andrea di anselmo - prospects for the development of capital investments in europe
DESCRIPTION
4-5 marca 2010 - Konferencja Sieci Inwestorów KPT pn. „Perspektywy rozwoju współpracy inwestorów i start-upów – inwestycje kapitałowe w projekty o wysokim stopniu ryzyka”TRANSCRIPT
Prospects for the development of capital investments in Europe
Various ways of acquiring capital for innovative projects:business angels, private investors seed and venture capital funds
Andrea Di AnselmoVice president META Group - ZMV spa
Krakow 04/03/20010
Start-ups
Early Stage investments
Regional/interregional
Structural Funds
Revolving
ERDF – ESF
PPP
Market & Profit driven
Policy Issue
Demand side:
Quality of the Deal Flow
Investment readiness
International dimension
Policy Issue
Environment:
Risk adverse culture
Low level of recognition of the entrepreneur as part of the elite
O Be selectiveO Market & profit driven approachO Global born ambitious venturesO Co-investment schemesO Better use of the leverage (private investors and
state aid)O Accept to take riskO Avoid Bank way of doing it (they are the best for
other kind of financial support)O Engage the ecosystem (but open it up)
“… Europe needs to foster entrepreneurial drive more effectively. It needs more new and thriving firms to reap the
benefits of market opening and to embark on creative or innovative ventures for commercial exploitation on a larger
scale”
….”Entrepreneurship is crucial to competitiveness”.
The Green Paper on Entrepreneurship in Europe, COM(2003) 27 final COM(2003) 27 final
Creativity + Entrepreneurship = KICs(Knowledge intensive companies)
ambitious entrepreneursfast growing marketintangible assets
They are small in numbers butcover a critical role
O strongly affecting employmentO playing an increasingly active part in Global Markets and
Value Chains: initiators
Knowledge Intensive Companies
Knowledge Intensive companies
O Quality and quantity employment: 2% of new companies produces 50% of new employment in Europe and 70% in USA
O Dynamism of the economy: Nokia alone has changed Finland physiognomy and perception
O Creative destruction: today AT&T only exist as a brand
O 75% of Fortune 500 did not exist 25% ago
Knowledge intensive companies need (a lot
of) money!
3 Fs (Fools/Founders, Family, Friends) are not
enough!
Smart Money… (Finance is not enough)
o investment readiness/ready
o Mentoring and (training)
o Acceleration (not incubation)
o Internationalisation – cross border
o The added value of business angel investment
All the money is not the same
(Christian Saublens, Eurada)
O Venture Capital Funds tend to lower the risk associated and begin investing in the start up phase
O Exploitation related Grants are “tick box” driven and not market driven
Pre-Seed Seed
“Funding”
Gap
€ 200.000 to
€ 1.500.000
Start up Expansion
EntrepreneurFFFF
PoC funds
Venture Capital Funds
€ 1.500.000
to € 10.000.000
€ 20.000
to € 100.000
The Financing Food Chain
Grants
Cultural
Gap
€ 50.000 to
€ 300.000
EARLY STAGE RISK FINANCE (and more)
Early Stage Financing
Pre-seed up to0,5 $ Mln Seed up
to 1-2 $ Mln
Start up 5/10 $ Mln
Second Round 10/12 $ Mln
Expansion Capital10/50 $ Mln
Turnover
Cumulative Cash Flow
Business Angels
Venture Capital
Product definitionNo turnover
Product Completion
Initial commercial feedback
Venture Capital
Product Consolidation
Structuring of commercial channels
Strategic Partnerships
Continuous ideas/concepts/products innovation
Consolidation of the organisation
Partnerships and acquisitions
Proof of concept funds
Seed funds
FINANCIAL CYCLE (and more)
Expansion CapitalSecond round
Later stage (Venture Capitalist)
Start up SeedPree-Seed
Early stage (Proof of concept funds, BAs, Seed Funds, Venture Capitalist)
Scope
Company life-cycle
Identification of Market potential
Pre-businessplan
PrototypingAnd product development
Businessplan
Commercial-scale manuf. And
sales
Company established but not invoicing
Structuring commercial channels
Building up turnover
Continuous ideas/concepts/products innovation
Making Profits
Financial tools for KIC (what we miss)
o Proof of concept funds
o Business Angels
o Seed funds
Risk taking and risk rewarding
Source: EVCA Year Book 2008 Stage distribution of investments per year
In 2007, seed investments represented 0,3% of recorded VC investments in Europe
Seed + start up around 3 bn €
EU INVESTMENT ACTIVITY 25% of US LEVELS
Source: Compiled information from EBAN, ACA and Center for Venture Research
2007 EU US
Networks 297 245
Estimate n of angels
75.000 250.000
Investment per round
165.000€ 210.500€
Total estimate invested annually
3-5 billion€ 20 billion€
Total invested by VC annually in seed (EVCA data)
- 4 billion € 20 billion €
2007 EU US
Networks 297 245
Estimate n of angels
75.000 250.000
Investment per round
165.000€ 210.500€
Total estimate invested annually
3-5 billion€ 20 billion€
Total invested by VC annually in seed (EVCA data)
- 4 billion € 20 billion €
2007 EU US
Networks 297 270
Estimate n of angels
75.000 250.000
Investment per round
165.000€ 210.500€
Total estimate invested annually
3-5 billion€ 20 billion€
Total invested by VC annually in seed (EVCA data)
- 4 billion € 20 billion €
2007 EU US
Networks 297 270
Estimate n of angels
75.000 250.000
Investment per round
165.000€ 210.500€
Total estimate invested annually
3-5 billion€ 20 billion€
Total invested by VC annually in seed (EVCA data)
- 4 billion € 20 billion €
Angel Investing - Summary of industry statistics
Early stage investment in Europe
Source: AIFI; BVCA; AFIC; ASCRI; BVK; 2008
Red (in € Mln) amount invested in seed e start up in 2008
Green N° of operations
Fund Type % Return
1 Yr 3 Yr 5 Yr 10 Yr 20 Yr
EARLY/SEED VC -2.9 -19.8 47.1 37.9 19.1
Balanced VC 20.5 -9.4 17.5 20.8 13.6
Later Stage VC 38.0 -6.9 7.1 17.1 14.1
All Venture 15.7 -13.3 22.0 26.0 15.7
All Buyouts 28.8 0.1 2.6 8.1 12.4
Mezzanine 18.1 2.0 5.9 7.6 9.6
All Private Equity 23.4 -3.6 6.8 12.8 13.7
Source: Innovation Philadelphia (2005)
Seed vs Other Investment Returns
Some Data: Evolution of Seed ‘99 -05’
Some data: Seed in Europe today
o seed invested (< 500k€ per investment) in 2005: 97 ml € (EVCA report - down 34% from 2004)
o availability estimated to be much higher (from 300% - to 2000% more according to different sources)
o …we need much more deals in seed stage
Seed Funds and BAs
o They are the two (and only) players in this arena (<500 k€)
o Potentially 300 seed funds and 300 BANs active in Europe
o So far collaboration is occasional
o Weak lobbying, tax breaks, professional recognition
o Business angels network and Seed Funds should work together (sidecar, syndicate, regional focus)
Investments in knowledge intensive companiesare considered risky due to:
O the intangible nature inherent their activities O the small sizes of transactions O perceived high default ratesO lack of an established income stream
Seed capitalists and Business Angels are the most likely to invest in knowledge based enterprises providing equity finance for medium/long-term investments and managerial/technical
experience integrating the management Team
…All money is not the same!!!
(Christian Saublen, Eurada)
The evaluation approach of risk capital investors
Financial tools (early stage financing) for knowledge based start ups
o Proof of concept funds
o Business Angels
o Seed funds
Early stage investors – evaluation approach
Proof of concept
O Innovativeness (+)O IPR – Valorisation of research resultsO Entrepreneurial spirit
Business angels (informal investors and Spin-off corporate venturing)
O Atmosphere of trust between individuals and positive feeling, confidence (+)
O Possibility of hands on interventionO Credible business plan in the eyes of the Business AngelO Availability of exit routeO Return on investment (capital gain)
Early stage investors – evaluation approach
Seed capital funds
O Team (+)O Clear Business modelO Intellectual capitalO Growth potential (High)O Availability of exit routeO Return on investment (capital gain)
Early stage investors – evaluation approach
Investing in talents
SEED FINANCING
EARLY STAGE FINANCING
START UP FINANCING
Spin-off and Start–ups
with no more than 36 months
Located in Emilia Romagna
Intervention modalities
Equity Investment
Temporary/minority position (max. 45%)
Successive rounds investments
300 - 500.000 € average per investment up to 1 million €
PharmEste Academic Spin-off of University of Ferrara - reduction Neuropath Pain and Vesicular Hyperactivity.
Techgenia Spa: spin-off from Solgenia Spa. Informatics reliability and security through network appliances.
RaySolar: two researchers from Italian National Research Council (CNR) and two young economists production of hi-purity solar grade silicon.
H.D.S. Headmost Division Service, Facility Management.
Intrauma: medtech start-up, innovative screws for the reduction of fractures.
Passpack: online password manager with impenetrable cryptography, for companies and privates.
Investments
Thank you for listening
“It is not difficult tolearn new things
butto quit old habits”