competitive advantage through private equity and venture capital financing

Competitive Advantage through Private Equity and Venture Capital Financing

Dr. Jürgen Marchart

AVCO – Austrian Private Equityand Venture Capital Organisation

28th March 2014

1. What is AVCO?

2. What is Private Equity/Venture Capital?

3. Austrian Private Equity Industry

4. Competitive Advantage

5. Framework Conditions

Agenda

AVCO – Austrian Private Equity und Venture Capital Organisation is …

• …the umbrella organisation of the Austrian Venture Capital industry

• Represents 80% of the Austrian Venture Capital market

• AVCO’s mission is:

What is AVCO?

Mission

• Information and know-how services, to raise awareness for benefits of VC

• Networking, fostering the co-operation of all VC players

• Lobbying, to improve framework conditions

• Co-operation with EVCA, nVCAs, EC,…

Organisation

• AVCO is a non-profit association

• Financed by membership fee, sponsoring, projects

Mission of AVCO

• Fund location and legal framework conditionso Representation of PE/VC industry in nationalen and European legal framework discussionso Working groups, know-how generation and information of AVCO Memberso Interface to other national umbrella organisations and EVCA

• Deals/Transactionso Matching platformso Co-operation with potential targets (portfolio companies, ...)

• Investors o Co-operation with potential investors o Information generation und dissemination about the Austrian PE/VC industry

• Co-Investmentso Creation of matching platformso Investment cases, success stories, …

AVCO Services I

• Marketing and visability of the know-how and the services of AVCO Memberso visability for know-how and services of AVCO Members to members of the PE/VC Communityo Generation of projects/business

• Educationo PE/VC trainings and seminars o Know-how transfer to young employees of AVCO Memberso Development of an education certificate

• Informationo Newslettero News & changes at members

AVCO Services II

• PR (image of the branche)o Public relationo Image building for activities of the PE/VC industry o Active communication of topicso Communication of positive effects of PE/VC for Austriao Awareness building

• Networkso Network platformso Matching platformso Active community, matching of the players

• Lobbyingo Competent and independent information und know-how providero Active discussion with representatives of the governmento Active creation and further development of PE/VC in Austria

AVCO Services III

AVCO Members – PE/VC

AVCO Members – Service Providers

1. What is AVCO?

Agenda

Financing Instruments

intensity

financing-risksuccess participation

property interests

governance

shareholder loan subordinated loan

unsecured loanscredit & loan

debt mezzanine

equity

silent participations

Financing Mix – Over Time

Seed Start-up First-Stage Second-Stage Third-stage IPO

Bösenkapital

Fremdkapital

Cash-Flow

Private Equity

Privatvermögen /Föderungen

Stock Equity

Debt Equity

Cash Flow

Private Equity

Funding/ FFF

Private Equity provides equity capital to enterprises not quoted on a stock market.

Private Equity can be used to • develop new products and technologies• to expand working capital• to make acquisitions or to strengthen a company’s balance sheet. • to resolve ownership and management issues - a succession in family-owned

companies• to buy out or buy in of a business by experienced managers

What is Private Equity?

Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for

• the launch

• early development or

• expansion of a business.

(Definition of EVCA – European Private Equity and Venture Capital Association)

What is Venture Capital?

“Every day, each of you benefits from Private Equity. Your morning starts with a Latte at Starbucks, you carry your internet research at work via Google or Yahoo!, you talk to family and clients around the globe over Skype and eat a quick lunch snack at Nordsee or Burger King. You order books and CDs from Amazon.com and your kids liaise with their friends over MySpace.com and U-Tube on their Compaq computer powered by Intel. You shop for Tommy Hilfinger, Jimmy Choo, Tumi bags and suitcases, Bally, Tag Heuer etc. in the evening. Your doctor recommends you products from Actelion and Genentech or Amgen and you work out at Fitness First or Holmes Place and you finish your day off buying tickets over Ebay, drinking a beer at Punch and watching TV on Cablecom or Sky.”(Javier Echarri, former EVCA Secretary-General)

One Day with PE/VC?

PE & VC – More than Money

PE/VC as Financing-ToolPE/VC as Asset class

Performance

Capital

Fundraising Investment

Investment plus Information, Coaching, Management Know-how

Profit

Growth support , Innovation …

FundmanagementInvestor

Institutional investors like Pension funds, Insurances, Banks

Captial Call Concept

1. What is AVCO?

Agenda

PEREP_Analytics™: (Private Equity Research Exchange Platform)Private Equity non-commercial pan-European private equity database

Industry statistic: PE/VC activities of PE/VC funds located in Austria(Fundraising / Investments / Exits at national and international SME).

Market statistic: PE/VC activities at SME located in Austria(Investments / Exits of national and international funds).

European PE/VC Industry – Statistics

Industry statistic – Austrian Funds: PE/VC activities of PE/VC funds located in Austria(Fundraising / Investments / Exits at national and international SME).

Market statistic – Austrian Companies: PE/VC activities at SME located in Austria(Investments / Exits of national and international funds).

Source: EVCA PEREP_Analytics | AVCO (May 2013)

Fundraising

Investments

Deinvestments

Austrian Funds

AustrianCompanies

Incl. funds located in Austria, investing in Austria and abroad

Private Equity & Venture Capital in Austria

173 Mio. -31%

115 Mio. -7% 261 Mio. -19%

83 Mio. -76% 182 Mio. -37%

Investments 2012GDP share: PE & VCFunds in Europe

Private Equity & Venture Capital in Europe

Investments 2012GDP share: PE & VCAustrian Companies

Investments 2012GDP share: VC onlyAustrian Funds

Investments 2012GDP share: VC onlyAustrian Companies

Private Equity & Venture Capital in Europa

Investments 1999 - 2012Development: PE & VCAustrian Funds

in Mio. €

in Mio. € 2011 2012Seed 7 9

Start-up 6 10Later stage venture 11 6

Growth 21 20Rescue/turnarournd 4 2Replacment capital 12 1

Buyout 63 67

Investments 1995 - 2012Development Austria vs. Europe: PE & VCAustrian Funds

PE/VC Investments Austira vs. Europe

in Mio. €

Investments 2007 - 2012Development: PE & VCAustrian Companies

around € 590 Mio.

in Mio. €

around € 500 Mio.

Communication Dealaround € 180 Mio.

Statistics since

Investments 1999 - 2012Development: VC shareAustrian Funds

in Mio. €

Investments 2011 / 2012Branches: PE & VCAustrian Funds

Investments 2011 / 2012Branches: PE & VCAustrian Companies

Investments 2011 / 2012Life Cycle phases: PE & VCAustrian Funds

Investments 2011 / 2012Life Cycle phases: PE & VCAustrian Companies

Investments 2012Flow: PE & VC

in Austrian Companies:261,3

€ 115,4 Mio. Investmentsmade by Austrian Funds

€ 261,3 Mio. Investmentsin Austrian Companies

0,084 %GDP share

0,037 %GDP share

von österr.Fonds: 115,4

abroad

in Mio. €

Germany

17,2 Mio.Czech Republic

11,5 Mio.Switzerland

2,1 Mio.Hungary

1,6 Mio,Liechtenstein

0,3 Mio.

Exits 1999 - 2012Development: PE & VCAustrian Funds

in Mio. €

Exits 2007 - 2012Development: PE & VCAustrian Companies

in Mio. €

Statistics since

Exits 2011 / 2012Exit Route: PE & VCAustrian Funds

Exits 2011 / 2012Exit Route: PE & VCAustrian Companies

Fundraising 1999 - 2012Development / Sources: PE & VCAustrian Funds

in Mio. €

Fundraising 2011 / 2012Sources: PE & VCAustrian Funds

2011 2012in %

Fundraising 1999 - 2012Sources: PE & VC – Share Government AgenciesAustrian Funds

1. What is AVCO?

Agenda

PE & VC – Intelligent Money

Financing Function: no alternative finance sources available for specific project

Selection Function: limited financial resources are allocated to projects with highest profit-potential at high risks

Added Value: („smart money“) input of active investors is not only money, but also management know-how, networking, consulting, …

PE & VC Investment Phases

Pre-Seed Stage

Business Angel Investment

Business Angel

Early Stage Expansion Stage Later Stage

ManagementBuy-out/Buy-in(MBO, MBI)

Bridge Financing(Pre-IPO)

TurnaroundFinancing

Seed Financing Start-up Financing First Stage

Financing

Second Stage Financing

Third StageFinancing

Venture Capital Private Equity

PE & VC – The Process

Analyse &

Valuation

Preliminary Offer

Stop or Go

Closing

Supervisory Board

ContractNegotiat

Due Diligence

Business Due DiligenceLegal Due Diligence

Financial Due Diligence

Post Due DiligencePre Due Diligence

Effects of PE/VC on Company Development

5.6%2.8%

company would not exist (any longer)without PE/VC

favourable impact on developmentdue to PE/VC

no impact on developmentdue to PE/VC

unfavourable developmentdue to PE/VC

otherN = 71

PE/VC financed companies show:

70 % higher turnover

50 % higher employment

Effects of PE/VC on Company Development

1. What is AVCO?

Agenda

Tax & Legal Situation Austria

Fund Structures Structure Permanent Establishment

Domestic Transparency

Non-Domestic Transparency

Undue Restrictions

Mittelstandsfinanzierungsgesellschaft (MiFiG) No No No Yes Taxation at a fund level

VAT on management fees Capital Gains Tax Withholding Tax Stamp Duties or Transaction Taxes Anti-abuse Rules Payment Reclaim Stamp Transaction

Yes No 25% 25% Yes No Yes Taxation at a company level

Company Tax Rate Special Tax Regime for SMEs Related party loans interest deduction

Unrelated party loans interest deduction

25% No Yes Yes Taxation of employees

Income Tax Social security Capital Gains Tax on Stock Options Special Tax Regimes Min. Max. Min. Max. Min. Max.

0% 50% 40% €53,280 25% 25% 50% No Fiscal Incentives Limited

Partners Fund Management

Business R&D Expenditure

R&D Capital Expenditure

Contracting Researchers

Technology Transfer

Cooperative External Research

Innovative Spin-out

Young companies

No No Yes No No No No No Yes

Legal Framework Conditions

• AIFMD implementation, adoption necessary

• Future national PE/VC regulation for sub-threshold area is depend on AIFMD implementation

• MiFiG ended 2013

• IGG / ”MifiG new” is under discussion

Status Quo in Austria

AVCO Community

• 16 Fund Members represent the relevant players in the market

• Service Provider are well educated and highly experienced with PE/VC

• Austrian SME landscape provides an attractive pipeline for portfolio companies

• Austrian investors seek for investment opportunities abroad and/or Austria, and for syndication partners

Status Quo in Austria

Jürgen MarchartManaging Director

juergen.marchart@avco.at T +43 1 526 38 05

F +43 1 526 38 05-6552

AVCO Austrian Private Equity and

Venture Capital Organisationwww.avco.at

Contact

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