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How to trigger growth of knowledge based entrepreneurship – policy planning and selected measures

How to trigger growth of knowledge based entrepreneurship – policy planning and selected measures. Valdis Avotins, ESTER Project Manager RIGA, BIHE 7th Conference, October 14, 2005. Inovācija ir process,

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How to trigger growth of knowledge based entrepreneurship – policy planning and selected measures

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  1. How to trigger growth of knowledge based entrepreneurship – policy planning and selected measures Valdis Avotins, ESTER Project Manager RIGA, BIHE 7th Conference, October 14, 2005

  2. Inovācijair process, kurā jaunas zinātniskās, tehniskās, sociālās, kultūras vai citas sfēras izstrādnes un tehnoloģijas tiek īstenotas tirgū pieprasītā un konkurētspējīgā produktā vai pakalpojumā Innovation (innovation related activity) is defined as a process, where new ideas and technologies from scientific, technical, social, culture or other spheres are transformed into a competitive and market demanded product or service.

  3. Inovations (in Latvian) Jūs visi pazīstat zivju murdus, kādus liek upēs, ezeros un citos mierīgos ūdeņos. Lūk, tādu murdu, tikai daudz lielāku un stiprāku, varētu noenkurot jūrā. ... Vēl viņam nedeva miera doma par liela ledus pagraba būvi. ... Viņš bija nodomu pilns, bet nezināja, no kura gala sākt tos piepildīt. Cik viņš bija runājis ar vienu otru no vīriem, visi to uzņēma kā niekošanos vai pusaudža fantāziju. Šiem ļaudīm ir ēzeļu stūrgalvība. Viņi grib palikt pie savām tēvutēvu ieražām un saimniecības veida. Pārmaiņām tie neuzticas, viss jaunais viņus baida. V.Lācis, “Zvejnieka dēls”

  4. Risk capital / business angels ... kāpēc šis murds labāks par desmit vīru vadu ... Pirmkārt, nav vajadzīgs tik daudz strādnieku, - Fredis teica. – Otrkārt, ir lielākas izredzes uz lomu, un, treškārt, tas izmaksā daudz lētāk nekā vads. ... Viena trešā daļa būtu simts dolāru. Šaubas un kārdinājums plosīja amerikānieša dvēseli. Viņš bija gudrs un praktiski noskaņots cilvēks: labu veikalu garām laist negribēja, bet iegrūst savus dolārus šaubīgā pasākumā- vēl mazāk. Kārdinājums tomēr bija lielāks par šaubām. - Labi, ar tik daudz es riskēšu!- viņš teica. Bieži viņš aizskrēja par tālu, citi nespēja sekot viņa fantāzijām, bet tagad ļaudis ticēja arī tam, ko tie vēl nesaprata, ja vien tas nāca no Oskara mutes. Viņš bija celmlauzis, drošais pionieris, kas katrā laikā gatavs bezbailīgi doties pretim nezināmiem tālumiem. V.Lācis, “Zvejnieka dēls”

  5. Existing situation • Dynamic growth but from low starting point, mainly based on primitive process innovations • One of lowest GDP level in EU • Mainly export of lowprocessed materials with low value added • Competitive advantages not fully utilised • Necessity to increase commercial output of knowledge potential and knowledge usage • Poor NTBC development and technology transfer capacity

  6. Enterprises by their technological capability Zināšanas par to, kas un kā jāmaina Augstas spējas un absorbcijas kapacitāte Zina ko, bet ne vienmēr ko un kā Zina to, ka viņi nezina, bet nezina ko nezin Nezin, ka viņi nezin Avots: RIS Latvija pētījums, PB metodika, 2004

  7. Overall goals of the innovation strategy

  8. Action Plan 2005-2010

  9. C. Non-existing, important (1/2) • Foresight dialogue, strategic future planning initiative • Global supplier program, WB 10 and 13 • Centre of Excellence program WB 2 • Entrepreneurship motivation program, WB 12 • Grant scheme Innovation Assistant (bridging universities and industry) • Programme to promote Liaison offices in universities

  10. C. Non-existing, important (2/2) • SAP “Support to technology incubators”, two linked grant schemes: 1) for private technology incubator operators, 2) for pre-seed and seed fund (s), WB 8 • Improvement of NIP (action plan measures) co-ordination • Grant scheme to support proposal design for EU programs to NGOs and SMEs • Technology Transfer program, WB 3,4 and 7 • IP programme WB 5 and 6

  11. Export from Israel(forecast) 3500 3000 2500 2000 exports ($millions) 1500 1000 500 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Software Citrus ? Nano biotech Dr.Eli Opper, Chief Scientist

  12. Technology Ideas Validation Fast growth Existing/ approved Launch expected Planning initialisedin 2006/7 Fast growth entrepreneurship promotion Market exposure MARKET INTELLIGENCE OTHER SUPPORT TTO IPR protection in start-ups NEW PRODUCTS BUSINESS SUPPORT TFM scheme TECHNOLOGICAL INCUBATION START-UP SCHEME VENTURE CAPITAL SAP SEED SCHEME FINANCING Prototyping

  13. TV Value creation process 3-4 month 3-4 month 1 month 24-36 month Generating deal flow Screening process Decision Incubation • Awareness / promotion • Seminars in universities • Identification • Networking: TTC, LO • Tell a friend; PR • Market analysis • IPR • Management skills • Due diligence • Think for month • Milestones (24) • TV board decision = investment in equity (50%) • Ownership of 40-50% • Next partner’s pipeline • World Market share • Hands on management • Seed finance • Private investment during 12 month • Meeting the market during 24 (36) month 300 identified 50 screened 10 for Board 5 successful

  14. Naiot, Israel at a glance • An Incubator working under Israel’s OCS TIP (operational grant 1.8MUSD per 6 years; 35% of total TI budget) • Acts as a VC willing to take higher development risk • Fully owned by the OHTG, acquired in 1997 • Makes 4 to 6 $500K investments annually, 8-10 NTBC in incubator • Graduated companies raised >$140M • Best Incubator Award five years in a row • Hands-on management • Investing in Medical Devices (70%), software(20%) and miscellaneous (10%) • Seed finance: 200 kUSD from Private HT matched with 300 kUSD public loan

  15. VC Program’s objectives • Facilitate entrepreneurship promoting access to risk capital financing • Facilitate the establishment and development of new venture capital funds, motivate them invest in SME`s by offering state aid to private investors • Attract foreign private investors to invest in Latvia Risk Capital in Latvia

  16. Fund of Funds Limited by 70% or 5,0 million€ Private Investors At least 30% of total investment in new VC fund Target : 50/50 Investment Fund ~ 8 ... 10 million € PPP: Founding of VC Fund Budget 15.0 MEUR State Support to Private Investors Decisions Private management 7-10 years 3 new funds Maximum investment about 1m € in one project Maximum 285k € in the first investment tranche

  17. Return DistributionMechanism • Fund’s management expenses; • Repay the original capital invested by private investors; • Repay 25% of the original capital invested by the state; • Priority return (hurdle rate) on private investors’ capital (6%); • Repay the remaining 75% of the state’s invested capital; • Hurdle rate return (6%) on the state’s invested capital; • Remaining profit, if any to private investors and FMC Program launched by LGA : www.lga.lv

  18. B.The designed draft Growth4Future Scheme • Technology incubator grant • Pre-seed grant – Think for month • Seed soft loan Target groups: • Potential entrepreneurs from industry • Potential entrepreneurs from academia • Repatriating scientists and R&D personnel • Regional inventors Management companies or Operators of TI’s – private companies providing space & infrastructure, management and S&M advice, basic business services and private investment structuring in exchange for equity position in the tenant company Tested in Israel, with WB experts, EU experts, local expert panels

  19. New forms of Business Incubation in late 1990s has been driven to multiply the number of succesful, fast-growth, high technology businesses in US • Its led by serial entrepreneur; • it has its own seed fund drawn from founder’s own, VCF or corporate partner’s capital; • it may have specific sector focus Conventional incubators offer “heat, light and dial tone”, but “Smart” Venture Investment claim to offer more, developing ideas and incubating them in-house as well as providing late seed capital and A, B and C round investment. Incubation today is seen as a way in which capital can be efficiently applied to support new technology businesses Gill D., Martin C., Minshall T., Rigby M. Funding Technology. Lessons from America. 2000

  20. Technology Incubator Model INCUBATOR SIA (publicly supervised, privately managed) Expansion Start-up Seed proof of concept or prototype • Revenue and then profit • Supporters: • Self (loans, equity and time) • Angels (advice, coaching, network, loans and equity) • Venture Capital and Private Equity investors (loans, equity, advice, coaching, contact network, MIS, reporting, strategic mgt, corporate governance) • Banks (banking services, short and long-term loans, leasing, trade finance, acquisition finance) • State and City (grants) Pre-seed • R&D, customer acquisition • Supporters: • Self, friends and family (loans, equity and time) • Incubator (as in Seed stage but with higher intensity) • Angels (advice, coaching, network, loans and equity) • Banks (banking services, short-term loans) • State and City (grants, loans, g’tees, indirect equity) • Business plan, • company formation,Business concept • Supporters: • Self, friends and family (loans, equity and time) • Incubator formally provides: • advice • coaching • training • contact network • work space • financing (public and private sources for loans, equity and grants) Experts’ validation • The idea ! • Supporters: • Self, friends and family (loans, equity and time) • Incubator informally provides: • advice • contact network • seed grants (up to Ls 2,000) Up to 3 years

  21. 1. Technology Incubator grant • 9 year program (3x3 support periods) • Public – private partnership model • Decisions made by TI private operators (PO) • Grant is paid to TI operator as 30% (150 k EUR) fixed rate and 35 kEUR per one tenant, minimum 2 tenants are required, quarterlypayments • Public grant up to 100% (max. 500 k EUR) of TI’s annual budget • Based on Venture business not traditional incubation!

  22. 2. Pre-seed: TFM • to validate a business plans before starting a new company and to leverage private equity finance in later stages • To provide confidence • An individual person with a business project entailing fast growth (turnover increase to at least 40-50% per year) for 0 - 24 months • Fellowship financing covers up to 100% of eligible costs, 1 month Form of intervention Performance based grants up to 3 kEuro

  23. 3. The seed program – I &II • Investment management: TI PO • Recipients – young (<6 month) SMEs after business concept validation • I stage: proof of concept fund: to validate business concept, study market and produce prototype; max soft-loan is 20kEUR if statutory capital is paid; 100% publicly financed • II stage: max soft loan 280 k EUR, matching with private equity investment 70%:30%, incl. seed I soft loan (total budget 400 k EUR) • converts to non-refundable grant in the case of failure • Project duration 1-6 / 6-24 months • when sales appear, 5% from annual turnover should be paid back until all loan is repaid Would you apply as TI PO? -5 from 10 would apply: 2F and 3 Local!

  24. What’s next? ESTER, new projects Old Economy New Economy “Push” Focus “Pull” Focus INTELLECTUAL/ BRAND CAPITAL Production Focus Customer Focus HUMAN CAPITAL High Low WORKING CAPITAL Low High PHYSICAL CAPITAL (Outsourced Network) In today’s economy business models are changing towards decapitalized New Economy

  25. Thank you for attention!

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