The European venture capital landscape Bruno Robino European

The European venture capital landscape Bruno Robino European Investment Fund Athens, 28 June 2006

Agenda Private equity in Europe: 2005 a record year EIF venture capital in Europe Vision for the future Conclusion

Private equity in Europe: 2005 a record year

* Source: EVCA / Thomson Financial Venture Economics / Pricewaterhouse. Coopers

Divestments at cost € 29. 8 bn

Key points Fundraising: • more than double over 2004 reaching € 72 bn • 80% of funds expected to be allocated to buyouts Investments: • reached a record at € 47 bn, a 27% increase over 2004 • buyouts represent 68% by amount invested • venture investments +23% over 2004, representing 27% by amount invested • and 75% by number of investments Divestments: at cost up to 52% at € 30 bn • Write-offs decreased at around 5% of total amount divested

Key points Investments benchmarks 2005: • Long term net return since 1980: 10. 3% • Top quarter return 22. 9% • Increased distributions, with realisations above 2000 record level • Strong performance compared to other asset classes

EIF venture capital in Europe

EIF at a glance 1994 EU specialised financial institution for SMEs, acting through: Venture Capital (fund of funds) and Guarantees for SME portfolios AAA PPP Subscribed capital of EUR 2 Art 2 : « pursuit of Community billion : objectives » such as growth, employment, - 62 %: European Investment Bank knowledge-based economy, innovation, - 30 %: EC for the EU regional development, Lisbon - 8 %: 20 financial institutions Art 24 : « generate an appropriate return on its resources »

Venture Capital activities Ø Acting as a Fund-of-funds Ø Public Private Partnership, selecting funds Ø Eligible to EU Objectives Ø Able to generate risk-commensurate returns Ø Biggest European early-stage investor (with a 15% market share) Ø Respected investor (even in the crowded lower mid-market)

EIF : mainly a manager of external resources (mandates) BMWA - ERP European Community EUR 600 m EUR 4 000 m EUR 800 m Dahlia SICAR S. R. Etc Up to EUR 1 bn … Revolvin g To be committed in venture capital funds and financial institutions in the EU and Candidate Countries over 500 000 SMEs indirectly benefited from EIF support

European fund-of-funds market

EIF: Venture Capital • EUR 3. 2 bn have been committed in about 220 funds • Disbursements represent 60% of the amounts committed • Young age of the portfolio • EUR 1. 8 bn still available for future investments • 2 944 companies in the underlying portfolio • Total invested by portfolio funds in these companies EUR 7. 5 bn

Credentials Venture Capital commitments of EUR 3. 2 bn (as at end 2005) Key investor in major markets Niche opportunity seeker in smaller

EIF vs the European Venture Capital market EIF portfolio stage distribution by % of amount invested European PE/VC market stage distribution by % of amount invested * Source: EVCA / Thomson Financial Venture Economics / Pricewaterhouse. Coopers • EIF: tendency towards early stage investments (49%) • EIF: investments biased towards tech (56% in ICT and LS)

EIF’s investment focus 49% of portfolio are early stage investments EU average 12% between 2000 -2004 (source: EVCA). 57% are tech-related, primarily ICT and life sciences, balanced by buyout, development and generalist (30%). Ø EIF always operates alongside private sector investors. Ø Diversified geographical investment focus provides good opportunities outside main areas. ØAims to attract more private sector funding to VC space.

A unique positioning and mix of expertise The largest VC portfolio in Europe (about 220 funds) with most of the current top quartile teams (core) and the emerging ones (satellite) A repeat investor in top funds Ability to construct portfolio that meets specific risk profile – proprietary system Ability to structure transactions that meet the risk appetite of most potential investors – financial engineering, guarantees More complex products for more demanding clients

EIF’s Value-added Ø Ø Ø Ø Long-term, committed and pro-active investor Recognised know-how Rigourous selection and due diligence procedures Pari-passu cornerstone investor Active monitoring; regular presence Widespread network in European venture capital industry Looking also at the more difficult segments (seed, first time teams) “More than money”

EIF’s vision for the future

EIF’s strategy Ø Continue to develop EIF existing markets (Early stage, Expansion, Small BO) Ø In parallel, promote new niches With the aim to: Ø increase the availability of risk capital in Europe Ø stimulate the development of a high growth market in Europe Ø improve the investment environment Ø benchmark best practices in Europe

EIF’s focus European Investment Fund « VENTURE CAPITAL » Tech Transfer Incubators Business Angels Pre-Seed Early Stage « PRIVATE EQUITY » Expansion / Dev. Capital New policy areas GAP CURRENT MANDATES CIP COVERAGE SME LIFE CYCLE Later-stage Buy-out IPOs

The innovation cycle covered by EIF New investment focus - Business Angels - Side Funds - Tech transfer - Incubators - Pre-Seed Fundraising underway in these new areas Existing markets - Early Stage - Expansion - Development Capital New fundraising in our existing markets CIP TTA JEREMI E

CIP: Competitiveness & Innovation Framework Programme Ø Successor programme for MAP for period 2007– 2013 Ø European Commission proposal was adopted on 6 April 2005 Ø Co-decision procedure by European Council & Parliament Objectives Ø Generate economic growth and create more jobs Ø Boost the productivity, competitiveness and innovation capacity

CIP – the proposed instruments Ø High Growth Innovative Companies Scheme (VC) (EUR 518 m) GIF 1: Early stage (ex ETF Start-Up) GIF 2: Later stage (job creation, generation change…) Ø SME Guarantee Facility (EUR 468 m) SME loans, Microcredit, Equity and mezzanine SME loan securitisation risk-sharing scheme Ø Capacity Building (EUR 60 m)

Tech Transfer Ø “There is considerable weakness of early stage ventures in Europe … due to structural differences in the transfer of technology from labs to industry (compared to US)”. ECFIN paper for the EFC – March 2005 US University Revenues (€m) Columbia University 115. 4 University of California 65. 3 Stanford University 50. 0 University of New York 49. 9 Sloan Kettering Institute for Cancer Research 43. 3 University of Rochester 33. 5 Europe University Revenues (€m) Pasteur 32. 6 Edinburgh University 4. 5 Utrecht* 4. 0 Cambridge 3. 1 INRIA* 3. 0 VIB* 2. 7

Technology Transfer Looking for new funds from EU to stimulate tech transfer R&D Tech transfer / proof-of-concept Marketable product Funding: FP 7 Funding: CIP Funding gap «Technology» Intellectual Property «Prototype» Intellectual Property «Licensing» Special Protection Vehicles Virtual LAB Created by leading R&D Centres «Spin-off» Special Protection Vehicles «Hybrid» Special Protection Vehicles Potential exits for the SPV projects Licensing to corporation Sale to corporation Purchase / investment by other investors IPO Investment focus of TTA

JEREMIE is an initiative of the Commission (DG Regio) launched in October 2005 Joint” because it combines resources from EC, National Public Authorities, EIF, EIB and/or other International Financial Institutions (IFIs) JEREMIE is not an organisation, but a series of coherent actions Main Targets: Optimising use of ERDF funding for enhancing the access to finance for SMEs through sustainable and « revolving » financial instruments Leveraging ERDF funding with EIB loans as well as EIF expertise in creating tailor-made instruments Develop the role of Entrepreneurship in EU

JEREMIE: Phases 2006 2007 - 2013 SME SME SMEs SMEs Microfinance Providers (MCPs) Tech Transfer Activities Guarantee schemes Venture Capital Funds DISBURSEMENT PROCESS IMPLEMENTATIO N OF NATIONAL FUNDS Transforming parts of the ERDF grants into financial products for SME Multiplier effect on the budget by attracting EIB & IFIs’ lending EVALUATION PHASE Preparation of Operational Programmes

Conclusion Private equity as winemaking? “It is easier to pick a good wine if one starts with a list of the vintage years. As in wine-making venture capital has its good years and of course its bad years. Sometimes the quality of the year is not apparent until some maturation has taken place, but in many cases the indicators are apparent from the environment and maturation merely serves to confirm what everybody feared in the first place [. . ]. Quality brands will always stand out. ” Chris Smart, General Partner at IDGVE, 2002.

Thank you for your attention Bruno Robino b. robino@eif. org European Investment Fund tel. : (+352) 42 66 88 1 fax: (+352) 42 66 88 200 For more info: www. eif. org info@eif. org