The terms of the state risk capital management company call will be disclosed on 25. August

June 15, 2016
The Council of the investment company SmartCap approved the schedule of the call for reorganising the investment portfolio management. The fund will disclose the terms on 25 August during Baltic VC Summit and participants from Estonia as well as from abroad are invited to the call.
There are plans to hand over the management of the portfolio companies from SmartCap to a new private fund which will continue to keep custody of the state’s investments in start-ups and will keep making follow-on investments.

The first step in finding a new fund management company is the submission of expression of interest, this round will take place from the end of August till the start of October. In this phase, the candidates will be judged based on their previous activity and experience. Under the direction of the European Investment Bank, a selection committee will formed. It will be made up of three independent experts and will make the first decision based on the past history of the candidates during October.

Qualified candidates will make it through to the second round where they will become thoroughly acquainted with the portfolio and assets and present their visions, with the term of the end of November. Before Christmas, the selection committee will make a decision on the winner for which they will consider the candidates’ vision for the future. It will be followed by the last stage – technical negotiations with the fund management company that won the call and the creation of the fund.

The Member of the Management Board of SmartCap, Antti Perli, emphasized that this is not the sales transaction of either the investment company or the portfolio company. In order to restructure the management of investments, a decision has been made not to privatize the assets or outsource the portfolio management service, but to transfer the portfolio and liabilities to a separate fund that will be founded and managed by a new private fund management company.

The fund management company chosen in the call should invest its own finances to the new fund and manage it according to the market conditions. Proceeds from previous sales of shares (exits) and companies from which SmartCap will exit before December 31, 2016 will not be transferred.

The fund managed by the private fund management company will continue investing activities based on the existing principles – it will invest in the equity of companies and investments can only be made together with private investors. The risk diversification conditions will also remain the same – up to 10% of the finances may be invested in one company, in exceptional cases this number may rise to 25%. All the candidates can propose the management fee themselves. Potential fund management companies can also propose the size of the own contribution.

The new fund should start its activities in Q I of 2017. Currently there are 16 companies in the portfolio. By the start of 2017, the fund should have approximately 10 million Euros of uninvested finances which can be used for follow-up investments in current portfolio companies.

In August 2014, the council of the Estonian Development Fund decided to restructure the investment activity of the Development Fund. Ville Jehe, the Chairman of the Council of the fund, said that the Estonian venture capital market has developed rapidly in the last few years due to the activity of SmartCap which was created as an affiliate of the Development Fund. Jehe remarked that considering the current development phase of the venture capital market, the state’s role should change and it should concentrate on the shortcomings that the private sector cannot handle.

“The development of the market has reached a stage where there are enough private fund management companies and the state itself no longer needs to provide a fund management service,” explained Jehe. From now on, SmartCap’s investment strategy will center on funds that finance the activities of accelerators. A procurement was recently announced to find partners for accelerators.

Lehar Kütt, the Director of KredEx, said that the state has to ensure that the current portfolio is managed according to best market practice. “In cooperation with the European Investment Bank, we will hold a contest to find a new private fund management company that will continue to manage the state’s portfolio investments in rapidly developing companies and will keep making follow-on investments,” explained Kütt.
Additional information:
Antti Perli
Member of the Board of SmartCap
Phone: +372 51 6130

Ville Jehe
Chairman of the Council of the Estonian Development Fund and SmartCap
Phone: +372 504 0813

Lehar Kütt
Director of KredEx
Phone: +372 521 5068