© Copyright YFM Group Limited 2006 Learning from Experience – Venture Capital Fund Models for...

© Copyright YFM Group Limited 2006

Learning from Experience – Venture Capital Fund Models for 2007-2013

Phil Cammerman YFM Group Development Director


AgendaThe Importance of Venture Capital

YFM Group

Skills & Strengths

Key Requirements

Model 1 – Structural

Model 2 – Conventional

Model 3 – Co-investment

Comparison of Models

Conclusions


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


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


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.


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


Model 1 - StructuralGovernment

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


Model 1 - StructuralERDF 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


Model 2 – Conventional

ERDF EIB / EIF

Fund Mgr

Czech Government

CzechBanks

CzechInstitutions

Fund Fund Mgr

SMEs


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


Model 3 – Co-investment

ERDFVC

FundFund Mgr

SME A

SME B

Inst A

Inst B

LoanFund

SeedFund

SME C Inst A


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


Comparison of Models

Structural Conventional Co-Investment

Getting Started Quickly

Flexibility

State Aids Precedents

Effect of Leverage

Operational Costs

Legacy Funds

Intervention rate to be as high as possible


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


Thank you for your attention

If you have any queries please contact:

Phil Cammerman Email: [email protected] Mobile: + 44 (0) 771 927 910

or

Zuzana McMillan Email: [email protected]

Telephone: + 44 113 294 5000

THANK YOU FOR LISTENING

© Copyright YFM Group Limited 2006 Learning from Experience – Venture Capital Fund Models for...

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