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Investing in risk capital funds – The role of a government supported fund-of-funds and the mission to promote econo

Investing in risk capital funds – The role of a government supported fund-of-funds and the mission to promote economic growth. Baltic M&A and Private Equity Forum Riga , 25 October 2013 Jouni Hakala, Chairman of EFVIN. Content.

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Investing in risk capital funds – The role of a government supported fund-of-funds and the mission to promote econo

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  1. Investing in risk capital funds – The role of a government supported fund-of-funds and the mission to promote economic growth Baltic M&A and PrivateEquity Forum Riga, 25 October 2013 Jouni Hakala, Chairman of EFVIN

  2. Content

  3. Riskcapital as an instrument to generateeconomicgrowth

  4. Evaluating the contribution of private equity to economic growth* • Relevant dimensions of private equity activity: *Source: Exploring the impact of private equity on economic growth in Europe,A report prepared for the EVCA by frontier economics, May 2013.

  5. Evaluating the contribution of private equity to economic growth* Innovation, productivity, competitiveness • Private equity attracts investible funds into Europe providing much needed risk capital for businesses. In the 12 largest private equity markets in Europe, private equity invested almost €250 billion in more than 19,400 companies between 2007 and 2012. Of this, an estimated €50 billion was raised from outside Europe. • Private equity builds businesses that are more innovative than non private equity-backed firms. Patents granted to private equity-backed businesses between 2006 and 2011 are likely to be worth up to €350 billion. Private equity participation increases the number of patent citations by 25%. With increased numbers of citations corresponding to greater economic value, this suggests it uses resources more effectively to deliver higher returns on investment. In some sectors, private equity finance can be up to nine times more effective than non-private equity financing. • Private equity boosts productivity by improving management, operational expertise and production processes. Private equity backing also leads to improved productivity (measured by EBITDA (earnings before interest tax, depreciation and amortisation) per employee) of 6.9% in large private equity backed companies over a six year period. • Private equity contributes to the creation of up to 5,600 new businesses in Europe annually. Venture capital investment directly leads to the creation of 2,800 new companies across Europe each year. In addition, a ‘spill-over’effect - caused by knowledge sharing, networking and inspiring role models- leads would-be entrepreneurs to create approximately 2,800 more businesses each year. *Source: Exploring the impact of private equity on economic growth in Europe,A report prepared for the EVCA by frontier economics, May 2013.

  6. Net sales in Finnish portfolio companies Statistics Finland: Net sales of Finnish limited companies grew on average approx. 5.4% in 2011 compared to 2010.

  7. Job creation in Finnish portfolio companies Statistics Finland: the number of jobs in Finnish limited companies grew on average approx. 1.4% in 2011 compared to 2010.

  8. Venturecapital and publicsectorinvestments

  9. Venture funds have raised €22bn during last 5 years; importance of government agencies is high • The share of Public actors’ capital in VC-fundshasbeenincreasingin Europe Source: EVCA

  10. European venture capital market • Finland’s private equity and venture capital market is fairly developed, since the supply of venture capital funding is in relation to GNP at a good level internationally Source: EVCA

  11. AverageVenturereturnshavebeendisappointing in Europe (and in the US…) for the last 10 years Note: Five-yearrollingIRRs Note: Five-yearrollingIRRs Source: EVCA

  12. EuropeanVentureFundInvestorsNetwork (EVFIN)

  13. AboutEVFIN • Set up in March 2011 in response to the continuing funding crisis affecting the VC industry across Europe • A platform for dialogue gathering 10 major national VC operators (€24 bn under management) representing 8 European countries • Mostly public Fund of Funds, they all foster equity financing for SMEs through supporting best VC funds and contribute to develop domestic VC markets • Members: Caixa Capital (Portugal); Capital Dynamics (UK); Capital for Enterprise (UK); Bpifrance (France); Enterprise Ireland (Ireland); Finnish Industry Investment (Finland); KFK/BGK (Poland); PMV (Belgium); SRIW (Belgium) ; TANEO (Greece). 13

  14. EVFIN Objectives • Share best practices among EU LPs & develop a common understanding of the EU VC market • Encourage pan-EU joint initiatives to address the VC crisis • Act as a partner to the European Institutions by providing input regarding projects and policies related to SMEs financing • Offer opportunity for a constructive dialogue between all stakeholders of the EU VC industry (EIB Group, EVCA, Gps etc.) • EVFIN initiative has developed from the conclusions of the EU Council meeting of February 2011 which called on the EU Commission to present proposals for putting in place a EU VC scheme building on EIF and national operators 14

  15. Case Finland : Finnish Industry Investment Ltd

  16. Economic and societal impact Investments worth €516m in funds that have total capital of €8,4b Investments total €720m 40 000 employees in portfolio companies Government’s €470m investmentshave grown into €575m Investment in FoF Growth €54m Total capital of FoF Growth €135m Investor directly or through funds in 510 companies Portfolio companies generate €7,5b in revenue

  17. Investmentstage €m 15 • Fundinvestments • Early-stage • Growth • Buyout • FoFGrowth 10 Direct investments Buyout 5 Direct investments Venture capital (StartFund I Ky) 1 SeedStart-upEarlygrowth Expansion

  18. Investments and commitments€719m (31.12.2012) 64% 29% 7%

  19. Fund investments

  20. Direct investments

  21. VC/PE market in Finland Source: FVCA

  22. VC/PE market in Finland

  23. Financial result 1995-2012

  24. Examples of fundinvestments

  25. Examples of VC/buyoutinvestments

  26. FoFGrowth • Establishedby FII (40%) and Finnishpensionfunds (60%) in 2009, totalcapital 135M€ • Investmentfocus on venture and growthfunds • To date: Commitments 110 million > 10 funds > 52 companies > 4300 employees > 475M€ in revenue • Impact on fundraising: 730M€ 12,5x

  27. Wayforward…

  28. Charlie Chaplin: Modern times (Granger)

  29. Investing in Growth www.industryinvestment.com

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