Aldo Monteforte: ETF Group

01 October 2001

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What is ETFâ€™s investment strategy in Italy?

ETF pursues an investment strategy focused on four main themes: intelligent systems, enterprise software, system and network performance and outsourced business processes. It is up to our representatives in Italy to identify the companies that best suit our strategy. Technology investors have, above all, to be realistic about the kind of technology that is to be found in Italy and, for example, concentrate on infrastructure and equipment rather than on software. There are a large number of medium-sized companies focused on areas such as mechanical engineering, biomedical services and electronics. Although they may not have deployed the most advanced IT and communications technologies, they are often leaders in their own particular niches. Our strategy in Italy is to concentrate on the value creators: those companies that have a solid market presence, are capable of generating profits, have loyal clients worldwide and, above all, have a first-class management team.

How do you intend to source your deals?

Our best investment opportunities so far have either come directly from the companies themselves or have been recommended by other venture capitalists or strategic investors, particularly those looking for technological expertise. Other interesting opportunities for investment come from portfolio companies recommending a competitor or other companies in their value chain. If they recommend a competitor it is usually with a view to a potential merger or technology-sharing agreement.

What investments has ETF made recently in Italy?

Our recent deals include Nexo, a joint venture with Cobra AT, the European leader in automotive security, and Enel Capital, the vehicle owned by Enel, the Italian energy and telecommunications organisation. Another example is PLLB Elettronica, a design and production company that develops and markets advanced test, measurement and monitoring systems for fibre optic and wireless networks. PLLB products address the operatorsâ€™ critical need to ensure consistent quality of service across their networks.

How are you planning to exit from your investments now that the capital markets are effectively closed?

ETFâ€™s exit strategy reflects current market conditions. One of our companies, Memscap, achieved an IPO in 2001. However, the current market conditions no longer favour that particular strategy. At the moment, even trade sales are more difficult, in part because potential acquirers are basing valuation estimates on comparables from the public markets. The pressure on valuations reflects the general disenchantment with the high-technology sector as a whole.Companies able to provide compelling solutions will continue to generate revenues and profits even in a downturn, and will as a result be attractive candidates for a trade sale or, when the markets return, an eventual IPO. We are focusing on the fundamentals and doing everything we can to ensure that our portfolio companies do the same. Despite the market conditions, we continue to invest, selectively, of course, in promising opportunities.

How has the ETF Groupâ€™s investment rate developed over the past 2-3 years?

1999 and 2000 were very busy years for the ETF Group as they were for most companies focused on the technology sector, reflecting the astonishing growth in the capital markets during this period. The Groupâ€™s investment rate has since slowed considerably. We are now busy looking after the considerable amount of companies in our portfolio.

How much competition is there between venture capitalists in Italy at present?

The current competitive climate in Italy is fairly mild as relatively few investments are being made. There was far more competition from other investors in 2000 than there is now. It is worth mentioning that investors tend to mitigate competition to a certain extent by co-investing alongside other venture capitalists. At the moment we are facing an environment where the weaker playe???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????â€ ???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????