Estonia, Financial Services, Funds, Good for Business, Investments, Technology

A sum of 10 million euros has been allocated from the state budget for the establishment of the High-tech Enterprises Fund and SmartCap will additionally direct 5 million euros previously planned for the creation of a new accelerator to the fund to be created, SmartCap said.

"The need to increase the state's anchor investment became clear both from the study commissioned by us and from the analysis of international practice -- the development of the field and the creation of a sustainable fund clearly requires a larger contribution from the national investor in today's market situation" SmartCap management board member Sille Pettai said in a press release.

However, the total volume of the fund to be created will be significantly higher, because in addition to the SmartCap anchor investment, the management company must also raise money from private investors in the fund to be created. "We prefer funds that can convince us of the ability to raise private capital," Pettai added.

The High-tech Enterprises Fund will invest in high-tech companies whose product or service development and business model are based on research and development and intellectual property.

"High-tech companies are the engine of diversified economic development and have a large long-term economic impact," Pettai said, adding that one of Estonia's goals could be to be a preferred country for setting up such companies.

According to SmartCap, the underfunding of high-tech areas is mainly due to their high capital intensity, longer product or service development cycle and expected period for reaching productivity, as well as higher risk level and little experience of investors in research-intensive areas.

The results of a survey commissioned by SmartCap at the end of last year showed, for example, that fund managers are currently planning investments in areas such as software development, financial and information technology, and artificial intelligence.

Investments are not planned or are even ruled out in market segments related to hardware, medical technology or where the product or service development cycle is related to large-scale scientific and high-tech solutions.

"It is important to continue to offer investments to funds focused on software companies, but it is important to activate investors outside the software areas as well," Pettai said.

She added that SmartCap, as an anchor investor, wants to make it more attractive for private investors to enter the venture capital market and that the state's contribution to the emerging fund should also give private investors the certainty they need to make an investment decision.

The market consultation phase for the creation of the new fund will start in November. In addition to its own team, SmartCap will also include an independent expert with specific international experience, who will participate in all stages of the competition.

A public competition to find a suitable management company will be announced at the end of December and the selection of a new management company will be made in the second quarter of 2021.

SmartCap is a small management company registered with the Financial Supervision Authority. Since 2017, SmartCap has been operating as a subsidiary of the Kredex foundation.

The assets of the venture capital fund managed by SmartCap are invested in venture capital funds that, together with private investors, invest capital in science and technology-intensive early-stage small and medium-sized enterprises with international growth potential, located mainly in Estonia.