Tom Nastas lecture on VC in the emerging markets, at the Graduate School of Business, MIchgan State University

1. VC & PE in the CIS & CEE
Lecture to MBA PE Class, Graduate School of Business
Michigan State University
East Lansing, MI, USA, 23 April 2009
Innovative Ventures Inc.
Haslett, MI. USA
Moscow, Russia
Thomas Nastas
President
Tom@IVIpe.com
www.IVIpe.com
23 April 2009 www.IVIpe.com
Info@IVIpe.com

2. Today’s Message
Part I
What’s Happening in the Market?
The Past & the Present
Part II
GoForward Plan to Accelerate $$
23 April 2009 www.IVIpe.com
Info@IVIpe.com

3. IVI History-Direct Invest &
Advisory
Canada (1992)
Europe (1992/94)
C$100MM-Canadian
TP Fund, $10MM-
Bus. Dev. Bank
EU, $-Financière
St Dominique,
Paris
USA (1986)
Russia (1997)
The Michigan Product
HP LP, $30MM-EBRD &
Dev. Fund ($5MM)
USAID
Africa (1993/96)
E. Africa $5MM, Sub-
Saharan, $200MM, South
Africa,$30MM, IFC/WB
23 April 2009 www.IVIpe.com
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4. About Me
• MSU Grad, BA & MBA
• Founder: From 1986
• In Russia from 1997
• Moscow Bank, Member,
Board of Directors, 2007
• Moscow MBA Program, Prof
in VC & Mkting, 2001
• Moscow, MBA Advising, 2001
23 April 2009 www.IVIpe.com
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5. Part I: What’s Happened &
Happening in the Market?
The Past & the Present
1992-1998
1998-2008
The Future 2009-Future
23 April 2009 www.IVIpe.com
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6. 1st Wave,1992-1998
Fall of the Soviet Union
Economic Shock Therapy
Creation of the EBRD
Governments & DFIs provided $, IFC, EBRD & US;
Tenders for Western Fund Managers to Mge
Funds, 90% capital from Govt’s & DFIs, 10%
Private Sector
Funds Created to Demonstrate Viability of
Investing
23 April 2009 www.IVIpe.com
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7. 1 Wave,1992-1998
st
VC to PE in CEE, CIS & Russia
1. Three major investors EBRD, IFC & US Gov’t
2. Enterprise Funds in CEE
3. Enterprise Funds in CIS
4. EBRD Funds in CEE, CIS & Russia
5. Approximately $2 Billion Committed, 90%
from the Multilaterals (IFC & DFIs)
23 April 2009 www.IVIpe.com
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8. 1 Wave,1992-1998
st
• $255
• Polish-American Fund, 1990
• $73
• Hungarian-American Fund, 1990
• $65
• Czech-Slovak American Fund,1991
• $58
• Bulgarian-American Fund, 1991
• $50
• Baltic-American Fund, 1994
• $61
• Romanian-American Fund, 1994
• $106
• Central Asian-Am Fund, 1994
• $150
• Western New Independent States Fund,
1994
• $329
• The U.S. Russia Investment Fund, 1995
• $30
• Albanian-American Fund, 1995
• $1,177
• TOTAL
23 April 2009 www.IVIpe.com
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9. 1 Wave,1992-1998
st
Value-Added of VC (Beside $$)
1. Privatized Companies, Some Emerging
Growth, More Debt vs. Equity
2. Raise New $$$ & Add Corporate
Governance, Experience & Contacts
3. Keep Interests Aligned
4. BOD Participation, not Manage the Firm
5. Encourage Founders to Think in Miles, not
Inches
23 April 2009 www.IVIpe.com
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10. 1 Wave,1992-1998
st
Default of the Russian Gov’t (1998)
Crash of the Ruble
High Inflation
Cost of Imports Soared; Stimulate Local Mfg.
Creation of Oligarch PE Funds
Development of the Domestic Economy
Driven by Global Demand/Pricing for Natural
Resources (Oil, Gas, Metals & Minerals); 80% of
Budget Revenues
23 April 2009 www.IVIpe.com
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11. 2 Wave,1998-2008
nd
VC to PE in Russia Today
1. 1st in VC (1994-1999). Deals w/VC
Characteristics. Migrated to PE
financing/growth in Post Financial Crisis
2. Expansion Stage Financing, US$5-$50
million/deal with limited syndication
3. Deals = For Domestic Economy, FMCGs, F&B,
Retailing, Real Estate, Wholesaling,
Construction Transportation & Western
Models to Russia
23 April 2009 www.IVIpe.com
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12. 2 Wave,1998-2008
nd
1. Creation of More PE Funds & Investment by
Private Investors (Institutional)
2. Investment & $ under Mgt Increased
Exponentially
3. PE Model Accepted by Russian Managers
Liquidity-IPOs (London) & Trade Sale
(Corporate Buyers)
Adoption of Corporate Governance
23 April 2009 www.IVIpe.com
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13. 2 Wave,1998-2008
nd
How Deals Differ, US vs. Russia?
1. Longer & More Expensive to Do Deals
2. Accounting, Finance & Legal Due Diligence
Presence of Tax & Contingent Liabilities?
3. Valuation Issues/Challenges
4. Legal Structures (off-shore, Cyprus, BVI)
23 April 2009 www.IVIpe.com
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14. 2 Wave,1998-2008
nd
How Deals Differ, US vs. Russia?
5. Corporate Governance & Align Interests
Manage Company for Benefit of All Shareholders
Incentives: Equity ROI vs. Cash/Salary. Limits on
$$
Reporting to IFRS
Transparent, not Opaque: Responsive, not
Egocentric
Funds employ Security (Former KBG) Guys on
Staff
23 April 2009 www.IVIpe.com
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15. 3 Wave 2008+?
rd
Part II
GoForward Plan to Accelerate $$
For Entrepreneurs/SMEs
For Gov’t Policy Makers
23 April 2009 www.IVIpe.com
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16. 3rd Wave 2008+?
What Does the Future Look Like
1. Russia Integrated into Global Economy-
Supply Chain
2. More Diversification & Variety of PE &
Structured Finance Funds
3. Russian Gov’t Initiative-Regional VC, in
Tech, Now RVC as Fund-of-Funds & Rusnano
Technology Corp.
23 April 2009 www.IVIpe.com
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17. 3rd Wave 2008+?
What’s Needed for New Growth?
1. Creation of Medium Term $ & Industry
2. Build the Quality & Quantity of Deal Flow in
Tech
23 April 2009 www.IVIpe.com
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18. Thomas D. Nastas
Tom@IVIpe.com
www.IVIpe.com
Tel. 7.985.923.47.27
Innovative Ventures Inc. Moscow, Russia
Haslett, MI USA
23 April 2009 www.IVIpe.com
Info@IVIpe.com

19. Web References
http://www.ebrd.com/projects/eval/showcase/equity
f.pdf
http://www.ebrd.com/country/sector/fi/funds/perf06
.pdf
http://www.ebrd.com/projects/eval/showcase/equity
f.pdf
23 April 2009 www.IVIpe.com
Info@IVIpe.com