Kinder, gentler vulture capitalists
But for entrepreneurs with a business plan, little money and little expertise, that's the price they pay to fuel their dreams.
Venture capital firms grew up in the United States in areas like California's Silicon Valley and Boston's Route 128 high-tech corridor with their thriving and risky new technologies. The industries there, computer and biotechnology-based, are in the few high-growth sectors that can provide the returns demanded by venture capitalists. In Central Europe, however, every sector can be a high growth one, so venture capital funds the business gambit.
"We're students of history. We're not trying to invent new industries," says Robert Lepkowski, general partner of Renaissance Partners. "Some markets in Poland are like the United States 30 years ago," he said, but suggested that by the end of the decade many markets will have caught up.
In the United States, the main gamble is on risky, unknown technologies. In developing markets like Poland investors are betting on the available pool of management, says David Hartford, chief investment officer for Pioneer Investment Poland. Finding the right management team isn't enough, it has to be cultivated. The management skills most needing development are marketing and accounting, for example, turning simple accounting data into management tools, says Joel Hayes, Caresbac investment officer.
Hartford says he's in the "private equity" business and not venture capital because the latter is tied to the risky nature of new technology.
Others also shy away from the venture capital label. Jonathan Brock of Invesco Ceam Ltd.'s East Europe Development Fund characterizes the fund as an investment fund targeting Eastern Europe. While in the West a fund may target a familiar industry niche, here investments are more diverse. "We're not experts in every sector, we assist the management force find those resources," says Pioneer's Hartford.
The partners - the capitalist and the entrepreneur - in the venture capital relationship realize from the outset it's not a marriage that will last forever, with investors seeking a graceful - and profitable - exit three to 10 years down the road. But investors say they support their commitment with infusions of capital and through management and industry advice and support.
Facing the inevitable, owners groom companies to go public to provide investors a way to turnover their investment.
Finding the exit door in Central Europe is not so easy with stringent listing requirements on the Warsaw Stock Exchange and no over-the-counter market. When a management buyout is not possible, a trade sale to a larger corporate suitor is the only way out.
While some funds, including two of the top three on The List, focus on the entire Eastern and Central European market and are administered from London, some money is a lot closer to entrepreneurs. Caresbac Polska SA is taking the step of establishing local offices in several Polish cities. These are primarily to offer assistance to firms they have already invested in and secondarily to find future ventures to fund.
In the West, perceptions of venture capitalists preying on naive entrepreneurs have earned some funds the reputation "vulture capitalist." Here, the mandates can differ.
While some are the same as their American counterparts - earning high returns for their investors - others have a political and social angle. Many receive funding from the European Bank for Reconstruction and Development (EBRD) or the U.S. Congress-funded Polish-American Enterprise Fund and have a mission to help development here.
Some like Caresbac Polska SA, created as a division of international relief group CARE's Small Business Assistance Corp., carry a kinder, gentler capitalist heart on its sleeve. Caresbac Polska is willing to except a lower rate of return if it can also fill its development mission, such as environmental protection or support services for other businesses, says Joel Hayes, Caresbac investment officer.
Other mandates are more specific. The Society for Social and Economic Investments (SSEI) is primarily looking to create jobs in the enterprises it funds, says director Vincent Lamort De Gail. He says SSEI has so far helped create 240 jobs.
SSEI is the least funded venture group researched for the WBJ's list reporting $750,000 in funds with plans to reach $2 million by the end of this year. Investments are small, ranging from $5,000 to $100,000 with an average of $25,000 as opposed to $2.5 million from some larger funds.
Smaller means better, Lamort De Gail argues, because he has more time for clients.
Venture capital firms grew up in the United States in areas like California's Silicon Valley and Boston's Route 128 high-tech corridor with their thriving and risky new technologies. The industries there, computer and biotechnology-based, are in the few high-growth sectors that can provide the returns demanded by venture capitalists. In Central Europe, however, every sector can be a high growth one, so venture capital funds the business gambit.
"We're students of history. We're not trying to invent new industries," says Robert Lepkowski, general partner of Renaissance Partners. "Some markets in Poland are like the United States 30 years ago," he said, but suggested that by the end of the decade many markets will have caught up.
In the United States, the main gamble is on risky, unknown technologies. In developing markets like Poland investors are betting on the available pool of management, says David Hartford, chief investment officer for Pioneer Investment Poland. Finding the right management team isn't enough, it has to be cultivated. The management skills most needing development are marketing and accounting, for example, turning simple accounting data into management tools, says Joel Hayes, Caresbac investment officer.
Hartford says he's in the "private equity" business and not venture capital because the latter is tied to the risky nature of new technology.
Others also shy away from the venture capital label. Jonathan Brock of Invesco Ceam Ltd.'s East Europe Development Fund characterizes the fund as an investment fund targeting Eastern Europe. While in the West a fund may target a familiar industry niche, here investments are more diverse. "We're not experts in every sector, we assist the management force find those resources," says Pioneer's Hartford.
The partners - the capitalist and the entrepreneur - in the venture capital relationship realize from the outset it's not a marriage that will last forever, with investors seeking a graceful - and profitable - exit three to 10 years down the road. But investors say they support their commitment with infusions of capital and through management and industry advice and support.
Facing the inevitable, owners groom companies to go public to provide investors a way to turnover their investment.
Finding the exit door in Central Europe is not so easy with stringent listing requirements on the Warsaw Stock Exchange and no over-the-counter market. When a management buyout is not possible, a trade sale to a larger corporate suitor is the only way out.
While some funds, including two of the top three on The List, focus on the entire Eastern and Central European market and are administered from London, some money is a lot closer to entrepreneurs. Caresbac Polska SA is taking the step of establishing local offices in several Polish cities. These are primarily to offer assistance to firms they have already invested in and secondarily to find future ventures to fund.
In the West, perceptions of venture capitalists preying on naive entrepreneurs have earned some funds the reputation "vulture capitalist." Here, the mandates can differ.
While some are the same as their American counterparts - earning high returns for their investors - others have a political and social angle. Many receive funding from the European Bank for Reconstruction and Development (EBRD) or the U.S. Congress-funded Polish-American Enterprise Fund and have a mission to help development here.
Some like Caresbac Polska SA, created as a division of international relief group CARE's Small Business Assistance Corp., carry a kinder, gentler capitalist heart on its sleeve. Caresbac Polska is willing to except a lower rate of return if it can also fill its development mission, such as environmental protection or support services for other businesses, says Joel Hayes, Caresbac investment officer.
Other mandates are more specific. The Society for Social and Economic Investments (SSEI) is primarily looking to create jobs in the enterprises it funds, says director Vincent Lamort De Gail. He says SSEI has so far helped create 240 jobs.
SSEI is the least funded venture group researched for the WBJ's list reporting $750,000 in funds with plans to reach $2 million by the end of this year. Investments are small, ranging from $5,000 to $100,000 with an average of $25,000 as opposed to $2.5 million from some larger funds.
Smaller means better, Lamort De Gail argues, because he has more time for clients.
