The Biotechnological Market Investment Strategy formulated by Abercade’s professionals is based on the Concept of Key Markets.
Concept of Key Markets
The Concept of Key Markets reposes on the following five principles:
1. Investing in those markets where the application of innovations is critical for victory in competitive activity.
2. Investing in the development of products and not in the establishment of facilities.
3. Searching actively for companies within the boundaries of the key markets instead of relying on incoming applications.
4. The task of Abercade’s team is to ensure innovators’ access to all key resources required for the development of a business and not only to provide the funding.
5. Abercade strives to create integral product lines in the key markets helping the products of different companies promote one another.
The Concept of Key Markets has been formulated as an integrally structured system:
· Target segments have been identified in each key market;
· Commodity groups of innovatory biotechnological products have been identified in each target segment;
· A pipe line of portfolio products has been formed in each commodity group.
Therefore, a pipe line of projects is a result of a thorough and systematic preparation undertaken by Abercade’s professionals in the course of 2007-2008.
The main definitions of the Concept are presented, and key markets and the most important target segments are described below.
What is a key market?
A key market is, firstly, a large market (with a capacity of over $10 billion) and, secondly, a fast growing one (at least 10% annually in the past three years) and, thirdly, a market, which retains a high growth potential for the next 10 years (a growth of at least twice).
What is an additional market?
An additional market is a narrow market for niche products, which has no prospects of becoming a large one but successfully supplements products in the key markets of a fund.
Abercade has singled out two important additional markets:
1. The market of R&D services,
2. The market of medical and biotechnological equipment.
What is a target segment?
A target segment is a segment of a key market, which regardless of its size can serve as a driver to the entire key market.
For instance, the market of enzymatic preparations is a small segment of the mixed fodder market but profitability of livestock breeding depends on what enzymatic preparations are applied and how because application of enzymes determines fodder efficiency.
Therefore, a market with a capacity of $100 million can influence the development of a market with a capacity of $20 billion.
Target segments have been identified within each key market.
In each innovation group Abercade has selected several companies whose products meet investment criteria.
For each company, a range of partners has been identified whose participation in the development of innovatory products will give the companies the required competences (development of sales, establishment of contractual production facilities, international cooperation, etc.).
Abercade’s professionals select projects for investment guided by the following main groups of criteria.
1. Ability of an innovation to ensure decisive competitive advantages of a product
2. Availability of scientific and engineering novelty confirmed by a patent or in some other way
3. A high extent of completeness of R&D under the project. The final phase of research work must not exceed eight months
4. Availability of confirmation of technology operability (availability of a prototype or a mock-up innovatory product)
5. Sustainable competitive advantages of a technology as compared to similar products; in this case a review of substitute technologies as competitors is required.
1. According to international practice, the expected profitability of venture investment at the entry into the projects is rarely less than 25-35%. Planned profitability will vary within the same range.
2. A well-defined strategy of exit from the project. It should be pointed out that this criterion is the most important one at the earliest stages of project selection and assessment because, from its inception, venture investment implies a return on investment and the receipt of the basic part of a profit by selling its share in a business.
3. Investing no more than USD 1 million in the inception phase of the project. The total maximum investment in one company shall be no more than USD 10 million.
4. Experience and achievements of the past periods of a company (project initiator): bringing other innovatory products into the market, attracting investment, selling completed R&D outputs, etc.
5. The payback period should be no more than five years.
1. Possibility of attracting strategic partners as co-investors. As it has been mentioned earlier, involvement of partners is a key element in investment decision-making as early as in the project assessment phase.
2. Availability of sectoral or any other entry barriers, for instance, the need to obtain licenses, certificates, etc. Availability of a team of professionals possessing the knowledge and expertise required for project implementation.
3. Availability of a package of documents prepared by applicants including a detailed business plan of the company’s development.
1. The capacity of the potential sales market of an innovatory product of at least USD 50 million.
2. Start of sales no later than the third year of project implementation and a possibility of exit from the project no later than the seventh year of its implementation.
3. Availability of an export potential of a technology (product). The market of Russia and CIS countries is the main one for the first-phase investment projects, but from the strategic viewpoint investment should be orientated towards projects that can be implemented in large regional markets (for instance, the market in Central and South Asia, and the market in Eastern and Central Europe).
4. Availability of a confirmed interest from potential buyers of a technology/product.