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Baltic Innovation Fund will make additional funding available for SMEs

27 July 2015 / Investment and business guarantees

The innovative fund-of-funds investment initiative - the Baltic Innovation Fund (BIF), dedicated to boosting equity investments made into Baltic enterprises, launched by Lithuania, Latvia and Estonia and the European Investment Fund (EIF), has been increased. The EUR 30 million increase of BIF is expected to translate into an additional EUR 100 million of private equity and venture capital funding available in the Baltic States over the next 5-7 years.

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So far four investment decisions into private equity and venture capital funds have been made under BIF, with BPM Mezzanine Fund and BaltCap Private Equity Fund II already operational and investing in Baltic enterprises, and Livonia Partners Fund and Karma Ventures Fund to start operations later this year. The total amount of funding available in these four funds is estimated to be at least EUR 270 million, with mostly private pension funds contributing very significantly in addition to the BIF investment. With these investments almost exhausting BIF capacity, but seeing further market potential, EIF started discussions with Baltic investors in early 2015 to increase the initiative, which has now concluded successfully. The increase will allow financing at least two more fund managers, thus triggering further private investment, with the total size of these new funds adding at least EUR 100 million to available funding, which will be invested primarily in Baltic enterprises over next 5-7 years.

European Investment Fund Chief Executive, Pier Luigi Gilibert stated, "This increase is a result of a close co-operation between the EIF and the three Member States from the Baltic region to build a long-term investment scheme that has already attracted substantial amounts of additional private financing. Together, the combination of our resources has already gone a long way in addressing a real cross-border market gap in the availability of equity capital for Baltic SMEs. EIF is pleased to have led this process by bringing together the three Baltic State markets and implementing the best market standards for equity investments, and looks forward to seeing further positive collaboration also in other areas".

Audrius Zabotka, CEO of INVEGA, stated "Lithuania welcomes this long-term partnership between the three Baltic States and the EIF which is the first initiative of such kind at EU level. It is extremely important that the efforts of individual countries in the Baltic region in increasing the accessibility of private equity and venture capital for high-growth SMEs were well coordinated by the EIF and effectively leveraged with additional private funds. We are committed to continue such cooperation between all three financial institutions in the Baltic States in further development of the regional private equity and venture capital market. This will certainly stimulate the growth of employment and economic competitiveness of the Baltic States, including Lithuania".

Rolands Panko, Chairman of the Board of ALTUM, stated "In order to provide access to funding for rapidly growing companies - innovative, export-capable and technology-intensive - those, which have a higher risk and lack of funding, ALTUM shall continue to develop risk capital instruments during the period of 2014 - 2020 in Latvia. The work shall be performed both shifting 2/3 of the funding or 85 M EUR foreseen for financial instruments for strengthening SMEs to new nationwide risk capital foundations, and expanding participation in a successful working Baltic-wide initiative - Baltic Innovation Fund. Consequently, the entrepreneurs will be provided with support of risk capital instruments during all stages of development of a company - starting from an idea to sustainable growth of a mature company".

According to Lehar Kütt, Chief Executive Officer of KredEx, the new fund is a financing solution that has been missing from the Baltic market. "BIF is an excellent illustration of the three Baltic States acting together, enabling to make small capital markets together more attractive for investors and creating further financing possibilities for enterprises. Close cooperation with EIF as an experienced and well known investor ensures that the best market standards are followed giving additional assurance to possible private and institutional investors. Without such cooperation it would be very hard to attract Venture Capital investments in comparable size".

The original BIF investment capacity was EUR 100 million, provided by the national agencies - KredEx (Estonia), ALTUM (former Latvian Guarantee Agency, Latvia) and INVEGA (Lithuania) investing EUR 20 million each alongside the EIF investment of EUR 40 million.

The investment process for the Baltic Innovation Fund is ongoing, with EIF processing transactions with potential Fund Managers. Each Fund manager is expected to attract at least additional equivalent amount of private finance from pension funds and private investors which will at least double the amount of investment capital, which will then be invested into innovative high-growth SMEs.

Importantly, the Baltic Innovation Fund is the result of strong co-operation between the three Baltic States and the EIF that is unique in its nature across Europe and places the region in a position to benefit from greater levels of private investment than before. Furthermore, the three governments are taking a lead in this process by investing into the Baltic Innovation Fund through their respective national agencies and utilizing the revolved Structural Funds from previously successful SME support schemes to do so. This unique trans-national process provides a real opportunity to further develop the Baltic PE & VC market.

Background information

 The European Investment Fund (EIF) is part of the European Investment Bank group. Its central mission is to support Europe's micro, small and medium-sized businesses (SMEs) by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment. EIF's total net commitments to private equity funds amounted to over EUR 8.8bn at end 2014. With investments in over 500 funds, EIF is a leading player in European venture due to the scale and the scope of its investments, especially in high-tech and early-stage segments. EIF's guarantees loan portfolio totaled over EUR 5.6bn in over 350 operations at end 2014, positioning it as a major European SME guarantees actor and a leading micro-finance guarantor.

KredEx is an Estonian financial institution helping Estonian enterprises to grow business and expand more safely to foreign markets, offering loans, credit insurance and guarantees with state guarantee.

Development financial institution ALTUM is specialized Latvian development finance institution providing state support through a full range of financial instruments: loans, credit guarantees and mezzanine loans, and co-invest in risk capital funds.

INVEGA is a financial institution established by the Government of Lithuania to facilitate access to finance for business. INVEGA started its activity with the provision of individual guarantees and further developed a range of products available for business, i.e. microcredits, risk sharing and soft loans, portfolio guarantees and global grant for the compensation of interests as well as youth employment costs. Since 2009 INVEGA offers products financed from the ERDF and ESF resources totaling to EUR 278.2m. 


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