financing entrepreneurship: rationale, strategies and practices for eastern european countries...

Financing Entrepreneurship: Financing Entrepreneurship: Rationale, Strategies and Practices Rationale, Strategies and Practices

for Eastern European Countriesfor Eastern European Countries Vittorio Modena

The University of Pavia

Prepared for the European Day of the Entrepreneur held in Sofia on November 4-5,2004

Vittorio Modena - EDE -Sofia, November 5, 2004

Presentation OutlinePresentation Outline

Part I –General policy for early stage financing

Part II – Selected policy principles for the creation of seed and venture capital sources (from the Israeli experience)

Part III - The ESTER project and the Latvian Scheme for the creation of venture capital funds


Part I – General Policy for Part I – General Policy for Early Stage Financing in Early Stage Financing in

SMEsSMEs


Fostering Innovation DiffusionFostering Innovation Diffusion(as opposed to innovation creation)(as opposed to innovation creation)

Enabling farmers to buy their tractorsEnabling farmers to buy their tractors may be more importantmay be more important

than discoverying a new satellite system !than discoverying a new satellite system !


New Innovative Firms: Two New Innovative Firms: Two Rationales for Two Courses of Rationales for Two Courses of

Action (1/3)Action (1/3)

1. The SMEs account for a large part of the employment and the new ones allow innovativeness and competitiveness

2. The fastest growing firms were VC backed




1. Easy access to finance must be available for new entries so as “not to lose any opportunity for new firms”. more direct help to firms.

2. An effective and private Venture Capital Industry should be in place so as not to lose the opportunity for “high-growth” firms. more help to new funds




In conclusion: the two actions are strongly

needed and one cannot compensate for the

other


Part II – Selected planning Part II – Selected planning principles for the creation of principles for the creation of

seed and venture capital seed and venture capital sourcessources


Seed (and pre-seed) Seed (and pre-seed) vs. Start-up capitalvs. Start-up capital

Both need strong initial public support

Start-up sources just need triggering, seed sources need continuous support


Research-Intensive vs. Research-Intensive vs. “generally innovative” Firms“generally innovative” Firms

Different schemes are needed for different kinds of firms: Research-intensive firms are more risky and need more help and infrastrucutre

Venture Capital and private equity also deal with traditional sectors


Sectoral NeutralitySectoral Neutrality

Neutral seed funds (or incubators) appear to succeed as much as sectoral, so:

If you don’t have a very good reason to impose sectorality or neutrality, don’t !

Biotech is different as it requires different infrastructures, size of funds, development time.


Deal Flow: A “critical mass” Deal Flow: A “critical mass” problemproblem

Making a programme attractive is not only about incentives

Deal flow may be a problem for new technology based deals and/or for small regions (or countries)

Low deal flow=>more flexible schemes not limited to small regions or specific sectors


Example: Italian high-tech Example: Italian high-tech potential vs. Structural fundspotential vs. Structural funds

Figure 4.1: Inventors in all high-tech sectors per Local Labour System Source: Univeristy of Pavia elaboration on EPO data.

1 - 6 7 - 21 22 - 44 45 - 84 85 - 229 230 - 826

Number of Inventors


Expert Foreign Partner Expert Foreign Partner InvolvementInvolvement

For expertise, networking and reputation. At the start strategic partners are more likely to join

Encouraging/requiring such partnerships is a way to help the industry work.


Part III – The ESTER Project Part III – The ESTER Project and the Latvian Venture and the Latvian Venture

Capital SchemeCapital Scheme


The ESTER Project The ESTER Project (1/2)(1/2)

Objectives1. Planning for effective sources of seed and

venture capital in Estonia, Latvia and the Slovak Republic

2. Submission of formal proposals for the launch of new programmes to the relevant authorities in the three countries and the EC


The ESTER Project The ESTER Project (2/2)(2/2)

Basic Methodology1. Inspiration from the Yozma and Technological

Incubators programmes in Israel2. Thorough study of the Innovation system in

Estonia, Latvia and Slovakia3. Thorough study of EC regulations4. Planning with world experts5. Submission of proposals to the relevant

authorities


Latvia Venture Capital Latvia Venture Capital SchemeScheme

The programme "Aid to the risk capital of small and medium-sized commercial companies “ promoted by Latvian Development Agency financed by Ministry of Economy and ERDF.


Latvia Venture Capital Latvia Venture Capital Scheme Scheme – Outline (1/2)– Outline (1/2)

18 Milion Euros for the period 2004-2006 will be provided by the Ministry of Economy in Latvia and the European Regional Development Fund to match private funds.

The task is to ensure the creation and functioning of at least 2 risk capital funds for SMCC (Small and Medium Commercial Companies).

Latvian Development Agency will manage the scheme


Latvia Venture Capital Latvia Venture Capital Scheme Scheme – Outline (2/2)– Outline (2/2)

Funds will be managed by private management companies

Investment may be made up to Euro 735,000 in each company

Investments are to be made in two instalments


Latvia Venture Capital Latvia Venture Capital Scheme Scheme (Strategy)(Strategy)

Detected Situation Decision Uncertain high-tech deal flow

Flexible scheme

Limited amount of available public monies

Two funds (ensuring right size)

Scarce presence of skilled management

Strong incentive to investors and management company


Contacts/referencesContacts/references

Email: [email protected]

IFISE Project http://ifise.unipv.it

ESTER Project http://www.unipv.it/ester/index.html

mailto:[email protected]

http://ifise.unipv.it/

http://ifise.unipv.it/

http://www.unipv.it/ester/index.html

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