Although the total amount of funds raised by private equity funds in Europe decreased by almost 60 percent in the first half of this year, which is a completely logical outcome of the macroeconomic environment burdened by persistent inflation, rising interest rates, and numerous geopolitical problems, some positive news is still coming from Croatia in this field. Thanks to three new initiatives, we could soon see four to seven new private equity funds in the Croatian market. Three Initiatives Given that the mentioned initiatives have 172 million euros of public funds available, along with investments from private investors, the new private equity (PE) and venture capital (VC) funds will likely have more than 250 million euros at their disposal. That PE and VC funds have indeed gained momentum in recent years is confirmed by Mirna Marović, director of VentureXchange (VX) and president of the Croatian Private Equity and Venture Capital Association (CVCA). She expects this momentum to continue thanks to new initiatives for the development of this market and the recognition of Croatia by international investors. – Regarding the new initiatives for the development of this market, I would mention CEETT, based on which a technology transfer VC fund will soon start operating, aimed at commercializing promising research projects from our universities and better networking them with the economy. There is also a new program to support VC funds, in which the European Investment Fund will again participate, and where part of the earmarked structural funds will be utilized, as well as a new joint initiative of HBOR and EIF for the development of growth capital focused on climate or green investments and innovations. The public funds available for these three initiatives are significant (CEETT – 40 million euros, VC – 80 million euros, growth capital 52 million euros), and private investors are expected to participate in each of the mentioned initiatives, which means these funds will have a significantly larger amount of capital available – explained Marović. 2363298 From 2025? For the development of growth capital, the Croatian Bank for Reconstruction and Development and the European Investment Fund have secured 26 million euros each, with HBOR’s funds financed from the Recovery and Resilience Mechanism. The program is not limited to any sector; however, the focus will be on sustainability, green transformation, and innovations. At least 25 percent of the total amount for investments will be invested in eligible users who contribute to the EIF’s criteria for climate actions and environmental sustainability, and the call for fund manager(s) for this initiative is open and will last until the end of 2023. – After the call closes, EIF and HBOR will conduct a selection process to choose the company or companies for management in which they will invest the program’s funds. One or two management companies will be selected, depending on the quality and number of applications. It is expected that HBOR and EIF will select management companies and contract their obligations for payment into the fund by December 31, 2024, after which they can be established – stated HBOR. A few days ago, a call was also announced for fund managers of new VC funds (most likely two or three funds), whose investments will be directed towards innovative Croatian small and medium-sized enterprises with high growth potential, initiated through the Croatian Venture Capital Initiative 2 (CVCi 2). The initiative is worth 80 million euros, of which 60 million euros comes from the European Regional Development Fund, under the Competitiveness and Cohesion Program 2021 – 2027, and 20 million from expected returns from the CVCi 1 initiative. It is expected that the funds will also raise an additional 20 million euros from private investors. Since the managers who will lead the new funds must meet very high EIF criteria and must raise additional private capital after rigorous checks, these funds will most likely start operating in 2025. There is a high probability that fund managers who launched funds a few years ago as part of the first CROGIP initiative will also participate in the calls, as by the time the new funds start, they will have invested most of the funds from the first fund and likely begin the divestment phase. – I believe that 12 to 15 of them will apply for each call for the selection of a fund manager – emphasized Marović. Mostly for Health While the new funds begin to operate, the existing ones, established between 2020 and 2022, are intensively conducting acquisitions by investing in promising companies that have the potential to become regional champions. The Adriatic Structured Equity Fund, with a total investment potential of 200 million euros, has so far invested half of that amount. – We have focused on investments in fast-growing or sectors with high growth potential where consolidation is necessary due to high fragmentation, which are resilient to economic cycles, but also where we can ensure broader social value as this is an important determinant of all investments. In this way, we are convinced that we can simultaneously achieve a significant positive impact on economic development and a sustainable and attractive return for investors, with acceptable risk – explained the investment policy of the Fund Igor Čičak, CEO and main partner at Provectus Capital Partners (PCP). The largest part of the investments managed by the fund under Provectus has been directed towards private healthcare, specifically in two verticals. Medical institutions have been grouped under the Arsano Medical Group, and by investing in seven of them, the largest being the Aviva polyclinic, it has positioned itself as the largest private investor in private healthcare. By investing in dental institutions grouped under the Adria Dental Group, it has created the largest dental medicine group in the Adriatic region and Central Europe. – We also invest in specialized retail, namely stores with sports equipment and electric bicycles, where we have Keindl sport and several smaller investments, and we have also started investing in veterinary clinics. Although we are primarily focused on organic growth of the companies in our portfolio, we also plan acquisitions in the sectors where we are present, and we always look at other sectors and opportunities in the market. Investments in the region are interesting to us, and we see potential, especially in Slovenia, but also in the markets of Southeast Europe. So far, we have invested in a health clinic and a specialized sports equipment store in Slovenia, and we will certainly realize several more investments in the wider region – announced Čičak. 2363299 On the other hand, Invera Private Equity Fund is not focused on specific sectors or investment strategies, and although the company’s business model certainly plays an integral role in their evaluation process, they place a strong emphasis on human capital. – We believe that entrepreneurs/owners who have been pivotal in the company’s building are key to its further growth and development. With this in mind, we strive for majority acquisitions where previous owners/founders remain in management positions or take on more strategic roles, such as members of the supervisory board. This allows for the synergistic implementation of the agreed strategy with the ultimate goal of creating added value and ultimately a successful exit from the investment – explained Nikola Kličko, senior associate at Invera Equity Partners. Currently, Invera is considering several potential investments in Croatia and the region (Bosnia and Herzegovina, Slovenia, and Serbia), and after deploying the remaining part of the fund, it plans to initiate the process of raising a new and larger fund. In the Prosperus Growth fund, they choose companies that have the ambition for further organic growth and the potential for achieving acquisitions with synergistic effects, and so far they have invested in two companies in the IT sector, SV Group and NEOS, the company In Tech, a global leader in the open access publishing segment, Yellow Submarine, a leading player in the premium burger market in Croatia with a serious regional presence, and Nord Mobil, a manufacturer of mobile homes for the growing camping segment. Investment in Publishing Unlike PE funds, the most common focus of venture capital investments is high-tech companies with global expansion potential. Along with Fil Rouge Capital, which has been operating since 2019, and Feelsgood Capital launched in 2020, which have literally blossomed the Croatian startup ecosystem, many foreign funds are also present in Croatia, and new ones are being announced and established, such as the SQ Capital fund worth 10 million euros or AYMO Ventures worth 80 million euros. Thanks to the fact that local PE and VC funds have a lot of available funds for investments and have continued to invest even in these turbulent times, as well as the announcement of new domestic funds, the next few years could be lively in this market. It is currently difficult to assess whether 2023 will reach the record investments of last year’s private equity funds, given that the exceptional amount of last year’s investments was also aided by the high investment in Rimac, but the year is not over yet. Patient Capital And in the coming years, more intense activity of PE and VC funds in Croatia is expected, among other things, due to ownership transitions in family businesses and the anticipated liberalization of pension fund investments. – Perhaps in 2023, the dynamics of investments will be somewhat lower in amount, but not necessarily in the number of investments. However, the year is not over yet, so it is still difficult to make comparisons with the previous one – said Marović, commenting on how high inflation affects the investments of these funds. – PE and VC funds are not called long-term or patient capital for nothing. High inflation is not a friend to anyone, and in the segment of PE and VC investments, it is most reflected in higher interest rates of bank financing, which is often part of growth capital and buyout investments. However, the cost of bank financing has not yet increased enough to make transactions unprofitable, and with the announcement of lower inflation rates, this is not expected. It should also be mentioned the positive sides of the changed economic environment. Company valuations on the stock market have fallen, primarily for technology companies. This has somewhat affected the valuations of private companies, so from the perspective of PE and VC funds, investments are now more profitable than they were when the market was at its peak in terms of valuations, meaning it is better to invest now than it was in 2021 – concluded Marović.
Venture Capital Funds – At least 250 million euros are being prepared for financing
