1/13VEN

TU

RE

CA

PIT

AL

How KFK can fill in the financing gap on the Polish high-tech market

TMT Ventures, 27/02/2008

2/13

How are we positioned in terms of innovation?

European Innovation Scoreboard

CZ

LV

LU

AT

SK

FISE

BG RO

JP

CH

ITNO

DK

FR IE

HU

NL

PL

UKUS

HR

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

-4 -3 -2 -1 0 1 2 3 4 5 6

Average growth rate of SII, %

Su

mm

ary

Inn

ova

tio

n In

dex Followers

Innovation leaders

Catching-upTrailing

Source: (MERIT) and the Joint Research Centre (Institute for the Protection and Security of the Citizen) of the European Commission

EU 25

3/13

Venture capital is clearly associated with innovation…

Correlation between VC and ICT

4%

6%

8%

10%

12%

14%

0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8%

VC investment in ICT as % of GDP

ICT

sh

are

in G

DP

UK

Ireland

Japan

USA

Canada

Sweden

France

Israel

Korea

ICT = Information and Communication Technologies

Source: Yozma after USA Census, O

ECD, IVC Research Center, CBS

4/13

…but small companies receive little attention from VC investors

► Average deal size is increasing year by year

► There is a clear and continuing trend towards regionalisation of PE/VC in CEE

► Seed and start-up investments are outside the focus of most PE/VC funds

=> SMEs have very limited access to equity funding

5/13

‘Death valley’ is a serious problem

'DEATH VALLEY'

idea seed and start-up growth mature growth, expansion

capital needs

time

owner, family

funding

Source: prof. dr inż. J.G. Wissema, Technostarters, why and how?

6/13

This all means an equity gap

► Equity gap results from relatively high cost of preparing and monitoring of small projects as compared to those large ones.

► Additionally, small projects usually carry higher risks, which further discourages managers from investing.

► On the other hand, small innovative projects can also produce above-average rates of return.

An equity gap means that the market fails

to provide enough equity financing

for small investment projects

7/13

Response to the equity gap

► KFK is a holding fund that was established with the aim to reduce the equity gap persistent on the Polish market.

► KFK invests in VC funds targeting Polish SMEs.

► We target professional management teams with experience in VC-related investments and the focus on innovative and high-growth projects.

8/13

KFK as a holding fund

► As a holding fund, KFK invests in VC funds which target small and medium-sized companies. In the coming years, our investment portfolio will grow to around 20 VC funds.

VC Fund

VC Fund

VC Fund

Companies

NCF

Private investors

Public Investors

(EU)

…

~ 20 funds

9/13

Our investment process

►We have designed our investment process to meet best practice that works at recognized fund-of-fund investors

•Preparation of tender terms

•Tender announcement (offer form, key conditions of investment agreement)

•Gathering of offers

Tender launch

•Negotiations of investment agreement

•Signing of investment agreement

•Transfer of financial resources to the fund according to the drawdown schedule

Deal fulfilment

•Accomplishment of investment agreement

•VC fund financials

•Complying with information standards by VC fund

•Use of state aid

MonitoringAnalysis of Offers

•Formal analysis (checking out for completeness of required documents)

• Primary financial & legal analysis of documents (VC funds resulting in a short list that includes 1 to 5 best offers

•In-depth financial & legal analysis (meetings with management teams from short list and presentation of their offers, due diligence of offers

•Final choice of offers

Exit

•Exits from portfolio funds

10/13

Our investment activity

► Investment activity commenced in 2007

► 2 portfolio funds: BBI Seed Fund and Helix Ventures Partners (MCI)

► Joint cap of those two funds is PLN 100 million. Focus on early-stage high-tech projects

► Next bidding procedure: April 2008. PLN 150 m at disposal, 3x as much as in the first round

11/13

KFK as a part of the financial market

KFK

Technology parks

Companies

Public markets

Institutionalinvestors

Business incubators

VC funds

12/13

KFK in 3 – 5 – 7 years

PLN 600 m

PLN 960 m

in 3 years in 5 years in 7 years

10 FUNDS

80 companies

16 FUNDS

128 companies

21 FUNDS

168 companies

Joint investments of KFK and private investorsPLN 1 270 m

13/13

Thank you

Krajowy Fundusz Kapitałowy S.A. Racławicka 131/2u02 – 117 WarszawaTel: +22 823 8821Fax: +22 823 8823

kfk@kfk.org.pl

www.kfk.org.pl