Transcript Venture Capital in Eastern Europe – theory and reality

Venture Capital in Eastern
Europe – theory and reality
Allan Martinson
Managing Partner
MTVP
MartinsonTrigon – summary
• AS MartinsonTrigon:
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~12 m EUR investment vehicle
Founded in 2005
1st fund of Martinson Trigon Venture Partners
Geography: the Baltics and Russia
4 investments signed by far, 2 in works
4 professionals + Trigon Capital investment bank
Next fundraising in late 2006
The Team
• Allan Martinson, Managing Partner
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Founder of the Baltic News Service in 1990
CEO of MicroLink, the largest Baltic technology holding in 1998-2004
Member of boards in >10 TMT companies
• Joakim Helenius & Trigon Capital
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The largest Baltic investment bank
~500 m EUR under management
AM, CF and direct investments
• Andres Susi, Associate
• Sven Nuutmann, Associate
• Pekka Sivonen, Chairman of the Investment Committee
MartinsonTrigon’s investment profile
• Typical investment between EUR 0.5-3m (average EUR
2m)
– In syndicates with other VC’up to EUR 10 m
• Strong control either through majority stake or strong
minorities + shareholders agreements
• Extensive support to the management
• Earnout & option schemes
• Holding period 3-5 years
• Exits through strategic sale or IPO
Portfolio
• Offshore programming in
Russia
• IT services and data
communications in Lithuania
• Music TV franchise in the
Baltics
• CRM collaboration technology
company in Russia/USA
What is Venture Capital?
Stakeholders of VC industry
Ideas
Enterpreneurs
Companies
Strategic buyers or
stock market
Venture Capitalists
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VC investors
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Venture Capitalist’s life cycle
• Fundraising
– Up to 2-3 years of selling the story and concept to the fund’s investors
• Pipeline generation
– Active and passive search of potential investee companies in interesting
industries
– Less than 1% of reviewed companies will get investments
• Early negotiations, signing of term sheet
– From 1 month to several years
• Due diligence and final negotiations
– From 3 to 9 months
• Signing and closing of investment
• Holding period
– 2-7 years
• Exit
• Closure of the fund
– Typical lifetime 7-10 years
What is Venture Capital?
• VC industry produces mature companies
from raw ideas and young teams by
adding finances, experience and contact
network
• VCs are human and always invest into
humans, not into companies
• Taking in venture capital is an orchestrated
marriage
Popular myths about VC
• Myth: VC is long-time, strategic partner
– Fact: VC is short-to-medium time financial investor
• Myth: VC invests into good companies or business plans
– Fact: VCs invest into good teams in rising industries
• Myth: VC invests into R&D
– Fact: Less than 10% of VC money ends up in R&D, 90% in
commercialization
• Myth: VCs like seed stage companies
– Fact: In most cases, VCs prefer later stages
• Myth: VC will have all his time for my company
– Fact: Typical VC with 10 companies can spend 80 hours/year on
a company
MTVP’s 5 evaluation criterias
1. Do we believe into the people and the team?
2. Does the company target a fast-growing
market?
3. Does the team have competitive advantage
over competitors
4. Do we understand the business and add
value?
5. Are the risks reasonable?
Baltic VC landscape
• Two dedicated high-tech funds:
– MartinsonTrigon (2 Baltic investments)
– ASI Private Equity (3 Estonian investments)
• Occasional investments by generalist PE players
– Mostly into IT services and telecom companies
• Handful of angels
– ~10-20 angel investments
• No direct presence of foreign VC funds
• State-sponsored VC programs in Estonia and
Latvia
Russian roulette
• 4 high-tech VC funds operating locally:
– Russian Technologies, MTVP, Intel Capital, ABRT
– U.S. VCs have done ~10 deals (Bessemer, Insight Partners, Merifin
etc)
– IT and telecom investments by general PE
• Up to 10 success stories
– Rambler Media, RBC, Aelita, Acronis etc
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State-sponsored VC initiatives under way ($550m)
Hundreds of companies available for pipeline
Growths 50-200% p.a.
Finances, accounting, reporting, taxes usually in mess
Strong global ambitions, often not matched with
management experience