1. State Aid Program “Risk Capital Financing for SMEs” Risk Capital Scheme in Latvia Tel Aviv January 14, 2005 Valdis Avotiņš Latvian Investment and Development Agency

2. Risk Capital Scheme in Latvia2 Good investment environment Rapid GDP growth “Latvia is ranked among the top ten counties worldwide in terms of business start up time and length of bankruptcy procedures.” Doing Business in 2004, World Bank Wall Street Journal Index of Economic Freedom Rank 28, Score 2.31, (Israel Rank 33, score 2.36) 20002001200220032004 6.986.47.59.2*

3. Risk Capital Scheme in Latvia3 Sources for Deal flow Heritage from USSR at the end of 90`s 30.000 academic scientists 13.000 engineers in R&D Higher education institutions Infrastructure 20 Technology and Industrial Parks EU grants available 200120022003 Institutions363749 No of students110.500118.944127.656

4. Risk Capital Scheme in Latvia4 Technology & Industrial Parks

5. Risk Capital Scheme in Latvia5 State Aid Program’s objectives Facilitate entrepreneurship promoting access to risk capital financing Facilitate the establishment and development of new venture capital funds, motivate them invest in SME`s by offering state aid to private investors

6. Risk Capital Scheme in Latvia6 How? SAP implemented via Fund of Funds Public Private Partnership SAP Budget 14.5m € (75% from ERDF) Public investment in a Fund  Up to 70% (target 50/50)  No more than 5.5m € in the single Fund Investment Fund  Partnerships with life cycle for 10 years  Managed by private management company State Support to Private Investors

7. Risk Capital Scheme in Latvia7 Restrictions for investment SMEs registered in Latvia Maximum investment 1m € in one project Maximum 300k € in the first investment tranche Time between tranches at least 12 months Some sector restrictions (EU regulations) Open tender procedure for selecting Fund Management Company

8. Risk Capital Scheme in Latvia8 Return Distribution Mechanism 1.Fund’s management expenses; 2.Repay the original capital invested by private investors; 3.Repay 25% of the original capital invested by the state; 4.Priority return (hurdle rate) on private investors’ capital (6%); 5.Repay the remaining 75% of the state’s invested capital; 6.Hurdle rate return (6%) on the state’s invested capital; 7.Remaining profit, if any to private investors and FMC

9. Risk Capital Scheme in Latvia9 Key Milestones Submitted program to ECJuly, 2004 Approved by ECJanuary, 2005 ERDF Steering Committee (in Riga)February, 2005 Tender for FMC`sFeb-Jun, 2005 Fund risingJun-January, 2006 Fully investedDecember, 2008

10. Risk Capital Scheme in Latvia10 Contacts Martins Jansons Ministry of Economy martins.jansons@em.gov.lv Dairis Calitis Latvian Venture Capital Association dairis@nluaf.lv