Policy support to Venture Capital during crisis times and beyond Madrid, September 7th, 2011 Andrea Montanino, Ministry...
What crisis means (data related to EU27) 85 ...
Consequences for VC – Lower availability of public support (either as public expenditure or tax incentives) – Over...
Focus on Italy (1) Amount of capital raised in private equity and venture capital Italian industry Euro millions ...
Focus on Italy (2) Geographic origin of the capital raised in Italian PE and VC industry Per cent 100 1...
Focus on Italy (3) Distribution of the capital raised in terms of target investments (Italy) Per cent 100 ...
Need for public support? Lessons from VICO: 1. Importance of framework conditions: targeted incentives not sufficien...
Focus on 5. and 6.• Firm investments in R&D could be lower then the optimal level: – R&D activities may be considered a...
Public support to VC: the available toolkit Support measures matrix1 Direct ...
Public support to VC: some principles from best practice examples • The international best practice examples share seve...
The role of the State for VC in crisis times: a possible new paradigm Main principles inspiring a possible new paradigm de...
Some recent steps in Italy (1) 1) Article 31 of Law-Decree n. 98, July 6th 2011, Urgent measures for financial stabi...
Some recent steps in Italy (2)2) Possibility for Cassa Depositi e Prestiti (70% owned by the State) to invest in SMEs th...
To sum up, and trying to answer to some questions ….1) Public support is needed due to lack of private capital at curren...
Several other examples sharing the same intervention approach a. National Guarantee Fund (Fondo Centrale di Garanzia) (ext...
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Policy support to Venture Capital during crisis times. Andrea Montanino

EOI · 7 y 8 / 09/2011 · Más en: http://a.eoi.es/ze
Published on: Mar 4, 2016
Published in: Economy & Finance      Business      
Source: www.slideshare.net


Transcripts - Policy support to Venture Capital during crisis times. Andrea Montanino

  • 1. Policy support to Venture Capital during crisis times and beyond Madrid, September 7th, 2011 Andrea Montanino, Ministry of Economy and Finance, Rome* andrea.montanino@tesoro.it*Views are personal and do not necessarily reflect those of the Ministry of Economy and Finance
  • 2. What crisis means (data related to EU27) 85 3 2 80 1 75 Public debt/GDP (LH scale) 0 70 -1 65 -2 60 -3 Output gap (RH scale) 55 -4 50 -5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: MEF 2
  • 3. Consequences for VC – Lower availability of public support (either as public expenditure or tax incentives) – Overall drop in private capital availability – Reduction of international investors’ commitment (extra EU) – Shift towards less risky and smaller investments (i.e., reduction of investors’ risk propensity) 3
  • 4. Focus on Italy (1) Amount of capital raised in private equity and venture capital Italian industry Euro millions Fondo Italiano di investimento 3.028 2.275 2.267 2.187 987 957 • Apart from Fondo Italiano di 1.200 Investimento the amount of capital raised is much lower than pre-crisis level 2006 2007 2008 2009 2010Source: AIFI 4
  • 5. Focus on Italy (2) Geographic origin of the capital raised in Italian PE and VC industry Per cent 100 100 100 100 100 Foreign capital 2 Italian capital 18 32 50 57 98 82 68 50 43 2006 2007 2008 2009 2010Source: AIFI 5
  • 6. Focus on Italy (3) Distribution of the capital raised in terms of target investments (Italy) Per cent 100 100 100 100 100 Others 4 6 Buy-out 17 15 Expansion 27 30 Early stage non H-T 52 Early stage H-T 35 20 49 61 41 50 38 26 0 1 2 5 2 10 0 4 2 3 2006 2007 2008 2009 2010Source: AIFI 6
  • 7. Need for public support? Lessons from VICO: 1. Importance of framework conditions: targeted incentives not sufficient 2. Not clear positive impact on the growth of firms 3. Weak managerial competences in PVC 4. Difficult to define objectives of public schemes However: 1. European (and particularly Italian) rate of economic growth has to be enhanced 2. The lower propensity to risky business by the private sector in the years ahead must be compensated, in order to make these risky activities profitable 3. Positive externalities are big enough to justify the public intervention 4. The available toolkit is wide, not only public VC 5. Firm investment in R&D could be lower than the optimal level 6. The capital market for high tech is characterized by several imperfections 7
  • 8. Focus on 5. and 6.• Firm investments in R&D could be lower then the optimal level: – R&D activities may be considered a “public good” (non rival and non excludable good: difficulty for firms to appropriate the economic benefit of R&D investments); social externalities and spillovers – “intrinsic riskiness” of R&D investments (even higher in SMEs’ start-ups).• The capital market for high tech is characterized by several imperfections: – information asymmetry between demand and supply of capital due to track record absence (adverse selection and moral hazard issues: how to understand if a project is a lemon or a potential success?); – too high costs of investment evaluation compared to investment dimension; – mismatch between perceived risk and expected return. Therefore, YES, need for public support 8
  • 9. Public support to VC: the available toolkit Support measures matrix1 Direct • Public incubators • Public sponsored VC Typology of intervention • Promotion of • PPP in VC enterprise and • Incentive scheme in entrepreneurship PPP (downside and up- What tools • Management and side leverage scheme2) must be used skilled workforce • Fund’s operating cost in crisis times? Indirect improvement scheme in PPP (lowering • Business incubators, of search and abort science parks and costs) clusters • Tax incentives to • Tax incentives equity investors Demand-side Supply-side Target of intervention1 European Investment Banks (2001)2 In downside scheme, the public investor covers partially the investment losses (first loss mechanism) while in up-side leverage scheme the returns for the public investor has a cap and all the extra-return is given to the private investors 9
  • 10. Public support to VC: some principles from best practice examples • The international best practice examples share several common characteristics that could be extremely useful for the future: – presence of Public-Private Partnership and networks among public and private leaders (e.g., Israel and USA); – predominance of supply-side interventions (risk sharing) with slight presence of demand side measures, too. • Moreover, the European Commission expressed a preference for: – establishment of Funds in which the State is sponsor, partner or investor; – state grants to cover operating costs (e.g., abort costs); – tax incentives to equity investors. In crisis times, the public budget constraints are tighter: need to foster PPP framework and attract foreign investors 10
  • 11. The role of the State for VC in crisis times: a possible new paradigm Main principles inspiring a possible new paradigm derived from best practices 1. Focus of the resources on a limited set of initiatives 2. Temporary support by the State and taking over by the private investors 3. Policies based on the convergence of public and private interests: the “State- promoter” takes the place of the “State-investor”: a. State as facilitator/promoter of a process, sponsor, regulator (makes laws/regulations to encourage private sector’s interventions), in charge of strategy setting and operating indirectly by means of its “Agencies” (e.g., in Italy SACE, CDP); b. private sector as investor/financer of the initiatives; c. need to create an effective public-private “network of leaders”. 4. (Quasi)-neutrality in terms of public deficit of the support measures 5. In case of State owned resources involvement, preference for upside leverage scheme and support measures aimed at lowering search and abort costs 6. Full independence of the management companies 7. In case, tax incentives on supply-side to boost private investors equity commitment 11
  • 12. Some recent steps in Italy (1) 1) Article 31 of Law-Decree n. 98, July 6th 2011, Urgent measures for financial stabilization • Creation of “Venture Capital Funds”: common EU harmonized investment funds investing at least 75% of capital raised in non- listed companies in seed financing, start-up financing, early-stage financing and expansion financing • The target companies must:  be owned mainly by natural persons (not firms);  be founded by less than 36 months;  have an overall turnover of less than 50 million Euros. • The law provides for a full tax exemption for natural and legal persons1 on capital gains  Better only for legal person?1 For legal persons, the tax exemption is subject to European Commission approval 12
  • 13. Some recent steps in Italy (2)2) Possibility for Cassa Depositi e Prestiti (70% owned by the State) to invest in SMEs through PE Funds3) Investment by Sace in pre IPO SMEs to be listed in dedicated stock markets (AIM Italia) 13
  • 14. To sum up, and trying to answer to some questions ….1) Public support is needed due to lack of private capital at current economic conditions2) Public support should be as much as possible “indirect” without State ownership of invested firms (see James Meade)3) As public support, either tax incentives (but EU harmonised) or4) PPPs between private VC and governmental agencies managed by private managers and not civil servants 14
  • 15. Several other examples sharing the same intervention approach a. National Guarantee Fund (Fondo Centrale di Garanzia) (extended in 2009) b. CDP – Financial resources for indirect finance to SMEs (2009) c. Italian Investment Fund (Fondo Italiano d’Investimento) (2010) d. Social Housing Fund (Fondo Investimenti per l’Abitare) (2010) e. Foundation for the university students’ merit (Fondazione per il merito) (2011) Thank you! 15

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