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Learning from Experience – Venture Capital Fund Models for 2007-2013 Phil Cammerman YFM Group Development Director. Agenda. The Importance of Venture Capital YFM Group Skills & Strengths Key Requirements Model 1 – Structural Model 2 – Conventional Model 3 – Co-investment

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Agenda

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  1. Learning from Experience – Venture Capital Fund Models for 2007-2013Phil Cammerman YFMGroup Development Director

  2. Agenda • The Importance of Venture Capital • YFM Group • Skills & Strengths • Key Requirements • Model 1 – Structural • Model 2 – Conventional • Model 3 – Co-investment • Comparison of Models • Conclusions

  3. 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

  4. 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

  5. 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.

  6. 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

  7. Model 1 - Structural ERDF Government Office Regional Office Fund Structural Fund Board Sub Fund C Sub Fund A Sub Fund B Fund Mgr C Fund Mgr A Fund Mgr B Administration Marketing

  8. Model 1 - Structural • ERDF 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

  9. Model 2 – Conventional ERDF EIB / EIF Czech Government Fund Fund Mgr SMEs Czech Banks Fund Mgr Czech Institutions

  10. 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

  11. Model 3 – Co-investment SME A Inst A Seed Fund Fund Mgr VC Fund ERDF SME B Inst B Loan Fund SME C Inst A

  12. 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

  13. 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

  14. 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

  15. Thank you for your attention • If you have any queries please contact: • Phil Cammerman • Email: philip.cammerman@yfmgroup.co.uk • Mobile: + 44 (0) 771 927 910 or • Zuzana McMillan • Email: zuzana.mcmillan@yfmgroup.co.uk • Telephone: + 44 113 294 5000 THANK YOU FOR LISTENING

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