This document provides an overview of venture capital in the Baltics and Russia. It defines venture capital and describes how it works, including that it invests in new industries, takes minority stakes, and invests from seed to early growth stages. It also outlines typical costs and returns for venture capital funds, the industries they focus on, and challenges in the regions, such as a lack of experienced management teams. The document concludes by introducing MTVP, a €12M venture capital fund focused on the Baltics and Russia, and provides contact information.

1. Venture Capital in Baltics and
Russia
Allan Martinson
Managing Partner
MTVP

2. What is Venture Capital?
• Private Equity Industry = funds and vehicles
investing into non-listed enterprises
• Two main categories of private equity:
– Buyout funds
– Venture Capital funds
• Venture Capital funds invest into
– New and fast-growing industries
– Usually taking minority stakes
– Usually seed to early growth stages
– Often, but not always into innovation and technology

3. Private equity from investor’s viewpoint
• High risk/high return asset class
• Usually reserved only for investment professionals and
high net worth individuals
– Pension funds
– Government-sponsored funds
– Funds of funds
– High net worth individuals and family offices
• Usual minimum ticket 1 million dollars
• Sizes of the funds between 10 m USD-10 b USD
• Typical lifetime of funds between 5-10 years
• Low liquidity, high return expectations
• Typical investor does not allocate more than 10% of its
portfolio to private equity and he/she must like this asset
class

4. Model of private equity industry
PE/VC fund
managers
Mgt
Ideas $ Enterprises
Stock market or
Enterpreneurs PE/VC funds
trade buyers
$ $
$ $
Investors of PE/VC
funds

5. Cost of Venture Capital
• Minimal expected (promised) return no less than 25-35%
– >80% of profits are generated by <25% of the funds
– Best funds show >100% annual returns
– Historic average 15-17%
• As all portfolio companies may not succeed VC funds expect at least
50% annual growth in value of separate companies
• 5-year return expectations expressed in money-back ratios:
– Failed: write-off
– Walking dead: 1X money-back (0% return)
– Okay 5X money-back (50% per annum)
– Good 10X money-back (80% per annum)
– Superior >20X money-back (>110% per annum)
• Skype: over 100X money-back in 2 years

6. What does Venture Capital produce?
• VC industry produces mature companies from raw ideas
and young teams by adding finances, experience and
contact network
• VCs assist in company-building: from seed to growth
stage
• VCs are human and always invest into humans, not into
companies

7. Venture Capital is more than just money
• Good Venture Capital = Smart Capital
– Extensive experience and good instincts
– Strategic management and mentorship
– Maintaining of discipline and focus
– Assistance in recruiting of top talent
– Assistance in creating partnerships
– Assistance in exits
• Mediocre companies get the most attention of
VCs
– Failed companies = “no money, no time”
– Superior companies usually manage themselves

8. How do VCs pick their investments?
• All VC funds have formal pre-selection criterias:
– Geography
– Stage of investments
– Size of investments
– Industries
• … but informal criterias are the most important!

9. MTVP’s 6 investment criterias
1. Does it fit our formal criterias (geography, size,
industry?)
2. Do we believe into the people and the team?
3. Does the company operate on growing market?
4. Does the company have unique competitive
advantage?
5. Do we as VCs have necessary skills and
understanding of the business?
6. Does the company have any substantial risks?

10. Human aspect - the most important
criteria
• We always invest into people, not into companies,
market shares or business plans
– We invest if we like the team and we would like it to continue
– We help the enterpreneurs to bring their visions to reality
• What makes a good team:
– Strong vision
– Strong execution
– Has been together at least one year
– Have been succesful in the past
– Carries common values: integrity, trust and transparency

12. MTVP’s annual deal funnel
30-40 First
Meetings 10-15 Follow-on
Review 5-7
Meetings
>200 Every Investments
Plan Per Year
Due diligence process

13. Typical myths about VCs
• Myth: VC is a long-term strategic partner
– Reality: VC has horizon of 2-7 years, helps the company to
mature and then exits
• Myth: VC money goes to R&D
– Reality: 90% of the Venture Capital goes to commercialization of
the products and services
• Myth: VCs like early stages
– Reality: In moct cases VCs would like to see at least 1 m USD in
annual revenues
• Myth: VCs invest lots of time into their companies
– Reality: Typical partner in VC fund manager has 5-7 companies
under supervision and can spend no more than 100 hours per
company per year

14. MartinsonTrigon – summary
• AS MartinsonTrigon:
– ~12 m EUR investment vehicle
– Founded in 2005
– 1st fund of Martinson Trigon Venture Partners
– Geography: the Baltics and Russia
– 4 investments signed by far, 2 in works
– 3 full-time professionals + Trigon Capital investment
bank
– Next fundraising in late 2006

15. Focus areas
• Information technology • Internet and new media
– Offshore software – Social networking
development – Search technologies
– IT services and outsourcing – Mobile content
– Software products and – Internet-based new media
technologies – Gaming industry
– E-commerce and e-services
• Telecom – New media
– New generation TV
– Data communication
broadcasters
services and datacentres
– “New telecoms” (VoIP, WiFi,
WiMAX, 2.5G/3G etc)

16. MartinsonTrigon’s investment profile
• Typical investment between EUR 0.5-3m (average EUR
2m)
– In syndicates with other VC’up to EUR 10 m
• Strong control either through majority stake or strong
minorities + shareholders agreements
• Extensive support to the management
• Earnout & option schemes
• Holding period 3-5 years
• Exits through strategic sale or IPO

17. Portfolio
• Offshore programming in
Russia
• IT services and data
communications in Lithuania
• Music TV franchise in the
Baltics
• CRM collaboration technology
company in Russia/USA

18. Baltic VC landscape
• Two dedicated high-tech funds:
– MartinsonTrigon (2 Baltic investments)
– ASI Private Equity (3 Estonian investments)
• Occasional investments by generalist PE players
– Mostly into IT services and telecom companies
• Handful of angels
– ~10-20 angel investments
• No direct presence of foreign VC funds
• State-sponsored VC programs in Estonia and
Latvia

19. Baltic high-tech successes
• Skype
• Playtech
• SAF Tehnika
• Hansabank
• Tens of interesting startups, but often failing to
get critical mass
• Problem of getting over 1 m EUR barrier
• E-services is the most promising industry

20. Russian roulette
• 4 high-tech VC funds operating locally:
– Russian Technologies, MTVP, Intel Capital, ABRT
– U.S. VCs have done ~10 deals (Bessemer, Insight Partners,
Merifin etc)
– IT and telecom investments by general PE
• Up to 10 success stories
– Rambler Media, RBC, Aelita, Acronis etc
• State-sponsored VC initiatives under way ($550m)
• Hundreds of companies available for pipeline
• Growths 50-200% p.a.
• Finances, accounting, reporting, taxes usually in mess
• Strong global ambitions, often not matched with
management experience

21. CONTACTS
ALLAN MARTINSON SVEN NUUTMANN
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