I-Tec Pilot Project Bannock Consulting Interim Assessment Preliminary Conclusions I-Tec Meeting, November 22, Helsinki

Assessment Questions Is I-Tec meeting its objectives ? How well is it being implemented? What will be its economic impact? Does it complement other support measures? Should it be renewed? –If Yes, with what modifications?

Meeting Objectives Additional high-tech early stage investing capacity is being created in about half the fund manager companies In most of these the rate of investment has increased as a result New entrants have brought extra technology skills into VC world Training by experienced VCs has imparted deal and finance skills - capacity will be permanent Several new teams have been helped to begin operations more quickly and/or complete fund raising

Some Targets Missed Travel cost support not creating additional activity External technical consultancy support also little used Eurotech Data highly valued but underutilised Networking potential unfulfilled In some funds, no additionality, just cost saving

Implementation Successes Excess demand for scheme following high-profile launch Application approval successfully delegated to EIF Contracts concluded reasonably quickly in most cases Compliance costs in reporting and claim preparation not excessive Good liaison with Commission services Delays in paying claims irritating but not critical

Implementation Problems Rules considered complex and hard to understand at least initially Contract terms put off active participation by some funds – audit trail requirement for claims – allocating costs between I-Tec eligible and other investments is a burden –3 year age rule for investee company seen as too restrictive by about 1 in 3 funds Delay in contract signing cuts claimable costs for funds which began operations quickly

Economic Impact What can be attributed to I-Tec ? –Marginal increase in VC HR capacity, beyond that generated by additional funds under management –Faster rate of investing –Slight increase in syndication – Some part of employment creation in investee firms How important are I-Tec funds and investments relative to all European early stage high-tech SME VC activity?

Economic Impact - Evidence I-Tec has so far added around to 1, 000 early-stage VC professionals in Europe I-Tec has enabled rate of investment to increase by 50% or more in some funds I-Tec funds have a high rate of syndication 51% compared with Euro average of 17% Employment creation associated with I-TEC funds investment estimated to be 22,000 in 2002 I-Tec funds activity estimated to be 9% of all early stage high tech investment in period

Complementarity to Other Measures ? HR focus distinct from fund-raising and capital support “ VC talent shortage” recognised as continuing constraint Capacity building within VCs alongside schemes directed at entrepreneurs Investing capacity linked to technical/market background information, travel and external technical due diligence advice all within I-Tec No synergy found except with EIF early commitment

Should it be renewed? (Technology + Investment) skill-set shortage still acute Rate, and possibly quality, of investment constrained by it Deal flow and capital availability exploding US competition intensifying - bidding up prices and salaries

Modifications ? Excess demand for first scheme suggests tighter conditions or larger allocation next time Additionality and capacity building seem inversely linked to fund size and manager experience Most valuable capacity to be built in newer, smaller players operating in tougher geographical areas But, should complex cash grant be dropped in favour of more resources on information, training and networking?

New Selection & Conditions Automatic eligibility rather than discretion in VC firm selection well worth keeping Only new/young VC firms, not new funds next time with commitment 50% Restrict to funds under management (all sources) between Euro 15m and Euro 50m Retain claim ceiling 5% of cumulative eligible investments Investee companies less than 6 years old, but small, less than 25 employees, not 250

Other Possible Recommendations I-Tec members web page to be expanded: –FAQs for scheme rules and procedures –Noticeboard -- Regular chat room tech topics Part of personnel grant to be earmarked for training (not just Evca courses) Controllers to be excluded from personnel cost support Cut separate support elements for travel and external technical consultancy to simplify

Possible Recommendations Continued EuroTech Data - distinguish library function from consultancy function and make both available more widely to European VCs on separate graduated subscription bases Network meetings to be coordinated by evca, requiring a focus on VCs managing under Euro 50m, or lose mandate to another body

Extensions to I-Tec’s Scope Can I-Tec help reduce time to market of European innovations through support of tech transfer bodies or incubators with no funds or mini-funds ?