Presentation of regional existing situation analysis


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Presentation of regional existing situation analysis

  1. 1. Development of specific regional policies through the analysis of early-stage financing opportunities for innovative start-ups and spin-offs / SEED-REG Situation Analysis - Central Hungary Region Judit Szilbereky , Innostart BIC Hungary Review /SG Meeting Kladno, 2 December, 2005
  2. 2. Content <ul><li>General introduction of Central Hungary Region </li></ul><ul><li>SME sector in CHR </li></ul><ul><li>SME policy </li></ul><ul><li>Regional Innovation Strategy </li></ul><ul><li>Financing of SMEs </li></ul><ul><ul><li>Supporting programs </li></ul></ul><ul><ul><li>Loans and credits </li></ul></ul><ul><ul><li>Venture capital </li></ul></ul><ul><li>Conclusion </li></ul>
  3. 3. Innovation Performance (finance, output and market) - Hungary Source: European Innovation Board, Country Report Hungary 2004
  4. 4. Central Hungary Region in numbers <ul><li>C ore position (economic, cultural and educational) </li></ul><ul><li>Budapest and Pest County – regional disparity </li></ul><ul><li>2.8 million inhabitants (most populous) </li></ul><ul><li>7,000 m 2 (smallest region) </li></ul><ul><li>Most important Hungarian transport node </li></ul><ul><li>Concentration of educational, research and development, financial services </li></ul><ul><li>40% of enterprises </li></ul>
  5. 5. Central Hungary Region in numbers <ul><li>Produces 45% of GDP </li></ul><ul><li>30% of labour force work in the Region </li></ul><ul><li>62% of foreign capital concentrates here </li></ul><ul><li>4.4% of unemployment </li></ul><ul><li>Service sector dominates </li></ul><ul><li>Sectors: </li></ul>Budapest (high added value) Electronics, pharmaceuticals, chemicals, confection, food and printing industry Pest County (traditional) oil refinement, production of electronic machines and tools, food and textile industry
  6. 6. SME sector in Central Hungary Region <ul><li>SMEs </li></ul><ul><li>96% of enterprises is micro enterprise (high number of hybrid and pseudo entrepreneurship ) </li></ul><ul><li>Small subscribe d capital </li></ul><ul><li>Missing entrepreneurial skills and adequate business knowledge </li></ul><ul><li>Lack of financial resources </li></ul><ul><li>Low level of loans and credits </li></ul><ul><li>Business services </li></ul><ul><li>Enterprise development instruments (industrial, innovation, science parks, incubators and other intermediary organisations) </li></ul><ul><li>Regional Innovation Agency </li></ul><ul><li>Wide range of services </li></ul><ul><li>Low level of organisations offering financial support </li></ul>Cooperation is not satisfactory
  7. 7. <ul><li>Most required services: </li></ul><ul><li>General consultancy </li></ul><ul><li>Joint project management </li></ul><ul><li>Information exchange </li></ul><ul><li>Training </li></ul><ul><li>Technology transfer </li></ul><ul><li>Technology development </li></ul>SME needs and requirements
  8. 8. <ul><li>National Innovation System (National Office for Research and Technology, Research and Technology Innovation Fund) </li></ul><ul><li>Venture capital market regulation (under modification) </li></ul><ul><li>Tax incentives (on R&D activities, no t on private investment) </li></ul><ul><li>Regional Innovation Strategy and Action Plan (recently accepted) </li></ul><ul><ul><li>Facilitating the access to capital and loan </li></ul></ul><ul><ul><li>Creation of regional seed capital fund (pilot project) </li></ul></ul><ul><li>Central Hungary Region Strategy Plan for 2007-2013 - Creative region </li></ul><ul><ul><li>Handling financial problems </li></ul></ul><ul><ul><li>Support of innovation services </li></ul></ul>SME policy
  9. 9. <ul><li>Concept: </li></ul><ul><li>Finance the product development and realisation of innovative ideas </li></ul><ul><li>Public (75-50%) – private (25-50%) partnership </li></ul><ul><li>Capital investment and advice </li></ul><ul><li>Option right </li></ul><ul><li>Pre contract with venture capitalist </li></ul><ul><li>Preparatory stage: </li></ul><ul><ul><li>Feasibility study </li></ul></ul><ul><ul><li>Establishment (lobbying, legal, financial background, management) </li></ul></ul>Regional Seed Capital Fund – pilot project
  10. 10. Regional Seed Capital Fund – pilot project 840 , 000 700 , 000 600 , 000 480 , 000 Capital 80 , 000 80 , 000 80 , 000 80 , 000 Consultancy 48 , 000 48 , 000 48 , 000 48 , 000 Operation 40 , 000 40 , 000 Preparation 4th year 3rd year 2nd year 1st year Establishment Feasibility study Operation (EUR) Preparation (EUR) <ul><li>Indicators: </li></ul><ul><li>Amount of fund capital </li></ul><ul><li>Invested seed capital </li></ul><ul><li>Portfolio companies </li></ul><ul><li>Successful investments </li></ul><ul><li>Other indicators </li></ul>
  11. 11. Financing <ul><li>Supporting structure </li></ul><ul><ul><li>Programmes – calls and tenders </li></ul></ul><ul><ul><ul><li>National Programmes under National Development Plan, Economic Competitiveness Operative Program, co-financed by European Structural Funds </li></ul></ul></ul><ul><ul><ul><li>National Programmes financed from national resources </li></ul></ul></ul><ul><ul><ul><li>Regional Programmes from regional resources </li></ul></ul></ul><ul><li>Loans and credits – 4-step loan programme </li></ul><ul><li>Venture Capital </li></ul><ul><ul><ul><li>Government capital programmes </li></ul></ul></ul>
  12. 12. Program s <ul><li>Development of technical and technological background of SMEs </li></ul><ul><li>Development of entrepreneurial culture and knowledge </li></ul><ul><li>Development of cooperation </li></ul><ul><li>Support of application –oriented co-operative RTD activity </li></ul><ul><li>Improvement of conditions for research, TT and cooperation at publicly financed and non-pro f it research facilities </li></ul><ul><li>Support of corporate R&D&I capabilities </li></ul><ul><li>Internet presence of SMEs </li></ul><ul><li>SMEs’ patent and industrial property rights foreign trading </li></ul><ul><li>IPO of companies </li></ul><ul><li>Long-term strategic research </li></ul><ul><li>Establishment of innovative SMEs, implementation of R&D results and innovative ideas </li></ul><ul><li>establishment of R&D clusters </li></ul><ul><li>Establishment of Regional University Knowledge Centres </li></ul><ul><li>Elaboration of innovative ideas: Regional Innovation Agency, Innocheck, Regional Development Package </li></ul>National Programs co-financed by European Structural Funds National Development Plan Economic Competitiveness Operative Program National Programs financed from national resources SME Priority R&D&I Priority SME programs R&D programs
  13. 13. Government loan program Investment needed for technology catch up, max. 2 years of grace period 4-15 years Exchange rate guarantee, max. 6-7 % interest rate 40-200,00 euro Europe Loan For development, 4% of non refundable interest support for 3 years 7-10 years 4% interest rate support for 3 years Max. 100,000 euro Midi Loan Guarantee rate support; without own equity; no restriction for use 2% interest rate support Max. 40,000 euro Széchenyi Card 2 years of grace period 10 years Central Bank Base Rate Max. 40,000 euro Micro Plus Loan For micro enterprises 6 months of grace period 50% of prepayment 5 years Central Bank Base Rate Max. 20,000 euro Micro Loan 6 month of grace period + non refundable interest support 5 years Average rate 6.9% Max. 600,000 euro Budapest SME loan Other conditions Duration Interest rate Amount Name
  14. 14. Venture capital market <ul><li>Characteristics: </li></ul><ul><li>Lack of business angels </li></ul><ul><li>Foreign capital dominates the venture capital market </li></ul><ul><li>Number of enterprises with great growth potential is limited </li></ul><ul><li>Low liquidity of stock exchange (no new companies on stock exchange) </li></ul>
  15. 15. Venture capital market <ul><li>Main types of investors : </li></ul><ul><li>Business Angels </li></ul><ul><li>Corporate venturing </li></ul><ul><li>Institutional Investors </li></ul>
  16. 16. Business Angels <ul><li>30 active and 100 potential business angels </li></ul><ul><li>Business Angel Club operated by Innostart since 2000 </li></ul><ul><li>Matchmaking events </li></ul><ul><li>Innostart’s contribution: </li></ul><ul><ul><li>Compilation of an information database </li></ul></ul><ul><ul><li>Providing consulting opportunity (advice, preparation of business plan, partner service, preparation of proposals, etc.) for entrepreneurs </li></ul></ul><ul><ul><li>Organising BAC events regularly </li></ul></ul>
  17. 17. Institutional investors <ul><li>Hungarian Venture Capital and Private Equity Association (HVCA) since 1992 </li></ul><ul><li>27 full and 30 associated and 11 individual members </li></ul><ul><li>516Meuro newly raised fund in 2004 </li></ul><ul><li>108Meuro in 35 companies </li></ul><ul><li>Highest number of transaction in consumer and computer related sectors </li></ul><ul><li>Majority of investment belongs to expansion segment (2/3 of transactions, 72% of total capital investment) </li></ul>
  18. 18. Institutional investors <ul><li>Average 409 thousand euro investment in smallest transaction category </li></ul><ul><li>Level of small transaction is high due to government activity </li></ul><ul><li>In 2003 12 VC fund intended to invest into enterprises in their early stage of development </li></ul><ul><li>In 2003 1/3 offered less than 1M dollar </li></ul>Source: HVCA, 2005 100% 108 100% 41 Total 39% 42 5% 2 More than 15 Meuro 34% 37 12% 5 5-15 Meuro 3% 3 2% 1 2.5-5 Meuro 16% 17 27% 11 1-2.5 Meuro 8% 9 54% 22 Less than 1 Meuro % Estimated value (Meuro) % Number of transaction Scale of transaction
  19. 19. Government Capital Programs 6.8 M euro 6 200,000 – 1.8 Meuro IT and telecommunication SMEs IT Venture Capital Fund Manager Ltd 9.2 M euro 10 40,000 – 1M euro SMEs aiming to enter international market Corvinus International Investment Ltd 40,000 – 200,000 euro SMEs less than 3 years of innovation activity 1.6 Meuro 5 80,000 – 1Meuro Processing, environmental and logistic industry; SMEs min. 3 years of supp y ling sale Suppliers’s Investment Company 7.2 Meuro 27 40,000 – 400,000 euro Small enterprises (development and venture capital) Small Enterprise Development Ltd Amount Number Results 2003-04 Amount Target group Name
  20. 20. Government Capital Programs <ul><li>State funds receive minority shares in enterprises </li></ul><ul><li>State funds do not involved in the management of enterprises </li></ul><ul><li>Innovativeness is not a prerequisite </li></ul><ul><li>Financial structures offered by the funds is similar to loan financing </li></ul>
  21. 21. Other initiatives <ul><li>CHIC start-up and seed capital fund initiatives </li></ul><ul><ul><li>Introducing Austin incubation and technology transfer program </li></ul></ul><ul><li>National Technology Incubation and Seed Capital Program Initiative </li></ul><ul><ul><li>Initiative for the 2 nd National Development Plan (2007-13) </li></ul></ul><ul><ul><li>Promoting newly established enterprises and providing related financing </li></ul></ul><ul><ul><li>Main elements: </li></ul></ul><ul><ul><ul><li>Co-financing of development of incubators and financial support for their operation and services </li></ul></ul></ul><ul><ul><ul><li>Establishment of seed capital fund </li></ul></ul></ul>
  22. 22. Other initiatives <ul><li>Expected results: </li></ul><ul><ul><li>30-40 technology incubators with an average of 3-4 incubator managers and 8-12 start-ups; </li></ul></ul><ul><ul><li>2-3,000 potential successful innovation projects </li></ul></ul><ul><ul><li>3-400 new innovative enterprises </li></ul></ul><ul><ul><li>2-3,000 new workplaces with high-added value </li></ul></ul><ul><ul><li>40-60 Meuro private investment into innovative enterprises </li></ul></ul>
  23. 23. Conclusion <ul><li>Lack of business angels, seed funding </li></ul><ul><li>State loan and capital programs </li></ul><ul><ul><li>Not focusing on innovative SMEs </li></ul></ul><ul><ul><li>State capital funding is similar to loan financing </li></ul></ul><ul><ul><li>No private investment is attracted into state funds </li></ul></ul><ul><ul><li>Do not intend to invest into private funds </li></ul></ul><ul><li>Regional Innovation Strategy and Action plan </li></ul><ul><ul><li>Pilot action: Establishment of seed capital fund </li></ul></ul><ul><li>Desperate need for seed capital financing </li></ul>
  24. 24. Questions <ul><li>What kind of incentives needed for the involvement of private capital into seed capital funds? </li></ul><ul><li>How could the region most effectively facilitate the establishment of the fund? </li></ul><ul><li>Necessary steps for detection and identification of prosperous innovative enterprises. How could the number of prosperous marketable innovative projects be increased? </li></ul>
  25. 25. Judit Szilbereky INNOSTART Hungary National Business and Innovation Centre Phone: +36 1 382 15 13 Fax: +36 1 382 1510 E-mail: [email_address] Thank you for your attention!