Sorainen is advising the Estonian Development Fund, a public institution established by the Estonian Parliament to support improvements in the Estonian economy through investment in knowledge- and technology-intensive Estonian business in the start-up phase, and SmartCap, a venture capital fund management company established by the Estonian Development Fund to manage venture capital Early Fund II, in restructuring their direct investment portfolio.
In August 2014, the Estonian Development Fund supervisory council decided to restructure Development Fund investment activity. As explained by Ville Jehe, chairman of the Development Fund council, “Development of the market has reached a stage where there are enough private fund management companies and the state itself no longer needs to provide a fund management service”.
In August 2016, the Estonian Development Fund, SmartCap and the European Investment Bank announced a call to find a private fund manager for a direct investment portfolio that includes 15 start-ups. The European Investment Bank is involved in the project in order to ensure transparent and non-discriminatory competition.
The private fund manager is expected to create a new fund, manage a direct investment portfolio and make follow-on investments. Existing holdings in portfolio companies as well as up to 10 million euros for follow-on investments will be contributed to the new fund.
The winner of the call must manage the fund according to market conditions. The fund managed by the private fund manager will retain earlier investment principles, as all the investments in portfolio company equity will be joint investments with private investors.
The new fund should begin operating in Q1 2017. Direct investments will continue to be managed as before until a private fund manager is appointed.
Restructuring the activities of these funds is a unique process in Estonia as it is the first time that management of investments is being transferred from the public sector authority to a private fund manager, including a private fund manager selection process as described above.
Sorainen advised the Estonian Development Fund and SmartCap on legal issues related to structuring and preparing for the selection procedure to find a private fund manager for the current direct investment portfolio, including advising on complex public procurement, state aid and fund regulation issues and share option program related matters plus assisting in drafting the terms and conditions for the selection procedure of a private fund manager.
The clients were advised by a team led by partner Reimo Hammerberg, including specialist counsel Paul Künnap, senior associates Jane Eespõld, Kaspar Endrikson, Kadri Härginen and Veiko Vaske with associate Kristina Promet.