© Copyright YFM Group Limited 2006 Learning from Experience – Venture Capital Fund Models for Phil Cammerman YFM Group Development Director

© Copyright YFM Group Limited 2006 Agenda The Importance of Venture Capital YFM Group Skills & Strengths Key Requirements Model 1 – Structural Model 2 – Conventional Model 3 – Co-investment Comparison of Models Conclusions

© Copyright YFM Group Limited 2006 The Importance of Venture Capital EVCA* statistics demonstrate that between 2000 and 2004:  Employment in VC backed businesses has grown by 30.5% per annum – over 40 times the average growth rate of 0.7% pa  73% of VC backed businesses increased employees by more than 25% per annum  Average R&D expenditure per employee was €50,500 – compared to €8,500 for the 500 most innovative businesses Over time VC backed businesses contribute large improvements in productivity and GDP * European Venture Capital Association

© Copyright YFM Group Limited 2006 YFM Group Privatised in 2003 Strong Financial Profile €400 million funds under management €30 million invested in 2005 into 60 businesses Wide range of investors  ERDF  12 UK Pension Funds  3 Clearing Banks  UK Government  European Investment Fund  Private Investors

© Copyright YFM Group Limited 2006 Skills & Strengths Public / Private Partnerships Intellectual property in delivering small ticket venture and loan capital to SMEs From Micro Finance (€5,000) to Venture Capital (€1.5million) Hiring and development of  New teams  New geographic regions Raised over €300 million in 10 years into a variety of funding structures Strong investment track record – 17% compound over 20 years Strong balance street and cash position to support team and facilities development.

© Copyright YFM Group Limited 2006 Key Requirements Demand for funds and business support for SMEs Legal and regulatory structure State Aids Consideration Intervention Rates  to be as high as possible  helps risk return for matching investors Creation of Legacy Funds

© Copyright YFM Group Limited 2006 Model 1 - Structural Government Office Regional Office ERDF Fund Structural Fund Board Sub Fund A Sub Fund B Sub Fund C Fund Mgr A Fund Mgr B Fund Mgr C Marketing Administration

© Copyright YFM Group Limited 2006 Model 1 - Structural ERDF and matched funding partners need to be in place before investing begins Lengthy process to put in place – 4 years Cumbersome to operate Wasteful bureaucracy leads to higher costs Beware high (> 30%) gearing Confusion of responsibilities between parties Examples:  MSIF – Merseyside Special Investment Fund  SYIF – South Yorkshire Investment Fund  PIF – Partnership Investment Finance

© Copyright YFM Group Limited 2006 Model 2 – Conventional ERDF EIB / EIF Fund Mgr Czech Government Czech Banks Czech Institutions Fund Mgr SMEs

© Copyright YFM Group Limited 2006 Model 2 – Conventional Limited Partnership UK Regional VC Model  ERDF (EIF), Banks, Institutions take preferential return  State aids precedent approved All equity, gearing at a minimum Relies on strength and track record of fund manager Flexible Builds on UK experience Can take time to put in place Not suitable for micro and small loan funding Examples:  Yorkshire & Humber Equity Fund  The Capital Fund  South West Ventures Fund  + 6 Other Funds

© Copyright YFM Group Limited 2006 Model 3 – Co-investment ERDF VC Fund Fund Mgr SME A SME B Inst A Inst B Loan Fund Seed Fund SME C Inst A

© Copyright YFM Group Limited 2006 Model 3 – Co-Investment Quick to set up Flexibility for seed, micro, loan and venture capital No gearing an advantage Enables variety of co-investors to invest depending on the particular investment  Venture Capital Funds  Business Angels  High Net Worth  Banks Relies on relationships of fund manager with other sources of finance Lower fees to operate Example:  North West Business Investment Scheme (Objective 2) in North West UK

© Copyright YFM Group Limited 2006 Comparison of Models StructuralConventionalCo-Investment Getting Started Quickly Flexibility State Aids Precedents Effect of Leverage Operational Costs Legacy Funds Intervention rate to be as high as possible

© Copyright YFM Group Limited 2006 Conclusions VC and Loan Funds  Increases investment  Improve productivity  Increase employment  Increase GDP over time Large revenue grants to SMEs  Prolong the status quo  Do not incentivise managers to long term growth Implement ERDF VC and Loan Funds quickly by  Avoiding lengthy bureaucracy  Encouraging flexible matching procedures

© Copyright YFM Group Limited 2006 Thank you for your attention If you have any queries please contact:  Phil Cammerman Mobile: + 44 (0) or  Zuzana McMillan  Telephone: THANK YOU FOR LISTENING