key learnings of managing compete-supported venture capital funds

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Lisbon 26th September 2013 Key learnings of managing COMPETE- supported Venture Capital funds FIN-EN Meeting in Lisbon Lisbon 26th September 2013

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Key learnings of managing COMPETE-supported Venture Capital funds. FIN-EN Meeting in Lisbon. Lisbon 26th September 2013. Espírito Santo Ventures in brief. Solidity and experience Venture Capital funds management company, with 13 years industry experience - PowerPoint PPT Presentation

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Page 1: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Key learnings of managing COMPETE-supported Venture Capital fundsFIN-EN Meeting in Lisbon

Lisbon 26th September 2013

Page 2: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Espírito Santo Ventures in brief

• Solidity and experience• Venture Capital funds management company, with 13 years industry experience • Integrated in BES Group, with full autonomy in investment and divestment decisions• Over EUR 250 million in assets under management, in 5 active funds• A seasoned team of experienced professionals

• Clear investment focus and strong expertise• Focus on areas of great challenge and growth: CleanTech, Information Technology and Healthcare &

Well-being• Clear investment criteria and strong investment selection capabilities

• Global reach• Global deal flow, with no geographic restrictions• Strong global VC partnership, reinforcing the flow of attractive investment opportunities, attracting foreign

investment to Portuguese companies and opening doors for all portfolio companies

• Commitment to value delivery• Investments in 53 companies, 8 trade sales, 2 IPOs• Strong engagement in the management of the portfolio companies• Active investor relationships

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Page 3: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 3

New fund

ESV II

ESV III

ESTV

• Funds for early stage investment in Portugal attracting investments with strong potential• “Inovação e Internacionalização” – €10m for growth companies, 5 investments to date• “ISTART I” – €3m for seed financing, 7 investments to date

13 years experience in Venture Capital investmentOver €250m under management

• Our core global VC funds, ESV II and ESV III• ESV II – €88.5m, 18 investments, working on divestment phase (3 exits to date)• ESV III – €75.3m, 17 investments, closing in on the end of its investment period (2 exits to date)

• Planning for new international funds and initiatives• Structuring new international VC fund, with initial closing in 2014

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222000 …

Inovação e InternacionalizaçãoISTART I

• The inception: Espírito Santo Tech Ventures – ESTV • Organized as a VC holding company in 2000• €70m invested in 12 companies, between 2000 and 2004

1Solidity and Experience

Page 4: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Clear investment criteria forEspírito Santo Ventures’ Funds

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2Clear investment focus and strong expertise

The company must:

Companies that can only deliver incremental change can not create a significant value

• Be the best in its field, with a unique business model or technology

• Have a global addressable market of at least USD $ 1 billion

Companies addressing a local or a small niche market will remain local or small in their impact

• Have knowledgeable, honest and resilient managers

An outstanding technology is not sufficient to drive a company’s success if it isn’t led by the right people

• Offer a valuation potential of at least 5x, in the medium term

A very significant return to our investors is key to the success of our venture investment activity

Page 5: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Our funds invest in areas that are closely related with what we believe to be the XXIst century global challenges

Environment, demography and global development

A clear focus on three areasof great challenge and potential growth

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• Diagnosis and therapeutic procedures and devices to increase the quality of the modern extended life expectancy

• Healthy food and beverages

The increase in lifespan and the aging of the population are creating new healthcare needs

We invest in technologies to solve these problems and increase the well-being and quality of this extended life

Healthcare and Well-being

• Information technologies• Communication technologies• New payment solutions• Semiconductors• Electronics

Technologies to facilitate the communication and optimize the business relations and processes will play an important role in global development

We invest in technologies and processes that can create significant value in bridging individuals and organizations

Informationtechnology

• New / renewable energy sources• New efficient and non polluting

industrial / agricultural processes• Energy efficiency• Desalination and water efficiency• Natural resource efficiency

Global warming is raising awareness about the need to preserve and recover air, water and soil quality

We invest in technologies that can support a sustainable and environment-friendly development

CleanTech

2Clear investment focus and strong expertise

Page 6: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 6

Extensive experience in investing worldwide – portfolio companies

3Global reach

Long standing experience in investing and co-investing with some of the best VCs in different markets provides a rare knowledge of best-in-class venture practices

Page 7: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 7

A consistent growth in national investment opportunities, with no loss of quality

2006 2007 2008 2009 2010 2011 2012

316377 427

Number of Investment Opportunities directed to ESV by geography

Portugal Europe North America Other

Source: Espírito Santo Ventures’ deal flow database

52 70110

233

488532

670

Page 8: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 8

IT51%Cle

an-Tech

28%

HC &

Well-be-ing

21%

Software28%

Hardware/Comms/Semicon

13%

Services9%

Renewable energy8%

Energy efficiency6%

Materials & Construc-tion8%

Environment and waste

6%

Food & Nutrition5%

Diagnostic5%

Therapeutic4%

Biotech & Drugs4%

Lifestyle3%

Classified deal flow from Portugal – 2010/2013 (simplified)

A unique knowledge of the Portuguese startup community

By Region – predominance of tech centers in Lisbon and the Northern regions

By Stage – Even distribution with preponderance of seed/early stage

By Area – More than half of the deal flow is IT-related

Porto

Coimbra

Leiria

Lisboa

Aveiro

Madeira

Açores

Porto

ViseuCoimbra

Leiria

Lisboa

Aveiro

Madeira

Açores

Trás-os-MontesE

Alto Douro

Minho

Beira Interior

Ribatejo

Alentejo

Setúbal

Algarve <3,0%3,0% << 10,0%10,0% << 15,0%15,0% << 33,0%>33,0%

Deal flow by region 2010/2013

Seed30%

Early stage24%

Growth31%

Late stage15%

Classified deal flow from Portugal – 2010/2013 (simplified)

Source: ESV deal flow database

Page 9: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 9

Venture Capital investment plays an important role in society

Successful Venture-backed companies show evidence of superior economic importance and greater resilience through the downturn

0%

11%

21%

Source: National Venture Capital Association – Venture Impact - The Economic Importance of Venture Capital-Backed Companies to the U.S. Economy

Other benefits, at a domestic level, include aspects like catalyzing knowledge and IP, creating qualified jobs, capturing wealth (through exports),

or attracting foreign investment

-2.0%

-3.1%

Employment growth – VC-backed companies vs.

US private employment

1.6%

-1.5%

Revenue growth – VC-backed vs US Sales

Through the downturn: 2008-10

Page 10: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 10

Our portfolio is proof of that role

Growing business of our portfolio companies...

...impacting their respective employment numbers

Source: Espírito Santo Ventures, portfolio companies

At the time of investment

2012 At the time of investment

2012

89

315

69

29538

118

35

94

90

200

32

56

Sales volume of ESV portfolio companies (M€)

ESV III - investments between 2008 and 2012

ESV II - investments between 2006 and 2008

"Fundo I" - investments between 2000 and 2002

At the time of investment

Dec 2012 At the time of investment

Dec 2012

1,320

3,466

1,320

3,366817

1,719

583

1,1652,391

3,556

515

865

Number of employees in ESV portfolio compan-ies

All companies Portuguese companies All companies Portuguese companies

217

632

135

445

4.528

8.741

2.418

5.396

Page 11: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 11

ESV is managing two fundsparticipated by COMPETE

ISTART I proving the concept of seed financing in Portugal

In 2009 ESV was approached by IST’s Management Board to establish a financial instrument to promote entrepreneurship in the University

• Coincided with the launch of the COMPETE process and matched the objectives of its Seed investment component

The €3m fund was established in early 2012, aiming to support technology-based projects by researchers from any Portuguese university or research institute

• Up to €300k investment per company

Innovation and Internationalization (“I+I”) Fund supporting early stage companies

The application to a COMPETE-supported fund was born of a joint will between ESV and BES in late 2009

The €10m fund was established in early 2012 to support early stage companies with a strong focus on internationalization

• Up to €1,5m per company, per year

45%

20%

35%Privateinvestors

50%50%

Page 12: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Seven ISTART I investments, to date, from several sources of deal flow

Main deal flow source institutions for ISTART IInstitutions with an ISTART I portfolio company

12

ISTART I

Page 13: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 13

I+I Fund supporting early-stage companies with ambitious internationalization plans

Innovation + Internationalization

Page 14: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013 14

Investment from these funds has helped unlock investment from other investors, including foreign

Corporates VCsBusiness Angels/ Institutional investors

ISTART I / I+I assumed a lead/co-lead role in almost all deals

Co-investors in ISTART I and I+I portfolio companies

Foreign investors

Page 15: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Improving the effectiveness of the capital to be deployed means maximizing…

...the attractiveness to private investors, including international

...the attractiveness to the best fund managers

...the economic impact of selected companies

Ensure that investors' best interests are protected by minimizing any limitations that in any way limit the ability of the funds to provide financial returns

Ensure that fund managers are rewarded in line with the market, so as to attract the best fund managers, those who offer the capacity to adequately deploy the funds

Ensure that only (and most of) the companies who offer a large potential of impact are supported, and they are supported to the fullest extent possible

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Page 16: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

Review strictness of the geographic limitation• Supporting “Portuguese companies”, is about supporting companies created in

Portugal that create and retain value in our country• Often, as part of their development process and for the best reasons, the best

companies will be motivated to move HQ abroad• Preventing investment or imposing exits in those cases is not in the company’s or

the investors’ best interests

Recognize the need and gain the ability to support the best companies through their development

• Inability to provide support past a certain stage or amount (including across funds) is not in the company’s or the investors’ best interests

Strive to incentivize good deployment, not necessarily fast deployment• Current fee structure creates the incentive to quickly call and deploy the capital

Ensure competitiveness of the offer to funds managers• A competitive fixed and variable fee structure• Trust and verify, rather than imposing disproportionate reporting requirements

A few practical suggestions toimprove current practices

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Page 17: Key  learnings  of managing COMPETE-supported Venture Capital funds

Lisbon 26th September 2013

In short, experience in investment supported by COMPETE has been positive and should be amplified

It has enabled the creation of Venture Capital funds, vital to the development of the economy

It has succeeded in attracting private investors into those funds

It has been deployed in a number of high potential companies• Successfully making the transition between academia and the business world• Helping highly innovative companies grow internationally

It has succeeded in attracting foreign investment into these companies

A positive experience that should be amplifiedWhich is in line with the rise in demand and in investor interests

Still, there are opportunities to improve the effectiveness of the capital to be deployed

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