Planning session 2 the creation of seed capital funds for italy 4th ifise meeting
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Planning Session 2 The creation of Seed Capital Funds for Italy 4th IFISE Meeting. Milan, 1 st March 2002. The issues. Legal framework: EC laws for R&D and public financial support Government R&D policies: general R&D framework coming from the will of central government

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Planning Session 2 The creation of Seed Capital Funds for Italy 4th IFISE Meeting

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Planning Session 2The creation of Seed Capital Funds for Italy4th IFISE Meeting

Milan, 1st March 2002


The issues

  • Legal framework: EC laws for R&D and public financial support

  • Government R&D policies: general R&D framework coming from the will of central government

  • Management Company establishment: new managers for new seed funds

  • Fundraising: use private raised funds reducing risk with public support (Fund of Funds model)

  • Entrepreneurship creation and Technology Transfer: the role of public incubation system and University

  • Exit way: what kind of link between Seed Capital Funds and VC Funds?


Seed Capital: The model

LEGAL FRAMEWORK

R&D policies

for

Technologies

SEED

CAPITAL

FUNDS

FUNDING

FoF

Public support

(PPP)

EXIT

•VC funds (+PE)

Private Managers

Entrepreneurship levels


Legal Framework

  • It is vital to convince the government that the development of the Seed High Tech Sector “is good” for the economy: demonstrate the social/economic impact on the national/regional economy

  • The first public money/incentives should activate seed capital funds

  • If they succeed a virtuous cycle of “success stories” and good impact on the economy is activated, then the government will be willing to keep on running the programme (more money/more incentives)

  • When the market is stable, then the private investors could come in fully and the government should withdraw


New managers and new funds

  • In Italy, the early stage activity seems to be mostly oriented towards the start up industry. Only few investments are made in seed projects.

  • The relationship with the VC world seems not to exist, and a link is now not active because of different approach to the firm: companies coming from seed projects are not seen as ready to be backed by VC’s

  • The creation of new management companies committed to seed capital activity is very highly recommendable to fill this lack of operators

  • The importance of the role of Banca d’Italia act for the reduction of capital requirements of Management Companies (promoted by Universities and research centres) investing in new high tech firms

  • The role of regional policies to cover the MC start up costs


The fundraising

  • Funds raised for the VC activity is enough, but it is not invested in seed projects

  • The way to redirect part of these funds towards seed activity is to adopt the Fund of funds model, in order to create a critical mass of funds to put into smaller funds able to commit towards small seed projects:

  • 1. Use the “one dollar to one dollar” basis to attract private money with public money (PPP)  risk reduction

  • 2. Activate effective collaboration with European Investments Fund to catch a 30-40% sum for the FoF

  • 3. Catch public money to fund part of the project (but not let the public institutions run the funds)

  • Public and Private money managed by private professional new MC


The Demand side: entrepreneurship creation

  • We can observe that, nevertheless the Italian R&D total expenditure p.a. on GDP is about one half of the EU average (i.e. 1,04% vs. 1,92%), what we really need is to transform the excellence research result into business

  • The role of local entrepreneurship promotion activities played by the numerous incubation systems and public agencies (such as Sviluppo Italia)

  • The role of University incubators and technology transfer offices: we need a more formal coordination of these actors

  • Increase the entrepreneurship consciousness of researchers/scientists and promote incentives to set up companies


Final issues…

  • Create a sound solid connection between Seed capital funds and VC funds

  • It is important to back the seed project in order to make it acceptable by the future VC who will take the equity stake

  • The first Euro million is a public-private matter

  • Activate a network with Universities, Public incubation system and government authorities to declare a formal framework programme with declared goals

  • Control mechanism for incubation activity: more money to incubators which gained “high reputation”


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