Infant venture capital: Interview with Péter Oszkó, Chairman-CEO of PortfoLion Venture Capital
After 12 years of advisor career at Deloitte Dr. Péter Oszkó, lawyer by trade, joined the crisis manager government of experts to become the Finance Minister of PM Gordon Bajnai. Following the 2010 elections Dr. Oszkó returned to the private sector and today he is CEO of PortfoLion Venture Capital Fund Management Co. PortfoLion, as a member of the OTP Group, a leading Hungarian and regional financial institution
venture capital and private equity mature enough in Hungary?
In Europe private equity and venture capital has a smaller share the financial market than in the United States, which is a weakness. Private equity helps to finance enterprises via the special structure of ownership, which offers a lot projects based on development and innovation. Hungary is even weaker than Western the sector has not grown from its infancy. Some pioneering actors tried to change this situation very early on, but a few fund managers cannot guarantee a total breakthrough unless they act in the supporting ecosystem of this sector. We need the critical mass of private equity participants and tools to break through. The EU recognized this burning need so the JEREMIE were born to change the momentum create this ecosystem.
How open are the project owners?
Since the JEREMIE and simultaneous funds started their operation more and more projects pop up. Startup conferences and competitions prove that the number of projects is ever growing. We can boast strong enough intellectual capital in this country. However, when we consider management abilities, company development and related business skills the situation worsens. The market is underdeveloped. Biotech experts and engineers have not interest in company development, have relied on and tenders. They have studied how to write a tender and to answer the administrative requests of an assessment but not meet the market needs.
Is there reason for optimism?
It is too we are only a old company. I am satisfied with the initial as the first months always the major challenge to these investments. The companies need years to show their potential. Some proved to be adult and operate on own, need more support. So time has not come to back with satisfaction. In macro-economical terms we can talk about a success story, as JEREMIE managed to secure finances these companies. However, the true success remains question of the future.
What other sources can PortfoLion use besides JEREMIE?
Private ones. Right now, we have to admit, the region does not attract too many investors, and this is not only due to the crisis. Just take a look at the yields of the 20 yearsthey all converge zero. European funds show scary nevertheless, there are huge differences among fund managers. In Hungary, nobody has succeeded yet with a permanently well-performing fund. Experts do not blame fund they rather agree that the market has not been capable of offering more opportunities. LogMeIn or Prezi have been exceptional successes on the Hungarian market, when a brilliant project owner with innovative mind found co-owner and investor with the proper network and management know-how. Beyond them a list of additional 20 success stories could not be compiled.
In the environment created by JEREMIE the situation is much better. According to the program it guarantees 70% of the investment but requires only a basic interest in return, not the yield corresponding with the whole share. always negotiate for a higher percentage, at least the proportion of their investment – Whatever the investor of the 30% can make above this basic rate can be gathered. So JEREMIE says forget the yields that you had to harvest individually, I guarantee you a good return of your investment. Suddenly, even a mediocre yield offers a great profit, so it triggers more interest from those who refused to be involved. Whether it will meet expectations we find out only when the funds close their projects. At the moment JEREMIE is working .
That is the inspiring part of the involvement of a central government. But there are regulations, like the AIFM directives.
Well, AIFM projects the paranoia that evolved in the financial crisis on private equity. It has saddled the industry with the heavy burden of administration. Nevertheless, Hungarian regulations, quite strict ones, already included them, just like JEREMIE regulations, so AIFM has not deeply affected the Hungarian market.
It is rather the general environment that affects the market. Not more than enterprises were reached by the new funds and programs and they do not depend on local developments. The companies of our portfolio are interested in regional and global markets. The local market is small, and we have a huge debt to pay, so very little chance offered for a company to become successful within borders. Venture capital always keeps distance from gloomy risks.
If the market and especially its players are still living early years and innovative project owners, particularly the older generation, need more understanding, education is a must. What efforts are being made by the sector?
Certain universities run courses on the topic, but the education is its too. We are happy to see that the Central European University is to start a major incubation system. The market lacks incubation system. We are also happy to support these efforts as our company will benefit from the arrival of new projects and do not preparation before the actual investment. Meanwhileinterest has grown tremendously. We receive invitations from universities to give courses on the topic and graduating students are looking for the chance to join the profession.
Does PortfoLion or any private equity organization plan an institutionalized educational program?
I have no knowledge about such effort. Today the time dedicated for extra work is very limited. A fund is financing its professionals and managers, those, who start the engine of investments before money is earned from successful projects closing. For us OTP Bank is a solid base, but still, payroll is sensitive. ome of my colleagues do inten to develop the market but our opportunities are limited. A university or a sponsored institute must have better resources and if our expertise were invited we willingly support them.
Where does PortfoLion raise additional sources for its funds?
OTP is a major regional bank and helps to extend the opportunities beyond the borders of JEREMIE. It helps to persuade other institutions to join. Our ambition is to create more different funds, so they concentrate on different segments of the investments and a variety of market sectors. These efforts are in progress, this year we are planning to start one or two more funds.
These two funds will start
One of them is an accepted project by OTP and the Hungarian Financial Supervisory Authority is just running the approval process. It will support so-called turn-around investments, when a company is targeting a market segment, its credit is deteriorating. We will help them by raising their capital. According to our plan this fund will open this year.
Your company is mostly interested in innovative projects. Meanwhile you are classifying projects by their maturity. What are the proportions?
We have decided to support innovative products. Considering maturity our portfolio can boast a rather colorful palette. Some of the companies earned 2-300 million annually when we invested. The proportion of young mature companies approaches 50-50%.
Does the OTP brand help?
To earn the appreciation and trust of the targeted companies, it definitely helps. Besides the rich opportunities of investments, it supports fight against suspicion. Those who seek this financial support will face very harsh growth requirements. A private equity investor does not have any guarantee that investment will surely return. Therefore a private equity investor requires ownership and management roles as guarantee, but a project owner may feel that his company is just being taken away. Until that moment nobody else told him what to do, now an investor comes and gets involved in everything... which is not even true, as an investor only wishes to get involved in issues that belongs to his field. Under the OTP brand this suspicion becomes less grave.
How often do you mention the business know-how of the private equity managers as an asset besides the money the company can receive?
Always. Considering money, the very same offer and numbers could be received from other . Therefore the real competition is about additional values, like the know-how, management support, a strong board. Even opening a major consortia could , and other doors open thanks to the fund managers.
A final question, out of the private equity box: would you take government position again?
question is too general. I will not take in the short. I wish to build full investment success story, just I did as an advisor earlier at Deloitte. I feel that before becoming the finance minister of the Bajnai administration in 2009 I had finished and did not interrupt my advisor career. This time I have the same ambition in private equity.
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