High-tech venture capital in the Baltics

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Transcript High-tech venture capital in the Baltics

High-tech venture capital in
the Baltics
ALLAN MARTINSON
Managing Partner
No alternative to knowledge economy
• The Balts are used to 5-9% growth rates
– Equal to doubed GDP in absolute terms in every 6-8 years
• To sustain this growth we need to increase productivity
10-15% per employee per annum
• Productivity gains in traditional industries will be slowing
down in coming years
• Unless we discover (more) oil or conduct a succesful war
against rich neighbors our only option is to rely on our
brains
• High-tech and high value-add:
– IT service industry (MicroLink): 3-4 X over traditional industries
– Top-class high-tech industry (SAF Tehnika): 7-8 X over
traditional industries
– High-tech startups: low to medium
No real Baltic high-tech industry yet
• Baltic ICT industry is mostly a service industry
focused on local clients
– Increasing competition, growth limits
• Offshore programming industry relatively small
– Competitive advantage will further disappear
• Electronic manufacturing industry adds little
value
– Thousands of people employed (Elcoteq, Ekranas
etc) but value-add often very small
• Real high-tech: Tens of startups but no real
success stories besides Skype or SAF Tehnika
The lacking growth hormone
• High-tech industry means:
– Tens and hundreds of interlinked high-tech
enterprises in clusters
– Synergy between univesities and businesses
– Well-developed financing market
– Well-developed labor market
– Venture culture
• Baltic high-tech ventures tend to stop growing
when reaching 0.5-1 m EUR in revenues and
size of 10-30 employees
• Lack of certain “growth hormone”?
Components of high-tech hormone
• Economy = enterprises = enterpreneurs
• Knowledge economy = knowledge enterprises =
knowledge enterpreneurs
• There will be no dramatic change unless
– Baltic enterpreneurs and capitalists discover hightech as Next Big Thing
– The governments declare Knowledge Economy their
top priority
– Univesities turn faces to business and vice versa
– Venture capital industry emerges
Baltic high-tech venture capital
• Baltic private equity market: ~15 participants plus occasional
excursions by Nordic and European PE players
– Mostly generalist funds
– Occasional investments to ICT: MicroLink, Sonex, Alna, IT, Helmes etc
– Very little number of investments into high-tech startups
• ~10 business angels
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Investments ranging from 50000-1000000 m EUR
[email protected] and Celecure (Rainer Nõlvak)
LDI (Endel Siff)
…
• Most startup financing from “friends and family”
• Government support is limited to R&D and export subsidies and
loans
• No dedicated high-tech VC insofar
– Martinson Trigon Venture Partners to fill the void
Venture Capital: a human business
• What makes a succesful venture
capitalist?
– Listening skills
– Ability to recruit management
– Qualitative analysis skills
– Coaching and advising skills
• Financial and technical skills are rated the
least important
• Source: Human Capital Aspect of Venture Capitalists by Ignite
Associates
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The first dedicated high-tech VC in the Baltics
20-30 m EUR fund, the first closing in January 2005
Investment geography: the Baltics and Russia
Investment focus:
– growth and consolidation of existing ICT and media industries
– Early growth capital for high-tech companies
• Investment criterias:
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MTVP understands and likes the business
Values and culture of the team, ability to execute
Unique competetive advantage
Strong business plan, strong growth opportunities
Good risk/reward ratio
Government venture capital
• Controversial discussions whether the government shall participate
in high-tech VC
• Contra:
– The government shall not enter business
– Risk of failure and corruption
– Lack of experience
• Pro:
– All developed economies do have state VC structures (Sitra,
Industrifonden, Singapore VCs etc)
– Government VC helps to overcome market disruption in high-tech
financing
– Better than grants and loans as it targets the enterpreneurs
– Needed to send a signal to enterpreneurs
• Estonia: state VC concept developed by public-private task force
with Ministry of Economy and but has failed to receive support from
Ministry of Finance
Thank you!
Ačiu!