SmartCap will increase the State’s investment in the upcoming High-tech Enterprises Fund to EUR 15 million
The risk capital management company SmartCap, which is owned by Estonia, will increase its anchor investment in the upcoming High-tech Enterprises Fund to EUR 15 million, to which private capital raised by the management company will be added.
EUR 10 million has been allocated from the state budget for the creation of the High-tech Enterprises Fund, and SmartCap will direct additional funds in the amount of EUR 5 million into the upcoming fund, funds that were previously planned for the creation of a new accelerator. ‘The necessity to increase the State’s anchor investment became clear both from the survey ordered by us, as well as from the analysis of international practices – development of the field and the creation of a sustainable fund clearly requires a higher contribution from the public investor in today’s market situation’, said Sille Pettai, a Member of the Management Board of SmartCap.
The total volume of the upcoming fund will, however, be significantly higher since, in addition to SmartCap’s anchor investment, the management company is required to involve the money of private investors into the upcoming fund as well. ‘We prefer funds that are able to provide a reassure regarding their capability to involve private capital’, said Pettai.
The High-tech Enterprises Fund will begin investing in high-tech companies, the product or service development and business models of which are based on research and development and intellectual property.
‘High-tech enterprises are the driving force behind the multilateral development of the economy, and have a major long-term economic effect. One of Estonia’s goals could be becoming a preferred state for the creation of such enterprises, and supporting their success as well. SmartCap, as a trustworthy anchor investor, helps to fill the clearly visible void of capital provision on the market, facilitating the growth and development of high-tech start-ups in Estonia’, clarified Pettai on the necessity to create the new fund.
The underfunding of high-tech fields mainly follows their large capital intensity, the longer development cycle of the product or service, the longer period of achieving the expected yield, also the higher risk level and the limited experience of investors in research-intensive fields.
Results of the survey, ordered by SmartCap, that was completed at the end of last year, showed that fund managers today are planning investments in fields such as software development, financial and information technologies, and artificial intelligence, for example. Investments are not planned, or are even ruled out, in such market segments that are related to hardware, medical technology, or if the development cycle of the product or service is related to extensive research and high-tech solutions.
‘We must certainly continue offering investments to funds focused on software-based enterprises, but it is important to activate investors from outside software-based fields as well. As an anchor investor, SmartCap wishes to make the entry to the risk capital market more attractive for private investors, and the State’s contribution into the upcoming fund also provides private investors with the reassurance they need to make the decision to invest’, Pettai highlighted.
The market consultation stage for the creation of the new fund will commence in November. In addition to their own team, SmartCap will also involve an independent expert with specific international experience, who will participate in all stages of the competition. The open competition for finding a suitable management company will be announced at the end of December. The new management company will be selected in the second quarter of 2021.
SmartCap is small fund manager registered with the Financial Supervisory Authority, and since 2017, SmartCap is operating as a subsidiary of Foundation KredEx. The risk capital fund assets managed by SmartCap are invested in risk capital funds which, together with private investors, place capital into research and technology-intensive early stage small and medium-sized companies with large international growth potential, mainly located in Estonia.