TECHNOLOGY TRANSFER FUND. Concept summary

Transcription

1 TECHNOLOGY TRANSFER FUND Concept summary December 2018

2 Foreword Dear Partners, Thank you for your interest in this opportunity. We are delighted to share with you this summary for the financial instrument Technology Transfer Fund within the Operational Programme Innovation and Competitiveness. Back in 2016, FMFIB has conducted a market test for this financial instrument. Since then, our team has advanced its understanding on the product and we have amended our intended approach which we would like to discuss with you. As always, we believe that your feedback as one of the pivotal elements towards the successful implementation of our products. We would like to draw your attention to the Important notice section below which provides certain details with respect to the limitations which this document entails from a legal perspective. Any comments or suggestions you may have with respect to our concept would be highly appreciated. We look forward to discussing with you further. Kind regards, The FMFIB Team 2

3 About this document Background Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB) has been appointed by the Managing Authority of Operational Programme Innovations and Competitiveness (OPIC) to manage the financial instruments under the programme Our role FMFIB is tasked with: (i) structuring the financial instruments as investment funds in line with the objectives of OPIC; (ii) selection of fund managers with relevant and applicable experience to manage the funds; and (iii) monitoring and supervising the fund managers and funds over the course of the fund life Market testing With the aim to execute its mandate transparently, as well as align the structures of the investment instruments with the appropriate market practices, FMFIB is conducting comprehensive consultations with the potential stakeholders with respect to the OPIC financial instruments (i.e. with potential fund managers, investors, investees, policy makers, research organizations, universities, entrepreneurs etc.) Purpose of this document To present а summary of the financial instrument Technology transfer fund (TTF) within the OPIC. In addition, FMFIB published an indicative term sheet for the financial instrument as a basis for detailed discussions (refer to Structure of this document The document presents a high level overview of: FMFIB mission and modus operandi Background and policy rationale of the TTF Main features and key indicative terms & conditions of the financial instrument and prospective investment fund Tentative roadmap of the overall process up to the potential first closing of the investment funds 3

4 Executive summary Up to EUR 30 mln would be divided between a Seed & a Commercialisation compartments (or funds) FMFIB considers to allocate the TTF budget to seed & investments for commercialisation. To this end, we would set-up compartments or two separate funds Seeds (up to EUR 200k) would be done with public money only. Larger investments would require min private funding of 30 pari-passu basis FMFIB aspires to attract min EUR 8.6 mln private money either on fund level or through co-investments The Fund manager would participate with min 2% in every investment regardless its fund level Fund design KPIs Eligible investees TTF Modus operandi Eligible investees encompass both SMEs & Large caps However, investments would be focused on early stage developments, including projects sponsored by large companies through spin-offs Eligible projects Ticket sizes Support projects in four high impact areas Potential investees could operate in any sector. However, supported projects should be related only to Mechatronics, Clean tech, ICT, Life sciences, Creative and recreative industries TTF should support a total of 22 companies From a policy standpoint, the success of the fund would be measured by the number of its investees and the attracted private money The investees should roll out new products either in their own portfolio or on the market 11 of the investments should entail collaboration with a research organization FMFIB does not intent to pursue a minimum IRR IP/ R&D&I Focus Ticket size ranges from EUR 25 k to EUR 5 mln Ticket sizes would depend on the stage of the investee, i.e. 25k to 200k (possibly more in case of an asymmetric model) for seed investments and up to EUR 5 mln for commercialisation All investments should be related to transfer or implementation of IPs, R&D or innovations The prospective investees should be developing or implementing R&D projects, ideally pursuing IP rights Alternatively, the eligible companies would have to be implementing innovations, i.e. new products or processes for the firm 4

5 The Fund of funds in a nutshell ESIF National Co-financing Financial instruments background By definition, the EU-funded FIs are designed to support final recipients via market-driven mechanisms (e.g. loans, investments etc. as opposed to grants) while mobilising additional funds and expertise from the private sector Fis structure also entails revolving funds, i.e. reuse of the public funds for the same policy goals Given their advantages over grants, an increasing portion of the Union budget is channelled to financial instruments Private investors Financial instruments Final recepients Intermediaries FoF rationale Bulgaria has taken the strategic decision to implement the FIs under its operational programmes (OP) via a national investment vehicle structured as a Fund of funds Currently, four OPs contribute funds earmarked for FIs in the FoF in the total amount of EUR 606 million The financial instruments are expected to mobilize support and capital from the private sector and the fully leveraged FoF is expected to facilitate the investment of ~EUR 1.4 billion in the Bulgarian economy (including its own dedicated resources) FMFIB, has been established by the government as the entity managing the FoF and its sole mission is the effective implementation of the FIs in Bulgaria The investment of the FIs would be entrusted to intermediaries selected and monitored by FMFIB 5

6 Ticket size TTF in the context of our equity products portfolio TECHNOLOGY TRANSFER FUND SASF III SASF II VC Fund Mezz/ Growth The scope of OPIC s financial instruments has been established following a thorough assessment of the past experience and demonstrated inefficiencies of the investment market in Bulgaria The Investment Strategy of OPIC envisages the set-up of four types of investment funds to be designed across the PE/ VC/ Early Stage spectrum However, the investment strategy of the TTF could accommodate investments in almost all stages of investee development, i.e. from proof of concept (i.e. pre-seed) to Growth. SASF I While the ticket size of the other equity products are narrowed down to the needs of a particular stage, the TTF would be able to invest from EUR 25 k up to EUR 5 million Stage of development The broader scope of the instrument is underpinned by its objectives, i.e. to support technology transfer in the Bulgarian businesses 6

7 Policy rationale of the TTF & its intended developmental effects Link science & business Incentivise collaboration between Cos & PROs re. innovations Commercialise R&D Develop innovation capacity & resources Commercialise & internationalise R&D Foster innovation Support R&D Support the acquisition, management and commercialisation of IPs Invest primarily in early stage companies* with respect to technology transfer of: Patents R&D&I Licenses *Without prejudice, these may include independent startups but also large companies (including their spin-offs), research organisations, etc. The core principles of OPIC are aligned with the strategic framework that defines the national development roadmap in a number of sectors As a result, the policy objectives of the OP aim to foster economic growth that is: (1) knowledge-driven; (2) environmentally sustainable; and (3) socially inclusive The programme would support eligible projects and recipients through grants, equity & debt instruments As one of its instruments towards the achievement of that policy objective OPIC has outlined the need for the set-up of a Technology Transfer Fund (TTF) The design of the TTF is outlined in an investment strategy which stipulates that the fund should invest in: primarily (but not exclusively) in early stage companies and the technology transfer of: (1) patents, (2) licenses and (3) research, development and innovations (R&D&I) whereby the R&D&I should be sourced from universities, tech parks and/ or science labs, both public and private and other innovation intermediaries In practical terms, the fund would be able to invest in any company which transfers technology, i.e. it develops, commercializes or implements: IP rights or R&D projects or Innovations (i.e. new products, services or processes for the investee) and Are compliant with the limitations set forth on the slide 7 below and The IP rights or R&D&I are produced by public or private entities The investment strategy of the potential fund manager might also be influenced by the indicators presented on slide 9 below 7

8 Eligible investments The TTF features a generalist, sector agnostic, investment strategy however, its investments should be related to projects in a limited number of high impact priorities: Creative industries Organic products Healthcare ICT Biotech Nanotech Given the horizontal policy objectives of the Programme, the TTF strategy is further underpinned by the notion that the fund should invest in specific activities and projects defined in four broader categories (list not exhaustive): Mechatronics & clean technologies; Informatics & ICT; Life sciences & bio technologies New technologies in creative and recreational industries Nevertheless, the investees which implement the particular projects could operate in any industry, save for the ones explicitly excluded from the eligibility list as per the documentation Mechatronics Recreational Industries Cleantech Pharma 8

9 Eligible investees Large caps & SME s Private Co s Substance test Substance test For the benefit of Bulgaria In terms of investee eligibility, the TTF would be able to invest in any company, irrespective to its size or stage of development. The universe of investees thus includes spin-offs of academia and corporates, as far as these are formally incorporated as companies The potential investees would be private companies, i.e. not listed on any stock exchange as of the moment of the initial investment All investments of the fund should be executed for the benefit of Bulgaria. In order to determine the formal compliance with that requirement, FMFIB and OPIC have developed a substance test which states that as of the time of the initial investment, all TTF investees should be companies which: Generate more than 50% of their sales revenue in Bulgaria or More than 50% of its total assets should be based in Bulgaria or More than 50% of its essential staff should be located in Bulgaria (please refer to the Indicative term sheet for further details) > 50% of Sales revenues > 50% of Total assets > 50% of the core staff 9

10 Collaboration with ROs KPIs Total number of investees (target 22 co s) Investees introducing new products in their own portfolio (target 13 co s) Investees introducing new products on the BG market (target nine co s) As explained above, the TTF would be set-up to achieve certain policy objectives In order to track the performance of the financial instrument vis-à-vis these goals, FMFIB would expect for the potential fund manager to achieve KPIs defined in the investment strategy Adherence to the KPI related to the requirement for investees collaborating with research organisations may be a strong predeterminant underpinning the investment strategy and approach of the fund manager Half of the investees should be collaborating with research organisations (i.e. target 11 co s) The remaining, for example, could have developed R&D&I internally, acquired corporate IPs, etc. Research organisations working definition An organisation, irrespective of its legal status or source of financing, whose primary goal is to conduct independent fundamental or industrial research or development or to circulate such research by teaching, publication or knowledge transfer. 10

11 TTF concepts Research Product prototypes Product design Research Product prototypes Seed Compartment (up to 10M) TTF I (up to 10M allocation) Seed Fund TTF ( 30 M allocation) Ticket sizes > 25k < 200k Ticket sizes > 25k < 200k* Commercialisation Compartment (up to 20M) > 200k < 5M Production Distribution & Marketing Expansion TTF II (up to 20M allocation) Commercialisation Ticket sizes > 200k < 5M Production Distribution & Marketing The concept developed by FMFIB to date envisages that the budget of the financial instrument (i.e. EUR 30 million) should be divided in two thus targeting two distinct segments of potential investees, namely: support projects of companies from proof of concept up until production phase and finance investees in the implementation of eligible projects in the development of mass production, distribution and expansion To this end, FMFIB is reviewing two alternative hypotheses with respect to the financial structuring of the financial instrument, namely the set-up of: a single investment fund, managed by one fund manager, accommodating two separate compartments, designated as a Seed and a Commercialisation or two separate investment funds, i.e. a Seed TTF and a Commercialisation TTF, managed by separate fund managers In any of the two options, the fund design would follow the generic structure entailing a closed-end vehicle featuring an overall life of years and an investment period of five years The capital structure of the fund would also be standard, with minimum commitment from the fund manager at fund level and additional private resources mobilised either as capital commitment at fund level or as a co-investment in the capital of the final beneficiary Product design Expansion * Subject to the selected fundraising option, pursuant to the applicable state aid regime. Under certain provisions of the respective regulations the ticket size could exceed EUR 200k 11

12 TA Envelop TTF concepts (cont.) TA Facility (up to 4M) Fund PROs/ TTOs Establish regional hubs Promote TTF ( 30 M allocation) Seed Compartment (up to 8M) Research Product prototypes Product design Commercialisation Compartment (up to 18M) Production Distribution & Marketing Growth Investment envelop In addition to the considered separation, FMFIB is examining the option to earmark resources towards the set-up of a technical assistance facility (TAF) within the financial instrument The purpose of the facility would be to bolster the capacity of the national and regional R&D ecosystem as well as to provide a coordination platform across the entire ecosystem In essence, the TAF would support the set-up of regional R&D and/ or tech hubs which ideally combine Public Research Organisations (PROs) and businesses The TAF option could be implemented irrespective of the selected option with respect to the structure of the fund Furthermore, the TAF could potentially be managed by either the respective fund manager or by FMFIB directly NB: all contemplated allocation amounts are indicative and presented for illustrative purposes only! 12

13 Fund raising considerations The design of the TTF capital structure and the participation of FMFIB in that respect are governed by the applicable State aid rules Our analysis on the respective regulations narrowed down the viable options on the capital structure to two options presented herein The Commercialisation fund (or compartment respectively) would entail a minimum 30% private funding in conjunction to the FMFIB monies on a pari-passu basis FMFIB contemplates to design the capital structure of the Seed fund (or compartment) under one of the two options listed below FMFIB is reviewing the feasibility of a structure in which the fund manager would be required to attract a minimum of 10% on fund level, irrespective of the compartment composition or whether the private funds would be attracted primarily on a co-investment basis TTF Funding Structure I (Pari-passu) Seed Compartment/ Fund Commercialisation Compartment/ Fund Fund manager The capital structure of the Commercialisation fund (or compartment) entails the investment of minimum 30% private resources on paripassu basis with FMFIB either on fund or individual investee level The Seed fund would be closed solely with commitments from FMFIB and the fund manager on pari passu basis. The ticket sizes would be essentially limited to EUR 200 k per investee over a period of three years Private (co)investors TTF Funding Structure II (Asymmetric distr.) Seed Compartment/ Fund Commercialisation compartment/ Fund Private (co)investors Fund manager Private (co)investors The capital structure of the Commercialisation fund remains the same vis-à-vis the first option The Seed fund should attract at least 10% private resources (including the commitment of the fund manager) where FMFIB would be able to provide upside incentives for the participating investors However, given the requirements of the respective state aid regime, the implementation of that option would entail increased complexity in terms of additional eligibility criteria for investees and additional reporting and monitoring requirements In this case, the Seed fund would be able to invest more than EUR 200k 13

14 Process roadmap FMFIB selects its financial intermediaries through a tender procedure which includes negotiations Following the completion of this market test exercise, the FMFIB team would compile a complete tender package and would issue a call for EoI FMFIB typically applies a procedure including a shortlisting stage and an award stage, the latter encompassing limited scope negotiations with the shortlisted candidates Final offers & award Following the completion of this market test exercise, the FMFIB would amend the TS, compile a complete tender package and issue a call for EoI All interested parties could submit EoIs Submit tenders FMFIB would review the prelim offers & conduct limited scope negotiations with all candidates Shortlisting Prelim offers & Nego s Following the negotiations, all tenderers would be invited to submit final offers which would be evaluated based on the preset award criteria Tender launch Q&A Market test FMFIB would assess the candidates re. & invite the ones which pass preset eligibility criteria ones to submit prelim offers (typically we allow for at least a month for that purpose) 14

15 Important notice Opinion. Investment recommendation. Advice This document ( the Document ), in whole or in part, is not to be construed as an opinion, or an investment recommendation, or a recommendation, or an advice to proceed or not with any considered transaction or other course of action. According to the applicable regulations, the selection of financial intermediaries with respect to the implementation of the financial instruments under OPIC is subject to successful completion of a formal tender procedure and decision of FMFIB s competent authorities. Change in regulations The information provided in this Document is based on a number of laws and other regulations, both national and European, effective as of the date of its preparation. Changes in the applicable regulations may render the Document, in part or in whole, obsolete or not applicable. FMFIB assumes no responsibility towards third parties in relation with any such changes, amendments as well as with respect to interpretations of either the law or other legal documents with respect to any legal forum. FMFIB shall assume no liability or responsibility for any costs, damage, losses or expenses incurred by any party arising out of use of or reliance on this Document. Forward looking assumptions & extrapolations This Document includes certain estimates and projections with respect to the future performance of the Bulgarian economy and the developments in the local SME segment. These reflect certain assumptions and extrapolations concerning the anticipated results, which may or may not prove to be correct and may have significant impact on the conclusions drawn herein. FMFIB does not assume any responsibility with respect to these assumptions and conclusions. Document distribution This Document has been prepared solely for the purpose stated herein and should not be used for any other purpose. Neither it nor its contents are to be referred to or quoted, in whole or in part, in any legal document without our prior written consent. This Document is intended for publication but it should not be reproduced or distributed without FMFIB prior express consent. Third party information In preparing this Document, we have used information and documents provided by the Managing authority of Operational programme Innovations and Competitiveness as well as information available from publicly available sources. In addition, we have used information provided by Consortium Partners for European Financing in Ex-ante assessment and strategy for effective implementation of the financial instruments under OPIC and should not be used for any other purpose without OPIC s or Consortium Partners for European Financing prior authorization. We have not sought to establish the reliability of the above mentioned data by reference or analyses and hence we do not accept responsibility for such information. Important disclaimer Any information you provide will be used solely for the purposes of market consultations in the context of the requirements of the Public Procurement Act ( "PPA"). The terms and concepts used in this presentation have the same meaning as in the indicative technical specification of the Financial Instrument. The information provided is considered by FMFIB as indicative and does not cause obligation to you or FMFIB. In connection with the requirements of Article 44 of the PPA, FMFIB reserves the right to publish the received feedback without mentioning specific organization bringing it together with the answers from our side and occurred in this regard changes to the indicative technical specification (if applicable). 15

16 Contact details: Fund Manager of Financial Instruments in Bulgaria 1606 Sofia, Bulgaria 30/32 Totleben Blvd Copyright Fund manager of financial instruments in Bulgaria EAD is a Bulgarian joint stock company owned by the Bulgarian state, represented by the Ministry of finance. Fund manager of financial instruments in Bulgaria EAD logo and the logo of Operational programme Innovations and Competitiveness are owned by the respective organisations. All rights reserved Disclaimer Any information you provide will be used solely for the purposes of market consultations in the context of the requirements of the Public Procurement Act ( "PPA"). The terms and concepts used in this presentation have the same meaning as in the indicative technical specification of the Financial Instrument. The information provided is considered by FMFIB as indicative and does not cause obligation to you or FMFIB. In connection with the requirements of Article 44 of the PPA, FMFIB reserves the right to publish the received feedback without mentioning specific organization bringing it together with the answers from our side and occurred in this regard changes to the indicative technical specification (if applicable).