Financing Innovation

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NATIONAL INNOVATION FUND KAZAKHSTAN
Financing Innovation March 25, 2004 Knowledge
Economy Forum III Budapest, Hungary
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Agenda
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• Republic of Kazakhstan
• National Innovation Fund
• Investment Strategy of the Fund

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Republic of Kazakhstan
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Real GDP Growth
Current account and foreigndirect investments
CA
FDI

• Industry is the main driver of GDP growth

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Republic of Kazakhstan
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• Successfully managing transition to market
  economy
• Leading producer and exporter of natural
  resources,
• including oil, gas and minerals.
• Highest GDP growth among CIS and CEE countries
• for the last three years.
• Strong FDI inflows and FX reserves.

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Challenges for the country
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• Lopsided extraction-oriented economy
• Weak integration into the global economy
• Technical and technological obsolescence of
  enterprises
• Lack of efficient connection between science and
  production
• Low expenditures on RD

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Strategy for 2003-2015
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• Kazakhstan adopted Innovative and Industrial
  Development Strategy for 2003-2015 aims to
• achieve sustainable development through
  diversification of economy
• create favorable investment climate for
  manufacturing industries, including high-tech
• foster further development of the financial
  sector

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Development Institutions
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• To address challenges the following institutions
  were established
• Kazakhstan Investment Fund
• Export Insurance Corporation
• National Innovation Fund
• Center for Marketing and Analytical Research
• Engineering and Technology Transfer Center

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Working together towards innovative and
industrial development
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National Innovation Fund
Science Fund
Center of Marketing and Analytical Research
Assessment of investment potential of industries,
marketing
Database of leading experts
Financing of basic and prediscovery research
National Academy of Science Research institutes
Patenting of innovations and engineering
Center of Engineering and Technological transfer
Private financial institutes and investors
Kazakhstan Investment Fund
Universities
Project Database
At the stage of project expansion
Industrial and service enterprises
Kazakhstan Bank of Development
Loans at project expansion stage
Creation of technopolises, techno parks and
business incubators
Financing of enterprises that realize investment
projects
Creation of venture funds
Financing of applied R D
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National Innovation Fund
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• Joint Stock Company National Innovation Fund
  was established by the Government of RK on May
  31, 2003 as one of the governmental instruments
  for
• stirring up innovation activity,
• attracting private capital in innovation
  process,
• developing high tech industry

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National Innovation Fund
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• Challenges linking
• Finance
• Science
• Entrepreneurship
• Industry
• How we respond
• Provide capital
• Retrieve, assess and advance projects to private
  investors
• Deliver projects to the industry level
• Finance RD

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The development of institutes of venture
financing in the world
Canada (1960s)
Russia (1993)
2003
Europe (1980s)
Kazakhstan
US (1950s)
Israel (1992)
Japan (1970s)
S.Korea (1980s)
Hong Kong (1980s)
Malaysia (1984)
Singapore (1980s)
Australia (1970s)
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Achieving objectives
Achieving objectives
Establishing Venture funds with private investors
Financing projects aimed to apply RD results
and transfer technology into industry
Building elements of innovation infrastructure
Applied RD financing
International cooperation in technology transfer
Staff management
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Investment Strategy
Investment directions for 2004-05
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Applied RD financing
Venture Funds
Investment projects
Elements of innovation infrastructure
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Investment strategy

• Sources of investments
• Chartered capital,
• Profits of the Fund,
• Grants, awarded by international financial
  institutions and foreign governments
• Investments of the Fund
• Investments at seed and start up stages of
  projects
• Also grants to R D

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Project financing
Management
Commercial product
Equity financing
Access to capital
Private investors

• Major requirements
• Project is aimed to create new or advance
  existing product/technology
• Project is commercially viable
• Minority interest of the Fund (up to 49 of
  chartered capital)
• Well defined time-horizon of investments
• Staged financing
• Qualified management

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Funding strategy
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Priority stages of financing for National
Innovation Fund
expansion
seed
start-up
early
exit
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Investments into companies
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Development of innovative management in
enterprises
Installation of innovation, structuring of
technology market
Equity financing of innovation
Provision of access to capital for realization
of innovative projects
Attraction of private equity into innovative
activity

• Main conditions for investment
• investment project in-line with industrial and
  innovative policy priorities of Kazakhstan
• project to create new scientific product/service
  or innovate, install new technologies
• project should be commercially viable (including
  market potential of innovation),
• minority holding (not more than 49 of chartered
  capital),
• participation of the fund in management of the
  company that realizes the project,
• well defined time-horizon of investments
• staged financing of the project.

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Innovation infrastructure
Financial support
Ideas
Innovation infrastructure
Industry
Management

• Main concentration for the Fund
• Management (including consulting legal,
  financial etc)
• Selecting and financing ideas
• Government
• Financing infrastructure buildings,
  laboratories and equipment
• Special Economic Zones
• Tax Incentives

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RD financing
commercial potential
new technology
RD financing
intellectual property
time horizons

• Main requirements
• Research and Development process should not
  exceed 18 months
• Product should have feasible competitive
  advantages
• Corresponding market must exist

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Project Assessment

• Assessment of projects
• Stage I internal assessment by Funds
  Investment Committee
• Stage II assessment by external independent
  experts (expert organizations) and Expert
  Committee of the Fund (unbiased and independent
  experts)
• Risk management
• Private equity participation
• Investment portfolio diversification
• Upper Bounds (limitation) of investments
• Qualified management

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Proposals received

• As of February, the Fund has received around 162
  projects in terms of business proposals for a
  total of about 500 mln.
• Proposals by industry (other includes
  industries with less than 5 projects each)

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National geo-stationary satellite
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• On 7 January 2004 the Fund has signed an
  agreement of creation and provision of a
  telecommunication satellite with Russian
  Khrunichev State Research Production Space
  Center
• The Fund has created a daughter enterprise JSC
  KAZSAT. Its main task is financing of works and
  services for the creation of geostationary
  telecommunication satellite.
• The total cost of the project is more than 65
  mln.

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JSC National Innovation Fund
111, Gogol street, Almaty, Republic of
Kazakhstan
Tel [phone]
Fax
7 3272 78 05 71
E-mail nif_at_lorton.com
Thank you for your attention.
NATIONAL INNOVATION FUND