No more than 5.5m € in the single Fund
Partnerships with life cycle for 10 years
Managed by private management company
State Support to Private Investors
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Restrictions for investment






SMEs registered in Latvia
Maximum investment 1m € in one project
Maximum 300k € in the first investment
tranche
Time between tranches at least 12 months
Some sector restrictions (EU regulations)
Open tender procedure for selecting Fund
Management Company
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Return Distribution Mechanism
1.
Fund’s 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 state’s invested capital;
6.
Hurdle rate return (6%) on the state’s invested capital;
7.
Remaining profit, if any to private investors and FMC
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Key Milestones
Submitted program to EC
July, 2004
Approved by EC
January, 2005
ERDF Steering Committee (in Riga)
February, 2005
Tender for FMC`s
Feb-Jun, 2005
Fund rising
Jun-January, 2006
Fully invested
December, 2008
Risk Capital Scheme in Latvia
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Contacts
Martins Jansons
Ministry of Economy
[email protected]
Dairis Calitis
Latvian Venture Capital Association
[email protected]
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