V.Modena - EDE Conference, Sofia - November 28, 2005 Transferring success programmes to New Member States in Europe and obtained results Eng. Vittorio Modena, University of Pavia

V.Modena - EDE Conference, Sofia - November 28, 2005 ESTER is aimed at transferring the success factors from the Israeli experience in early stage financing to three New Member States: Latvia, Estonia and the Slovak Republic for the creation of suitable venture capital sources ESTER Objectives

V.Modena - EDE Conference, Sofia - November 28, 2005 Partnership Bic Bratislava Latvian Investment & Development Agency Connect Estonia National Agency for SMEs Slovakia University of Pavia University of Haifa Mr. Yigal Erlich Prof. Morris Teubal

V.Modena - EDE Conference, Sofia - November 28, 2005 The Latvian VC scheme

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvian Venture Capital Scheme Outline(1/3) The programme "Aid to the risk capital of small and medium-sized commercial companies “ was planned and promoted by the ESTER team in Latvia (Latvian Investment and Development Agency) financed by the local Ministry of Economy and the European Regional Development Fund.

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvian Venture Capital Scheme Outline (2/3)  15 Million Euros for the period will be provided by the Ministry of Economy in Latvia and the ERDF to match private funds. Private funds are expected to cover 30% of the funds.  The task is to ensure the creation and functioning of at least 3 risk capital funds for SMCC (Small and Medium Commercial Companies) operating in Latvia.

V.Modena - EDE Conference, Sofia - November 28, new funds Public Budget 15.0 MEUR Private management 7-10 years Maximum investment about 1m € in one project Maximum 285k € in the first investment tranche Fund of Funds Limited by 70% or 5,0 million € Investment Fund ~ million € Private Investors At least 30% of total investment in new VC fund Target : 50/50 Latvian Venture Capital Scheme Outline (3/3)

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvia Venture Capital Scheme –Incentive  Profit distribution 1.The management company 2.The private investors until they are repaid 3.The public sector until it has repaid 25% of its investment 4. Investors are paid until they get 6% yearly profit 5.The state is repaid the remaining 75% 6.The state receives 6% profit 7.All other profits are distributed between the investors and the management company

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvia Venture Capital Scheme –Transferred principles (from the Yozma Programme) 1.Funds are privately managed 2.Public sector only contributes “passive money” 3.Funds are sectorally neutral 4.As little bureaucracy as possible 5.Strong incentive to investors and managers

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvia Venture Capital Scheme (Strategy) Detected SituationDecision Uncertain high-tech deal flow Flexible scheme Limited amount of available public monies Three funds (ensuring right size) Scarce presence of skilled management Strong incentive to the management companies Uncertain return from early stage financing Strong incentive for investors in the funds

V.Modena - EDE Conference, Sofia - November 28, 2005 Latvia Venture Capital Scheme (transferring experience) 1.Local partners are crucial 2. A long study on the local system 3.A long process for creating a common language 4. Final adaptation of principles

V.Modena - EDE Conference, Sofia - November 28, 2005 The Yozma Programme, or how to build a venture capital industry from scratch

V.Modena - EDE Conference, Sofia - November 28, 2005 The Yozma Programme (1/2) No Venture Capital Funds No Venture Capital Funds Success in R&D - Failure in Marketing Success in R&D - Failure in Marketing Few IPOs, No M&As Few IPOs, No M&As Lack of international involvement Lack of international involvement ~60 Venture Funds ~60 Venture Funds $10B raised by VCs $10B raised by VCs $21B M&A deals $21B M&A deals #3 in Nasdaq #3 in Nasdaq Cisco, IBM, Intel, Microsoft… Cisco, IBM, Intel, Microsoft… American & ROW VCs American & ROW VCs VC

V.Modena - EDE Conference, Sofia - November 28, 2005 The Yozma Programme (2/2) Basic principles: Investment of $8M in each drop-down fund Investment of $8M in each drop-down fund (minority position) (minority position) A 5 year option to Yozma’s partners to buy out the A 5 year option to Yozma’s partners to buy out the Government’s share at predetermined conditions Government’s share at predetermined conditionsResults: 8 out of the 10 drop-down funds have exercised8 out of the 10 drop-down funds have exercised their option and bought out the Government their option and bought out the Government 9 out of the 15 companies Yozma Venture Capital has9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquired invested in directly, went public or have been acquired The Israel Venture Capital industry has been The Israel Venture Capital industry has been established established

V.Modena - EDE Conference, Sofia - November 28, 2005 Yozma Drop Down Funds FUND CAPITAL MANAGED ($MM) Original sizeToday Eurofund20 90Eurofund20 90 Gemini25 550Gemini Inventech20 40Inventech20 40 JPV20 675JPV Medica20 130Medica Nitzanim-Concord20 280Nitzanim-Concord Polaris20 945Polaris Star Star VERTEX20 250VERTEX Walden25 175Walden , ,035

V.Modena - EDE Conference, Sofia - November 28, 2005 Contacts/references IFISE Project ESTER Project