Nordic Innovation Fund (“NIF”)

Nordic Innovation Fund
(“NIF”)
EIF Proposal paper
- CONFIDENTIAL -
10th June 2011

Table of contents
Executive Summary.....................................................................................1
Introduction...............................................................................................3
Nordic Innovation Position Statement ...........................................................5
The European Investment Fund (EIF).............................................................6
Investment strategy .....................................................................................7
Proposed fund structure & Governance ......................................................10
Terms and Conditions...............................................................................10
Fund operation ........................................................................................11
The Management team & Investment record ...............................................12
Financial projections ................................................................................13
Proposed Next Steps.................................................................................14
Contacts .................................................................................................14
Annex 1: Diagram of the Nordic Innovation Fund........................................15
Annex 2: List of Involved Parties.................................................................16

The Nordic Innovation Fund (NIF)
Executive Summary
The Nordic Innovation Fund will be a EUR 250m Investment Fund creating equity investment activities to
develop a well-functioning Nordic early-stage equity market. The Fund will support innovative start-up and
growth companies across the five Nordic countries, implemented through a coordinated structure advised by
the European Investment Fund.
Main characteristics of the Nordic Innovation Fund (NIF)
• An initial target of EUR 250m financed by 50% from commitments from the five Nordic Governments
(totalling EUR 125m) with 33% from European Investment Fund (EIF) capital resources and the
remaining 17% expected to be raised from private investors including corporates and pension funds.
• NIF will be managed and invested on a commercial basis with EIF acting as both investor and
advisor. Full pari passu treatment for all investors.
• Structure to provide governance, efficiency and speed: with first closing before end 2011 allowing
investments to begin in Q1 2012 to address the growing market needs as soon as possible, but with
Government commitments drawn down only from 2012 onwards.
• Investments to be focussed upon strengthening the Nordic regions competitive advantages in
Cleantech, ICT/Mobile and Life Science sectors.
• The level of investment into enterprises in each country will equal at least the respective government’s
capital commitment to NIF.
• Take full advantage of EIF investment experience and track record as a fund of funds manager in the
target sectors in the creation of an agreed set of investment activities.
Main Benefits from establishing an all-Nordic proposal
• The Nordic region has a well-established reputation for innovation and a mature equity market
infrastructure but operating separately each market struggles to maximise returns and therefore fails
to attract the interest of international investors.
• The upturn in the economic cycle and the comparative advantage that the Nordic region has in key
sectors such as ‘Green growth’ presents a significant investment window of opportunity to create long
term market impact and achieve positive investment results.
• By combining government support with EIF human and capital resources, the initiative is expected to
attract strong interest from corporates seeking to source innovation from the wider Nordic region as
part of the ‘open-innovation’ approach.
• The Nordic region has a long history of collaboration and combined structures that can be leveraged
by a disciplined and deliberately pan-Nordic approach which will ensure the commercial viability of
the NIF whilst deliberately targeting the policy objectives of:
o building a competitive and sustainable Nordic ecosystem for innovation and
o
entrepreneurship
supporting the growth of existing Nordic technology SMEs and financing the start-up process
of new innovative and technology SMEs in the Nordic countries;
o contributing to strengthen the Nordic venture capital infrastructure by enhancing interest and
leveraging investment activity of private and non-institutional investors such as family offices
and business angels; and
o supporting cross-border investments to foster an integrated Nordic market.
• As shown under the Policy Objectives section, each country has specific needs that will be addressed
within the context of wider Nordic collaboration and EIF facilitation delivering specific benefits to all
involved countries.
1

Focus/strategy/performance
• NIF will have a structured toolbox of investment products designed to meet the overall Nordic and
individual market needs and maximise private investment on a fully commercial basis.
• A main focus will be on Nordic VC Managers investing in early and growth stage SMEs in
ICT/Mobile, Life Sciences and Cleantech areas.
• An additional element will include a ‘Co-Investment Window’ designed to invest with the growing and
important Business Angel and Family Office communities.
• Furthermore, a specific emphasis will be given to boosting the commercialisation of technology
innovation created from University and Research Institutions through the use of the Technology
Transfer Accelerator process.
• Strict selection criteria and a portfolio approach will be used to ensure an attractive risk profile of NIF
resulting in strong performance expectation and a risk-commensurate return for investors.
EIF resources and track record
• EIF has a high quality team with a unique collective investment record, strong experience and insight
into the Nordic markets based on an acknowledged pre- and post-investment hands-on approach.
• Unique market experience in the Nordic Region: since 1998 EIF has invested under different
mandates and with own resources over EUR 660m in more than 43 funds based across the region.
• Through these commitments, EIF has taken an active approach towards the development of the local
VC market by supporting emerging teams and setting up tailor made technology transfer vehicles.
• EIF lives up to the highest professional standards and integrity, and has its own unique in-house back
office, risk management, legal and compliance support functions all involved in the decision process.
• Competitive track record in the geography, stage and sector.
Combine market development goals and financial objectives
• EIF has considerable experience in setting up and successfully managing tailored Fund-of-Funds
schemes for European Member States, Regions and strategic investors fulfilling the combination of
policy and financial objectives and commercial principles.
• EIF will seek to optimise market development and maximise leverage of the investment by the Nordic
Governments by targeting the support of Fund Managers focused on the Nordics through cornerstone
positions and boosting interest from private sector investors at the fund manager level through EIF’s
recognised catalytic function.
• EIF already possesses a clearly established pipeline of Venture Capital funds covering the target
sectors and development stages to ensure risk-adequate diversification for the NIF portfolio.
“In light of market needs and opportunities, EIF is committed to further increasing its activity in the Nordic
region to build a sustainable and truly Nordic VC ecosystem to support entrepreneurship and innovation. We
are ready to commit our capital and experience to catalyse a process of attracting private investors to invest
alongside public funds to create a solution for the long-term benefit of the entire region.”
Richard Pelly
Chief Executive
European Investment Fund
2

Introduction
During the last few years, the EIF has been
working closely with the Nordic Innovation to
explore the needs of the marketplace and
consider possible actions. In November 2009,
a joint proposal was issued seeking to
establish a ‘Nordic Baltic Investment Fund’.
Since then, further work and deteriorating
market conditions have forced the need to
enhance and improve the original proposal.
EIF, with the ongoing support of the Nordic
Innovation, now submits this revised proposal
for the consideration by all five Nordic
Governments.
The proposal has been created following
detailed discussions with public agencies,
market players and ministry officials during the
course of 2011 1 and reflect the strongly held
view that further intervention and support is
needed. Since the Credit Crisis beginning in
late 2008, there have been a number of
negative repercussions on the equity market
across the region that now must be addressed.
More specifically, the withdrawal of certain
pension fund managers; the closure of existing
VC funds; the inability to attract private
investors and the fear that the Nordic region’s
competitive advantages are not being fully
maximised, are all factors driving the need for
action.
As a result, EIF proposes to create an
Investment vehicle to be named the ‘Nordic
Innovation Fund’ for an initial target of EUR
250m.
Policy Objectives
This proposal seeks to combine the benefits of
adopting an all-Nordic approach whilst also
addressing the specific policy objectives for
each involved country.
Main Benefits to Sweden
• Address the specific lack of a national
Fund of Fund initiative as highlighted as a
market deficiency by the Swedish Venture
Capital Association and entrepreneurs.
• Build a coordinated implementation
process to ensure the drive for efficient
usage of public funds whilst maximising the
level of participation from private and
international investors.
1 The full list of entities that have been involved in
the preparatory discussions is shown in Annex 2.
• To counterbalance the recent exits from
Fund Managers and Pension Funds from
this key growth-creating activity.
Main Benefits to Norway
• Complement existing and new Norwegian
public seed initiatives by strengthening the
market for private follow-on investments, in
order to accelerate company growth and
increase the returns on national seed
investments.
• Counteract the problem of ‘talent loss’
resulting from the withdrawal of private
investors in the early stages, by backing
experienced and emerging fund
management teams.
• Act as a co-investor alongside Argentum to
utilize the full potential for high growth and
internationalisation of Norwegian
companies.
Main Benefits to Finland
• Provide greater investment strength to help
realize the full potential of the ”Innovation
Economy” of Finland by acting as a coinvestor
alongside Finnish Industry
Investment.
• Provide specific growth stage investments
and support to competent fund managers
in order to address the issue of decreasing
follow-on investment, thereby increasing
returns on the wide array of Finnish Seed
Investment programs.
• Improve the track record of
commercialisation from Finland’s
universities and research institutions.
Main Benefits to Denmark
• Provide investment activities to enable
greater internationalisation of Denmark’s
growth-orientated companies.
• Create a vehicle that can co-invest
alongside Vaekstfonden and the new
Danish Growth Capital Fund (Dansk
VaekstKapital K/S).
• Improve the access to finance for Danish
SMEs by increasing the availability of
alternative sources of capital.
Main Benefits to Iceland
• Enable Iceland to benefit from greater
inflows of international investment.
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• Specifically create transactions of a coinvestment
nature to further grow the startup
sector within Iceland.
• Maximise the integration and knowledge
transfer to the Iceland market from being a
core part of Nordic development process.
Financing and Leverage
The financing is proposed as follows:-
• Upto 33% of the target EUR 250m to be
investment from EIF subject to Board
approval;
• 17% (approx EUR 42.5m) to be invested
by private sector investors such as
corporates and pension funds;
• EUR 125m to be invested by the five
Nordic Governments could be split upon
the established formula for Nordic
cooperation:o
Sweden 31% (EUR 38.75m)
o Norway 29% (EUR 36.25m)
o Denmark 21.4% (EUR 26.75m)
o Finland 17.5% (EUR 21.75m)
o Iceland 1.1% (EUR 1.375m)
Alternative funding scenarios could be
envisaged depending upon input from all
potential stakeholders.
Such an investment is expected to attract
capital at a number of levels which and as
such leverage a total volume of around EUR 1
billion invested in technology SMEs across the
Nordic Region.
Having already successfully established
financing schemes targeting the VC fund
industry in the past, EIF expects that full
collaboration with the involved Ministries will
lead to a significant impact of the NIF and thus
to further strengthen the Equity sector as a
whole.
Graphically, the NIF can be best illustrated by
this chart which is further explained in the
section entitled ‘Proposed Fund Structure’. All
amounts shown are illustrative.
Nordic Innovation Fund
Nordic Region
national contributions
Upto 50%
EUR 125m in total
VC Fund of Funds
Window
€180m
ICT/Mobile
Life Sciences
Cleantech
Nordic Innovation Fund
€250m
Business Angel
Co-investment
facility
€50m
EIF contribution
Upto 33%
(EUR 82.5m)
Private
Sector
EUR
42.5m
Technology
Transfer
Accelerator
€20m
High growth potential SME Community across the Nordicr egion
This document neither contains legally-binding
obligations of EIF or any other party nor does
its content prejudice any future discussions and
negotiations between EIF or any other party
involved in the framework of a possible NIF
structure. Any participation of EIF in such a
structure (be it as investor, manager or
otherwise) requires in any case the agreement
of EIF’s board of directors. Any information
stated in this document is therefore subject to
further discussions and negotiations and
conditionally to the economic and legal
structure of the NIF vehicle.
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Nordic Innovation Position Statement
The Nordic countries are by themselves relatively small economies, but combined constitute the world’s 10 th
largest economy. This makes the Nordic region significant in the global economy. All the Nordic countries
have strongholds within entrepreneurship, technology and innovation. Yet, they all struggle to develop new
high growth companies competing on the global market. Various national support schemes are in place, but
can be further enhanced through Nordic collaboration, particularly by developing a well functioning market
for SME financing.
Access to risk financing is a necessity for Nordic SMEs to grow and compete internationally. Hence, well
functioning seed and venture capital markets in all stages of company developments are crucial for the
innovativeness and competitiveness of the Nordic region. This has been acknowledged and emphasized by
Nordic governments in the current as well as the previous Nordic Co-operation Programs for Innovation and
Business Policy.
Nordic Innovation (previously Nordic Innovation Centre) orchestrates the Nordic efforts to improve the critical
state of the venture capital market and the access to funding for high growth Nordic SMEs. Through dialogue
with key stakeholders and continuous monitoring of the state of the Nordic risk capital markets, we have
identified a need to strengthen early growth investments in the Nordic region.
Although the Nordic countries have mature venture markets, there are several critical market issues that need
to be addressed. The majority of private investment funds have had a change of focus and are now primarily
investing in later stages of companies’ life cycles. As a consequence there have become fewer funds investing
in the early growth stages. There are well structured national programs providing seed funding for promising
start-ups. But there is an urgent lack of funding for companies about to enter the market or expand
internationally. We see fewer investments made in this critical growth phase. This means that a generation of
promising Nordic growth companies is at risk.
While the private venture capital funds in the Nordics to a large extent operate pan-Nordic, the public funds
are mainly operating within the national borders. Small national markets make it difficult to develop strong,
specialized funds with large enough deal flow (i.e. investible companies) and good returns. Moreover, each
national market is often too small to attract interest from international investors. Therefore public and private
funds actively investing in each national market has to carry a substantial risk, since there are few co-investors.
The Nordic Innovation Fund (NIF) proposal is a result of a thorough Nordic market analysis and dialogue with
public and private stakeholders. NIF intend to alleviate critical market problems in the Nordic region by
interacting and co-investing with national and international investors. NIF will attract more international
capital to the region and will catalyze increased returns on national funding initiatives. Through various tools,
the NIF will indirectly, and in cooperation with existing investors, provide new funding to a large number of
Nordic SMEs, and it is expected to have a substantial impact on the future competitiveness of the region.
“Nordic Innovation sees this initiative as highly relevant and timely, and as a window of opportunity for the
Nordic countries to take common action for the benefit of each country and the entire region.”
Ivar H. Kristensen, Managing Director, Nordic Innovation
5

The European Investment Fund (EIF)
The EIF is unique amongst European
institutions. It was set up in 1994 by both
public and private sector shareholders, with a
core objective to earn an appropriate return,
alongside its goal to contribute to the pursuit of
Community objectives. Since then, EIF has
become a major investor in the European
venture capital market.
EIF has as its vision to be a pioneer in building
risk finance markets for entrepreneurship and
innovation. It indirectly supports SMEs by
means of equity (venture capital and private
equity funds) and guarantee instruments. EIF
has over EUR 15bn of funds under
management. Its main shareholder is the
European Investment Bank (EIB) with 61%, and
the remaining shares are held by the European
Community with 29% and 9% by public or
private banks and financial institutions (30 from
17 countries).
EIF invests either its own funds or those made
available by third parties through specific
mandates. These mandates include those
EIF has invested over EUR 660m in 43 funds
across the Nordic Region since 1998
EIF benefits from AAA-ratings from the three major rating agencies
granted by the EIB, the European Community
(Competitiveness and Innovation Framework
Programme or CIP), EU Member States and
Regions and other third parties including
private sector investors. As a result for equity,
EIF has currently more than EUR 5.4 billion
under management.
EIF has already gained specific experience
acting as a manager and advisor in respect of
fund of funds, notably the ERP-EIF and LfA-EIF
FoFs for Germany, UK FTF in the UK, Neotec
in Spain, the Istanbul Venture Capital Initiative
in Turkey, the Portugal Venture Capital Initiative
in Portugal, Dahlia (pan-European) and
GEEREF (renewable energy and energy
efficiency funds in emerging markets). The total
sum of these type of Funds managed by EIF
now equals EUR 1.735 billion.
In total EIF manages investments in over 350
funds across technology transfer, venture
capital and the lower mid-market.
Example investments made by EIF
since 1998 in Nordic Region
Venture Capital
Conor Technology Fund
Aboa Venture
Creandum
Growhow Rahasto
Nordic Biotech
HealthCap VI
InnKap
Inveni Secondaries Fund
NorthZone
Nordic Venture Partners
IT Provider Fund
Inventure Fund Ky
Swedestart
Symbion Capital
Growth Capital
Accent Equity
Armada Mezzanine Fund
CapMan Equity
Eqvitec Technology Fund
Finnmezzanine Fund
Karnell Fund
Odin Equity Partners Fund
PMI Venture Fund
Litorina Kapital
Sentica Buyout Fund
Priveq Investments
Scope Growth
Early Stage
Chalmers Innovation Fund
Karolinska Development Co-
Investment Fund
Moody’s rates EIF Aaa:
“This rating is based on EIF’s multilateral development bank (MDB) status and the support of its highly-rated
shareholders as partly reflected in its solid capital base. EIF’s Aaa rating also reflects its strong governance
and the high quality of its management team and – in response to the global financial crisis - its further
sophisticated and intensified system of risk management, monitoring and recovery systems.”
6

Investment strategy
Turning challenges into
opportunities
Bridging the equity gap for technology transfer,
seed/start-up and early to growth stage technology
companies is considered as one of the major
challenges for fostering innovation and
entrepreneurship. The NIF will focus on enhancing
the availability of equity financing for innovative
early and growth stage companies based in the
Nordic countries.
This can be expected to considerably increase the
number of start-up and early to development stage
innovative technology companies in the Nordic
countries and enhance their development prospects
on the medium to long term.
Compared to the European average, the Nordic VC
sector is relatively mature and well developed, albeit
with some national and regional differences.
However, despite the maturity of the Nordic VC
sector, VC investments have failed to provide risk
commensurate returns to investors in recent years.
This has led to many fund managers moving out of
business or towards the later stage, which, as a
result, is accentuating the need for early stage
financing.
The comparatively high national and corporate R&D
budgets in the Nordic countries provide for a
favourable environment for innovation and
technology transfer to take place. In fact, the
technology transfer infrastructure is relatively well
developed in the region although the challenge to
fund and grow the spin-offs and start-ups into
mature and successful companies remains.
The growing entrepreneurial spirit and hence the
larger number of serial entrepreneurs, can be
expected to lead to a pool of investment
opportunities in the future, but will be conditional
upon access to commercially oriented financing.
In summary, the Nordic VC sector is going through
a re-structuring phase in response to the changes in
the market environment. Expected changes include
the emergence of new VC teams and an increased
reliance on non-institutional investors such as
business angels and family offices for funding
innovation and early stage technology companies.
NIF has been designed to suit the specific
characteristics of the Nordic market, and provides a
flexible approach in order to maximise the
significant market opportunity present in each of the
Nordic countries. It provides tailor made solutions
aiming to support the continued development of the
VC sector and to increase the availability of equity
financing for innovative early and growth stage
companies in the Nordic countries. In particular, it
will support the development of the VC infrastructure
through various equity co-investments,
which is deemed to be specifically important to
counter the decrease in the availability of early stage
financing in the Nordic countries and to create a self
sustainable VC sector.
Further, NIF will support cross-border investment
activities, thereby contributing to an integrated
Nordic VC market and increasing the number of
financing options for early stage companies.
Finally, an equally important objective is the
financial performance and sustainability of the NIF.
By building a diversified exposure, investing through
different complementary financial intermediaries and
in different phases of company development the NIF
will be able to reach the long term target financial
return objectives.
Sweden
Sweden currently experiences a decrease in the
availability of early stage financing with fewer active
players in the market. At the same time, an
increased activity of non-institutional investors is
noted.
To improve the availability of early stage financing,
NIF will support established early stage VC fund
managers and provide cornerstone financing for
emerging teams. In addition, co-investment schemes
will be used to enhance the availability of equity
financing and to fortify the equity financing
infrastructure.
In addition, NIF will support technology transfer
organisations through tailor made investments
aiming to create successful spin-offs and start-ups.
Norway
Although Norway is home to several successful fund
managers, there are still few commercially oriented
fund managers focusing on the early stage. Further,
many of these are regionally focused, thereby
potentially limiting their own growth.
NIF will aim to contribute to the continued
development of the Norwegian VC sector, by
supporting established and emerging early stage
fund managers through cornerstone roles.
7

Finally, the presence of several Corporates in the
Norwegian ecosystem will be leveraged through coinvestments
aiming to enhance strategic value for
SMEs.
Finland
Finland is also experiencing a withdrawal of certain
fund managers and the consequential reduction on
early stage investment volumes. Whilst benefiting
from well-established national agencies, problems
remain in securing growth stage investments for many
of the seed-funded enterprises of Finnvera. Very few
early stage investors still remain active and this
threatens the entire Innovation Policy. Additionally,
recent announcements regarding spin-outs of major
corporates presents both an issue and an opportunity
to further develop the financing mechanisms for such
spin-out activities.
Denmark
Increasing the international growth opportunities for
Danish companies continue to be a strategic
objective for the Danish market and as the economy
recovers a number of opportunities are expected to
arise. Whilst Denmark benefits from the current and
expected future activities of Vaekstfonden and Dansk
VaekstKapital, the need for additional co-investment
within Fund managers remains strong. Demand for
financing growth opportunities is still expected to
outstrip supply which would limit the overall growth
potential of the economy.
Iceland
The clear challenge for this market is to both recover
from the recent crisis but also to build a structured
method of attracting international investment to the
growing stream of start-up companies in Iceland.
Creating greater Nordic collaboration through the
Nordic Innovation Fund would open up this process
and enable greater levels of early stage investing.
Investment strategy
Taking into account that the VC sector is inherently
private sector-driven, all investments will be
conducted under purely commercial aspects and the
NIF will act as market-oriented investor with a clear
focus on return generation.
On the basis of a EUR 250m Investment Facility, the
average annual investment capacity over the four
years investment period would amount to
approximately EUR 60m. The level of investment
into enterprises in each country will equal at least
the respective government’s capital commitment to
NIF.
These sums do not take into account the investment
EIF would conduct besides the NIF under existing or
future mandates. NIF will have four complementary
compartments with each of them addressing specific
financial return and policy objectives through a
tailored investment product.
NIF will largely follow an intermediary model, i.e.
invest in SMEs through professional institutional and
non-institutional investors. All investments will be
channelled through adequate intermediaries and
EIF, as in most other mandates which are managed
or advised by EIF, will provide smart money, i.e.
assisting and supporting first time and emerging
players as well as enhancing existing ones by
shaping investment strategies, enhancing teams,
introduce market standards and an active
monitoring and support throughout the lifetime of
the structures and funds EIF invests in.
This ensures that EIF can maximise added value,
impact and enhance the financial viability and return
expectations of investments under NIF.
The proposed four compartments will be the
following:
1. An Intellectual Property (IP) and Tech Transfer
(TT) Investment compartment which will invest
in tech-transfer investment structures and/or
multi country/pan-Nordic IP Fund focusing on
the commercialisation of IP from public and
private Research Institutions. Intrinsically, such
investments have a long time to realisation and
bear a very high risk as there are at the very
beginning of the innovation chain. Still,
through proper diversification and professional
selection they have a risk commensurate return
potential. From a policy perspective they play a
very important role as they give perspective to
the commercialisation of IP and spin-off
activities and as such contribute to
selectiveness, market orientation and the
establishment of the early stage VC ecosystem.
2. A Co-investment Facility which will invest
alongside business angels and other non-
institutional investors into seed to growth phase
technology companies. They also play a crucial
role in supporting innovation through financing
and coaching young entrepreneurs and early
stage SMEs and are critical for the
establishment of a sustainable VC ecosystem.
This compartment provides access to a
performing asset class and the opportunity to
leverage private funding activity in view of
supporting SMEs active in the development,
commercialisation and application phases of
the innovation cycle. The NIF would co-invest
with selected investors which are either
domiciled in the Nordic countries, provide for a
relationship with the Nordic ecosystem or have
8

and/or will consider investments in the Nordic
countries.
3. A Venture Capital Fund-of-Funds compartment
building a portfolio of VC funds targeting early
to growth stage technology companies.
Targeted Funds will be both established and
emerging teams which are either
located/domiciled in the Nordic countries or
international VC funds with a significant
Nordic investment focus. They would also
engage actively in the Nordic VC ecosystem.
VC inherent investment risks will be mitigated
through sound diversification (sector, stage,
geography, number of funds and underlying
investees) which although capping the upside
will provide a sound financial contribution to
the NIF.
4. A theme focused Fund-of-Funds compartment
which targets investments in a more limited
number of complementary Funds focusing on
early to growth stage Nordic technology SMEs
providing innovative business solutions to
major future societal challenges/opportunities
IP & Tech Transfer
Investment Fund
Investment in the European IP
Fund and/or technology transfer
facilities with relevance for the
Nordic countries
Risk: ++++
Return ++++
Highest intrinsic risk but risk
commensurate upside potential
Foster technology transfer in
view of commercialisation of IP
and foster spin - off activity
Nordic Innovation Fund EUR 250m
and as such addressing major emerging
markets. One of the key aspects is the
involvement of corporates as strategic investors
on the Fund-of-Funds (FoFs) level. These
investors will get a privileged access to the
underlying Fund managers and their projects
and portfolio companies. This close
collaboration, moderated by EIF, will lead to
de-risking and increased exit potential for the
investees and as such a financial performance
potential well beyond a traditional Fund of
Funds scheme. The theme(s) should be
selected in accordance with Nordic policy
objectives. Examples can be Sustainability and
Eco-innovation, Health and Well-being, Smart
Cities and the Digital Society. NIF would invest
under this compartment in one or several
theme focused FoFs which are about to be set
up by EIF. Ideally, some Nordic
based/headquartered corporates would join
the theme(s) which would support a concrete
link to the Nordic countries and also trigger the
involvement of these strategic investors in the
development of the Nordic VC ecosystem.
Co-investment Fund Fund of Funds Activities
Venture Capital Theme focussed
Co investments with noninstitutional
investors such as
Business Angels or Family
offices. - These investors will -
either be based in the Nordic
countries or showing relevant
investment activity in the Nordic
countries.
Investments in early and growth
stage VC Funds domiciled in the
Nordic countries or including the
Nordic countries in their
geographic focus and engaging /
contributing actively in the
Nordic VC ecosystem.
Indicative financial risk / return profile of each compartment
Risk: +++
Return: +++
Balanced risk / return potential
Support of seed and start -up
tech SMEs and entrepreneurs
Building and strengthening the
non - institutional VC investors
infrastructure
Risk: +
Return: ++
Lower risk through high
diversification
Expected policy objective contribution of each compartment
Support of early - and growth
stage tech SMEs
Building and strengthening the
VC Fund infrastructure
Increase attractiveness of the
Nordic countries as a place for
innovation and starting tech
businesses
Investments in one or more EIF
advised Fund of Funds involving
corporate strategic investors and
focusing addressing investment
opportunities in future markets
related to major existing and
future societal challenges such
as for example:
Sustainability & eco -innovation
Health & well-being
Digital society / ICT Mobile
Risk: ++
Return: +++
Higher risk (new model) but
sound upside potential
Support of early and growth
stage tech SMEs in specific
target segments
Building a specialised VC Fund
infrastructure
Involve the Corporate world in
the VC ecosystem
The NIF will always invest on a strictly pari passu basis. All intermediaries have to comply with EIF’s strict
commercial investment criteria and compliance requirements.
9

Market assessment and pipeline
EIF has a well established process to screen the VC
and early stage equity market for investment
opportunities. This is supported by EIF’s position in
the market and the pro-active market approach.
The process results in constantly updated radar charts
classifying the European market by geography,
technology sectors and stages.
As such EIF has a clearly defined deal pipeline which
gives visibility for investment opportunities for the next
three to four years and enables adequate resource
allocation for investment execution.
Currently, the radar chart of equity funds for the
Nordic Region which would fall in the NIF’s focus
comprises more than 20 possible deals over the
period 2012-2015.
Proposed fund structure & Governance
EIF is currently managing or advising several
mandates under different legal structures, ranging
from a bilateral agreement to a traditional limited
partnership structure.
For NIF, it is proposed that the best suitable structure
would be selected in consultation with all investors,
public and private, based on the needs of the
investment facility and taking into account tax and
non-consolidation requirements.
Governance Structure
EIF would act as advisor to NIF. Therefore, the
transactions would follow the existing internal EIF
investment process, according to which the relevant
investment team proposes the investments to the
Terms and Conditions
It is expected that NIF would be a EUR 250m Fund
with a four years investment period and overall
lifetime of 15 years, extendable two times by one
year. A re-investment of proceeds could be foreseen,
optionally also after the investment period.
The EIF commitment of up to 33% of the EUR 250m
in the Facility is expected to be sourced 90% from
EIB and 10% from EIF own resources. This
Portfolio strategy
The portfolio strategy of NIF will aim to achieve an
adequate diversification between and in the four
compartments and co-investment facility in view of a
risk-commensurate return potential and minimal
financial performance objectives. The investment
strategy will be formalised in a fund / portfolio model
outlining basic assumptions and results based on EIF’s
radar and deal pipeline.
The portfolio strategy will be determined by EIF’s
operational and risk management services according
to the final investment strategy and will take into
account a risk assessment of the individual investment
proposals according to EIF’s internal risk grading
methodology.
EIF’s Board of Directors. Proposals approved by the
Board of Directors are then further negotiated to
determine the specific terms of the investments, the
result of such negotiations then being reflected in the
relevant legal documentation. EIF is well-known for
its application and development of best market
practice in this field.
NIF would further have an Investors Committee
composed of representatives of all investors, of
which the role would be to provide advice on the
overall investment strategy and decide on conflicts of
interest. The Investors Committee would also be
updated on the investment facility’s progress in
quarterly meetings.
commitment from EIF itself helps ensuring alignment
of interests. The EIF commitment is subject to
specific EIF Board approval.
EIF is experienced in managing similar fund
structures for other EU Member States and would
therefore propose a charge based upon previous
knowledge and using EIF’s mandate costing
methodology.
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Fund operation
EIF has built on its substantial expertise in the equity
field to establish a robust investment process and
related infrastructure. The EIF’s investment teams
each specialise in a specific stage of the Private
Equity market and draw on their network and wealth
of experience to thoroughly and efficiently screen
proposals.
Investment process
New investment proposals are assigned to the
relevant teams for 1st screenings which assess core
elements including fund focus, investment strategy,
team profile, fund structure and economic terms.
Following a satisfactory initial assessment, the fund
managers are invited for a 2nd screening meeting to
further discuss the aspects of the proposed fund and
to respond directly to questions posed by the
investment teams. At the conclusion of the screening
process, the Director of “Transaction and
Relationship Management” (TRM) and the Heads of
the investment teams meet to decide unanimously if
the proposal fulfils the requirements to proceed with
the due diligence phase.
EIF’s due diligence consists of a thorough analysis of
all aspects of the proposal in order to identify its
attractiveness, associated risks and how these risks
can be mitigated or why they should be accepted.
The due diligence process involves a detailed
analysis which includes contributions from EIF’s
Compliance function and Risk Management and
Monitoring division (RMM) including an independent
opinion, as well as an initial assessment carried out
by the Legal division.
The results of this process are submitted to the
Investment Risk Committee (IRC) for discussion.
The IRC, which includes the Chief
Executive/Deputy Chief Executive, the Director of
TRM, the Secretary General of the Fund, the
Heads of the relevant investment teams, members
of Risk Management and Monitoring,
Compliance, and Legal, evaluates each proposal
to determine if it is suitable for submission to the
Board of Directors.
Monitoring
Once investments are completed, EIF pursues an
active monitoring process which typically includes
a presence on a fund’s supervisory or advisory
body. The scope of the monitoring activity is
determined by the degree of risk associated with
each fund, which is regularly reviewed by an
independent risk management function.
EIF has developed procedures that ensure all
draw-downs and repayments are processed in a
timely and orderly fashion.
EIF has pioneered and installed an integrated IT
system which mirrors the investment and
administrative processes throughout a fund life
cycle. In addition, RMM has developed an inhouse
IT system which enables extensive
projections and performance benchmarking for
its portfolio.
Reporting
EIF would provide a quarterly reporting to
investors meeting EVCA standards.
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The Management team & Investment record
EIF recognises as a fund-of-funds investor the
critical importance of engaging a management
team which can deliver a consistently excellent
performance over the duration of a fund’s
lifetime. The team which would be proposed by
EIF for management of NIF aims to address this
challenge in a number of critical ways.
Full institutional capacity
The philosophy behind EIF’s proposal is to
bring to bear EIF’s full institutional capacity to
manage NIF. This means that all EIF
departments will be engaged across all the
relevant functions. Within these functions
specific individuals would be identified to have
specific responsibility for managing NIF. It is
also envisaged that EIF would set up a local
office in an appropriate location within the
Nordic region. Importantly for a fund-of-funds
structure with a duration of 15 years or more,
EIF’s proposal would not be dependent on too
narrow a “key-man” base.
Experience gained from consistent
long-term approach
EIF is one of only very few institutional investors
which can claim over the past fourteen years to
have taken a consistent and active approach to
the venture capital industry in the Nordic
Region and in general in Europe. This
consistency is derived from EIF’s size of
operations, stability of shareholder
base/mandators and long-term orientation.
One of the consequences of this is an unusually
wide and deep experience base within its staff.
This experience base spans all functions
relevant to full-cycle investment management,
from deal sourcing, through the investment
process to execution and legal structuring,
portfolio construction, managing and
monitoring the portfolio, to administration, risk
management and reporting.
Investment record
EIF has an extensive investment record and is
counted as one of the most experienced fundof-fund
operators in Europe in its target sector.
As the different programmes managed by EIF
have differing objectives regarding policy and
return objectives, the track record analysis
focuses on the funds in which EIF has invested
its own resources. The overriding objective for
these investments is to maximise return and as
such the track record is the most relevant one
for the proposed NIF. Detailed financial
performance and track record information on
EIF’s reference portfolio as well as a complete
list, presenting all investments made or
managed by EIF under all different mandates
will be provided if the process continues.
Focused investment team
The investment execution of the NIF will be lead
and coordinated by by EIF’s Venture Capital
team headed by Matthias Ummenhofer. The
VC team is a multi-disciplinary team of 16
persons who focus on the venture capital fund
market across Europe. The team brings
together specialist knowledge of specific
venture technology segments including Life
Sciences, ICT and Cleantech. It operates as
part of the TRM (Transaction and Relationship)department,.
In addition EIF’s Technology
Transfer and Mid-Market teams will be involved
in the respective In addition the Mid-Market
team headed by Jean-Philippe Burcklen and the
Technology Transfer team headed by Jacques
Darcy will lead transactions in their respective
areas.
Wide range of EIF capacities
NIF investments will follow EIF’s standard
investment process as detailed earlier. This
process engages a wide range of capacities.
The risk management and second opinion
process is led by Pierre-Yves Mathonet. Legal
Services input will be led by Marco Marrone.
Mandate Management services will be led by
Birthe Bruhn-Leon. Compliance officer is Jobst
Neuss, with Finance led by Frédérique
Schepens. Finally, EIF’s reporting and
administration team is led by Maurice Hickey.
Incentivised to perform
EIF aligns employees with the pursuit of EIF’s
performance objectives. Such alignment is
achieved through measuring Key Performance
Indicators, based on financial and nonfinancial
objectives. As such, the management
team of NIF will have targets which will take
into account the specificities of the mandates
(to include for instance financial returns) and
will be rewarded based on their ability to reach
and exceed these targets. EIF demonstrates a
very low turnover among its professional staff
(

Financial projections
Financial return to investors and
adequacy of management fee
Once the parties decide to go ahead with this
proposal, EIF will provide financial projections
and a concrete fee proposal based on EIF’s
mandate costing methodology as well as the
complete set of terms and conditions in line
with best market practice.
Furthermore, an expected return for the
investors will be calculated with EIF’s internal
value-at-risk model. The latter is based on the
Grading Economic based Model (GEM). The
model which was reviewed by Cogent partners
is today widely recognised in the industry. The
result is based on a Monte Carlo simulation
and delivers a distribution of final expected
IRR’s, Multiples (PVPI) or NPV’s with a density of
30,000 samples for each PE fund or for a
portfolio of such funds
EIF is committed and confident to deliver a risk
commensurate return based on the following
facts:
• a very well defined and focussed
investment strategy with a clear gear
towards an optimisation of the return
potential paired with a disciplined
investment approach,
• the high quality and professionalism of the
fund managers and non-institutional
investors to be selected and
• the unusual market environment which
provides for interesting investment
opportunities in businesses at historically
low valuations. EIF will underpin this
expectation by proposing an ambitious
hurdle rate to investors and as such setting
challenging although still realistic
objectives for the investment team.
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Proposed Next Steps
EIF recognises that this proposal needs careful
consideration by all five Nordic Governments
and that the respective decision processes must
be followed. However, it should be noted that
the issues to be addressed by this proposal exist
in the market today as do the positive
opportunities.
Therefore, EIF has proposed a timetable for
action in order to ensure this initiative
materialises within a reasonable timeframe. The
main elements of this timetable are shown
below:-
• Distribution of the EIF proposal to all
involved parties – before mid-June 2011.
• Follow-up meetings and discussions to
address open questions – June and July
2011.
• Request for consideration of the principle of
the proposal at the next meeting of the
Nordic Prime Ministers.
• Formal commitment letters from
Governments to be received by EIF –
August 2011.
• Submission for Approval of EIF Board – Q4
2011.
• Legal Structuring work to be completed –
Q4 2011.
• Investment processes to begin – January
2012.
Contacts
European Investment Fund
96 Boulevard Konrad Adenauer
L-2968 Luxembourg
www.eif.org
EIF recognises the ambitious nature of this
timetable but further understands the
widespread support for this type of intervention
from the existing public agencies and from the
private market players.
EIF and Nordic Innovation would be willing to
further explain our views on this market
opportunity to all involved Ministries to ensure
there is a full understanding of this proposal
and to ensure all questions are answered.
Final Word
EIF’s management believe this activity to be of
significant importance to the further
development of the entire Nordic marketplace
and has therefore dedicated a significant
amount of resources to this thus far. EIF is
committed to working closely with all parties to
ensure that the Nordic Innovation Fund
materialises. EIF believes this Fund will be a
catalyst for channelling international private
sector investment into the region and this
should be recognised as clear and positive
opportunity.
EIF remains ready to further dedicate its capital
and human resources to this important initiative
in a timely manner.
Dr. Matthias Ummenhofer Graham Cope
Head of Equity Investments Head of Region (Northern Europe)
Tel.: +352 42 66 88 323 Tel.: +352 42 66 88 236
m.ummenhofer@eif.org g.cope@eif.org
Ivar Kristensen
Managing Director, Nordic Innovation
Tel.: + 47 92 03 03 59
I.Kristensen@nordicinnovation.org
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Annex 1: Diagram of the Nordic Innovation Fund
The following diagram has been used extensively in the discussions with numerous parties to illustrate the
concept of the Nordic Innovation Fund.
It is designed to capture that nature of the stakeholders working together in a public-private partnership to
create the funding for the NIF. It also illustrates the suggested three main investment activities and windows and
gives purely illustrative amounts to each. It is important to note that this conceptual model remains open to input
and discussion from all involved parties.
Nordic Region
national contributions
Upto 50%
EUR 125m in total
VC Fund of Funds
Window
€180m
ICT/Mobile
Life Sciences
Cleantech
Nordic Innovation Fund
€250m
Business Angel
Co-investment
facility
€50m
EIF contribution
Upto 33%
(EUR 82.5m)
Private
Sector
EUR 42.5m
Technology
Transfer
Accelerator €20m
High growth potential SME Community across the Nordic Region
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Annex 2: List of Involved Parties
The following organisations have been involved
in the formative discussions with EIF and Nordic
Innovation as part of the process of developing
this proposal. EIF would like to thank all
participants for their efforts.
Sweden:-
Ministry of Enterprise, Energy & Communications
Industrifonden
Tillväxtverket (Economic Development Agency)
Swedish Venture Capital Association
The Royal Swedish Academy of Engineering Sciences (IVA)
The Sixth Swedish National Pension Fund (the Sixth AP Fund)
Finland:-
Ministry of Employment and the Economy
Finnvera Venture Capital (formerly VeraVentures)
Finnish Industry Investment
Finnish Venture Capital Association
Norway:-
Ministry of Trade and Industry
Argentum
Innovation Norway
Norwegian Venture Capital Association
Denmark:-
Ministry of Economic & Business Affairs
Vaekstfonden
Iceland:-
Ministry of Industry, Energy and Tourism
New Business Venture Fund
Others:-
European Investment Bank
Nordic Investment Bank
Numerous private market participants have also been involved
16