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 20 - 30 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 1998-2000 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 ?