Andrea Di Anselmo - Prospects for the development of capital investments in Europe

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4-5 marca 2010 - Konferencja Sieci Inwestorów KPT pn. „Perspektywy rozwoju współpracy inwestorów i start-upów – inwestycje kapitałowe w projekty o wysokim stopniu ryzyka”

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  • We have been involved in many RIS projects but not all RIS have the same capacity to be transferred. We have tried to highlight the more interesting issues from 3 of all RIS projects where META Group is been involved.
  • Descrivere situazione italiana
  • Because seed investments are inherently very risky, over time, the ROI of seed investments exceeds all other private equity investments.
  • Definition of early stage (seed + start up) Seed represent 5% of this 2bn € According to EVCA[1], the volume of private equity investments in Europe has shown a sharp increase, whereas the share of early stage investments is still declining. Private equity investments increased by 27% from €36.9 billion in 2004 to €47.0 billion in 2005. However, seed financing was not able to pick up on the growth of private equity. Seed investments fell by almost 34% from €148m in 2004 to €97m in 2005. This decline is reflected in the sharp decrease of the share of seed investments of the total from 0.4% in 2004 to 0.2% in 2005. Start-up investments (following the seed phase) increased slightly from €2.2 billion in 2004 to €2.3 billion in 2005. In the UK the supply of business angel finance increased substantially in 2004/05 from £50 million to £700 million following an increase in tax relief for investors in venture capital trusts from 20% to 40% but decreased sharply when the extent of the allowances was reduced. Business angel investments in Europe are estimated to be less than 10% of those in the United States. The business angel phenomenon is much less developed in Europe than it is in the US. Although exact figures are difficult to obtain, it is estimated that there are 1,455 angels per million population in the US114, compared to only 33 in Europe115. These orders of magnitude point to a clear reality: business angels do not play the same role in the EU innovation ecosystem as they do in the US, and will not do so in the near future. This is coupled with the observation that the average level of investment per business angel is lower in Europe than in the US. In many European countries, an individual investment of EUR 100,000 is considered to be very substantial. The lack of seed and start-up investments prevents new firms from reaching a size where they can attract expansion capital
  • Definition of early stage Sidecar represent 5% of this 2bn € Including Eastern Europe According to EVCA[1], the volume of private equity investments in Europe has shown a sharp increase, whereas the share of early stage investments is still declining. Private equity investments increased by 27% from €36.9 billion in 2004 to €47.0 billion in 2005. However, seed financing was not able to pick up on the growth of private equity. Seed investments fell by almost 34% from €148m in 2004 to €97m in 2005. This decline is reflected in the sharp decrease of the share of seed investments of the total from 0.4% in 2004 to 0.2% in 2005. Start-up investments (following the seed phase) increased slightly from €2.2 billion in 2004 to €2.3 billion in 2005. In the UK the supply of business angel finance increased substantially in 2004/05 from £50 million to £700 million following an increase in tax relief for investors in venture capital trusts from 20% to 40% but decreased sharply when the extent of the allowances was reduced. Business angel investments in Europe are estimated to be less than 10% of those in the United States. The business angel phenomenon is much less developed in Europe than it is in the US. Although exact figures are difficult to obtain, it is estimated that there are 1,455 angels per million population in the US114, compared to only 33 in Europe115. These orders of magnitude point to a clear reality: business angels do not play the same role in the EU innovation ecosystem as they do in the US, and will not do so in the near future. This is coupled with the observation that the average level of investment per business angel is lower in Europe than in the US. In many European countries, an individual investment of EUR 100,000 is considered to be very substantial. The lack of seed and start-up investments prevents new firms from reaching a size where they can attract expansion capital about 2 bn € seed funds + 2 bn € BAs ??? 2007 -2013 fast growth foreseen amount invested still very low (25-30% of available finance) US Seed Funds: ??? BAs: 20 bn €
  • Descrivere situazione italiana
  • Andrea Di Anselmo - Prospects for the development of capital investments in Europe

    1. 1. 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 Anselmo Vice president META Group - ZMV spa Krakow 04/03/20010
    2. 2. Start-ups Early Stage investments Regional/ interregional Structural Funds Revolving ERDF – ESF PPP Market & Profit driven Policy Issue
    3. 3. 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
    4. 4. <ul><li>Be selective </li></ul><ul><li>Market & profit driven approach </li></ul><ul><li>Global born ambitious ventures </li></ul><ul><li>Co-investment schemes </li></ul><ul><li>Better use of the leverage (private investors and state aid) </li></ul><ul><li>Accept to take risk </li></ul><ul><li>Avoid Bank way of doing it (they are the best for other kind of financial support) </li></ul><ul><li>Engage the ecosystem (but open it up) </li></ul>
    5. 5. Creativity + Entrepreneurship = KICs (Knowledge intensive companies) “… 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
    6. 6. <ul><li>ambitious entrepreneurs </li></ul><ul><li>fast growing market </li></ul><ul><li>intangible assets </li></ul><ul><li>They are small in numbers but cover a critical role </li></ul><ul><ul><li>strongly affecting employment </li></ul></ul><ul><ul><li>playing an increasingly active part in Global Markets and Value Chains: initiators </li></ul></ul>Knowledge Intensive Companies
    7. 7. <ul><li>Knowledge Intensive companies </li></ul><ul><ul><li>Quality and quantity employment: 2% of new companies produces 50% of new employment in Europe and 70% in USA </li></ul></ul><ul><ul><li>Dynamism of the economy: Nokia alone has changed Finland physiognomy and perception </li></ul></ul><ul><ul><li>Creative destruction : today AT&T only exist as a brand </li></ul></ul><ul><ul><li>75% of Fortune 500 did not exist 25% ago </li></ul></ul>
    8. 8. Knowledge intensive companies need ( a lot of ) money! 3 Fs (Fools/Founders, Family, Friends) are not enough !
    9. 9. Smart Money… (Finance is not enough) <ul><li>investment readiness/ ready </li></ul><ul><li>Mentoring and (training) </li></ul><ul><li>Acceleration (not incubation) </li></ul><ul><li>Internationalisation – cross border </li></ul><ul><li>The added value of business angel investment </li></ul>
    10. 10. <ul><li>All the money is not the same </li></ul><ul><li>(Christian Saublens, Eurada ) </li></ul>
    11. 11. <ul><li>Venture Capital Funds tend to lower the risk associated and begin investing in the start up phase </li></ul><ul><li>Exploitation related Grants are “tick box” driven and not market driven </li></ul>Pre-Seed Seed “ Funding” Gap € 200.000 to € 1.500.000 Start up Expansion Entrepreneur FFFF 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
    12. 12. <ul><li>EARLY STAGE RISK FINANCE (and more) </li></ul>Early Stage Financing Pre-seed up to 0,5 $ Mln Seed up to 1-2 $ Mln Start up 5/10 $ Mln Second Round 10/12 $ Mln Expansion Capital 10/50 $ Mln Turnover Cumulative Cash Flow Business Angels Venture Capital Product definition No 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
    13. 13. <ul><li>FINANCIAL CYCLE (and more) </li></ul>Expansion Capital Second round Later stage (Venture Capitalist) Start up Seed Pree-Seed Early stage (Proof of concept funds, BAs, Seed Funds, Venture Capitalist) Scope Company life-cycle Identification of Market potential Pre-business plan Prototyping And product development Business plan Commercial-scale manuf. And sales Company established but not invoicing Structuring commercial channels Building up turnover Continuous ideas/concepts/ products innovation Making Profits
    14. 14. Financial tools for KIC (what we miss) <ul><li>Proof of concept funds </li></ul><ul><li>Business Angels </li></ul><ul><li>Seed funds </li></ul>
    15. 15. Risk taking and risk rewarding
    16. 16. 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 €
    17. 17. EU INVESTMENT ACTIVITY 25% of US LEVELS Source: Compiled information from EBAN, ACA and Center for Venture Research Angel Investing - Summary of industry statistics
    18. 18. 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
    19. 19. Source: Innovation Philadelphia (2005) Seed vs Other Investment Returns 20 Yr 10 Yr 5 Yr 3 Yr 1 Yr 13.7 12.8 6.8 -3.6 23.4 All Private Equity 9.6 7.6 5.9 2.0 18.1 Mezzanine 12.4 8.1 2.6 0.1 28.8 All Buyouts 15.7 26.0 22.0 -13.3 15.7 All Venture 14.1 17.1 7.1 -6.9 38.0 Later Stage VC 13.6 20.8 17.5 -9.4 20.5 Balanced VC 19.1 37.9 47.1 -19.8 -2.9 EARLY/SEED VC % Return Fund Type
    20. 20. Some Data: Evolution of Seed ‘99 -05’
    21. 21. <ul><li>Some data: Seed in Europe today </li></ul><ul><ul><li>seed invested (< 500k€ per investment) in 2005: 97 ml € (EVCA report - down 34% from 2004) </li></ul></ul><ul><ul><li>availability estimated to be much higher (from 300% - to 2000% more according to different sources) </li></ul></ul><ul><ul><li>… we need much more deals in seed stage </li></ul></ul>
    22. 22. <ul><li>Seed Funds and BAs </li></ul><ul><ul><li>They are the two (and only ) players in this arena (<500 k€) </li></ul></ul><ul><ul><li>Potentially 300 seed funds and 300 BANs active in Europe </li></ul></ul><ul><ul><li>So far collaboration is occasional </li></ul></ul><ul><ul><li>Weak lobbying, tax breaks, professional recognition </li></ul></ul><ul><ul><li>Business angels network and Seed Funds should work together ( sidecar , syndicate , regional focus) </li></ul></ul>
    23. 23. <ul><li>Investments in knowledge intensive companies </li></ul><ul><li>are considered risky due to: </li></ul><ul><ul><li>the intangible nature inherent their activities </li></ul></ul><ul><ul><li>the small sizes of transactions </li></ul></ul><ul><ul><li>perceived high default rates </li></ul></ul><ul><ul><li>lack of an established income stream </li></ul></ul><ul><li>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 </li></ul>
    24. 24. … All money is not the same!!! (Christian Saublen, Eurada )
    25. 25. The evaluation approach of risk capital investors
    26. 26. Financial tools (early stage financing) for knowledge based start ups <ul><li>Proof of concept funds </li></ul><ul><li>Business Angels </li></ul><ul><li>Seed funds </li></ul>
    27. 27. Early stage investors – evaluation approach <ul><li>Proof of concept </li></ul><ul><li>Innovativeness (+) </li></ul><ul><li>IPR – Valorisation of research results </li></ul><ul><li>Entrepreneurial spirit </li></ul>
    28. 28. <ul><li>Business angels (informal investors and Spin-off corporate venturing) </li></ul><ul><ul><li>Atmosphere of trust between individuals and positive feeling, confidence (+) </li></ul></ul><ul><ul><li>Possibility of hands on intervention </li></ul></ul><ul><ul><li>Credible business plan in the eyes of the Business Angel </li></ul></ul><ul><ul><li>Availability of exit route </li></ul></ul><ul><ul><li>Return on investment (capital gain) </li></ul></ul>Early stage investors – evaluation approach
    29. 29. <ul><li>Seed capital funds </li></ul><ul><ul><li>Team (+) </li></ul></ul><ul><ul><li>Clear Business model </li></ul></ul><ul><ul><li>Intellectual capital </li></ul></ul><ul><ul><li>Growth potential (High) </li></ul></ul><ul><ul><li>Availability of exit route </li></ul></ul><ul><ul><li>Return on investment (capital gain) </li></ul></ul>Early stage investors – evaluation approach
    30. 30. Investing in talents
    31. 31. SEED FINANCING EARLY STAGE FINANCING START UP FINANCING Spin-off and Start–ups with no more than 36 months Located in Emilia Romagna
    32. 32. Intervention modalities <ul><li>Equity Investment </li></ul><ul><li>Temporary/minority position (max. 45%) </li></ul><ul><li>Successive rounds investments </li></ul><ul><li>300 - 500.000 € average per investment up to 1 million € </li></ul>
    33. 33. <ul><li>PharmEste Academic Spin-off of University of Ferrara - reduction Neuropath Pain and Vesicular Hyperactivity. </li></ul><ul><li>Techgenia Spa: spin-off from Solgenia Spa. Informatics reliability and security through network appliances. </li></ul><ul><li>RaySolar : two researchers from Italian National Research Council (CNR) and two young economists production of hi-purity solar grade silicon. </li></ul><ul><li>H.D.S. Headmost Division Service, Facility Management. </li></ul><ul><li>Intrauma : medtech start-up, innovative screws for the reduction of fractures. </li></ul><ul><li>Passpack : online password manager with impenetrable cryptography, for companies and privates. </li></ul>Investments
    34. 34. Thank you for listening [email_address] “ It is not difficult to learn new things but to quit old habits”

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