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Estonian schemes offered domestic opportunities through venture capital fund [updated]

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ESTONIA – KredEx, Estonia’s state-owned credit and export guarantee agency, has said it hopes to create greater opportunities for local pension funds to invest in the domestic economy through the launch of a venture capital fund of funds aimed at start-up companies.

The €80m fund of funds would invest into four separate sub-funds, each targeting companies at different stages of development, KredEx said.

The agency explained that the funds would consist of a seed capital fund for start-ups and early stage companies, an angel fund, and two venture capital funds for later stage early growth companies.

It added that the vehicles would seek investment from local pension funds, but also offer what it hoped would be seen as attractive investment opportunities for foreign investors.

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Andrus Treier, chief executive, KredEx told IPE: “Estonian pension funds haven’t been actively investing in their local economy.

“Only 6% of their total assets are invested in Estonia. So the hope is to create more opportunities for them to do so,” he added.

“But we won’t exclude big international investors, although we don’t expect much interest, because the amounts involved will not be very big.”

Most of the €55m in capital will be provided by European Union structural funds, but the Estonian state would also make a contributions. Matching investment would then be sought from institutional investors, directly into each sub-fund, to bring the total investment to around €80m.

“In Estonia, we already have a private equity fund of funds investing in more mature later stage companies,” Treier said, noting the existing Baltic Innovation Fund, a joint fund with Latvia, Lithuania and the European Investment Fund (EIF) managed by EIF. “However, there is no fund to help start-ups and other early-stage companies.”

The seed capital fund is expected to be the smallest, at around €15m. It will be 90% funded by the state, with private investors contributing 10%. The two venture capital funds would have €20-€30m each to invest, and along with the angel fund, would be 30% privately funded.

However, Treier said that if there is interest from investors, the private component could be bigger.

The two venture capital funds had been planned to compete with other, giving better investment opportunities for target companies.

The new fund would invest primarily in Estonian companies. But if such an approach offered too restricted a universe, the fund could seek out investments in neighbouring countries.

A tender process will be run next year to appoint external fund managers to run the separate sub-funds, after the fund is launched in mid-2014. It is likely that the successful managers would be expected to have an office in Estonia.

Treier said one of the objectives of the new fund would be to generate more practical knowledge and a track record of fund managers within Estonia, to attract managers from overseas creating cross-border teams.

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