Technology venture capital and the Baltics


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Technology venture capital and the Baltics

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