New Financing opportunities for Innovative SMEs

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New Financing opportunities for Innovative SMEs

• Rome, 1 December 2006

Jean-Noël DURVY INSME- UNIDO International
Training Course on  Business Sart-Up and Access
to Finance for SMEs and New Technology based
Firms 
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MAIN PROGRAMMES / SOURCES OF EU FUNDING

• Structural funds
• FP7 (53.2 billion)
• CIP (3.6 billion)
• But also
• EIF/EIB innovation 20 initiatives
• Framework for States Aids de minimis,
  innovation, risk capital, etc.

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CIP 9 previous programmes
4 common objectives
1. ENTERPRISE (PARTICULARLY SME) COMPETITIVENESS
2. INNOVATION AND ECO-INNOVATION
3. COMPETITIVE, INNOVATIVE INCLUSIVE
INFORMATION SOCIETY
4. ENERGY EFFICIENCY NEW/RENEWABLE ENERGY
SOURCES
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CIP Budget breakdown
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1st pillar EIP

• Objectives
• Access to finance
• SME cross-border cooperation
• Innovation and eco-innovation
• Entrepreneurship and innovation culture
• Policy development
• Main instruments
• Financial instruments (equity and loan
  guarantees)
• Business support services
• Projects (clusters, regional innovation)
• Analysis and monitoring
• Policy exchange

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2nd pillar - ICT Programme

• Objectives
• Single information space
• Innovation and investment in ICT
• Inclusive information society
• Main instruments
• Networks for exchange of knowledge
• Pilot and markete replication projects
• Policy analysis information

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3rd pillar - IEE Programme

• Objectives
• Energy efficiency rational use of resources
  (SAVE)
• New renewable energy sources (ALTENER)
• Energy in transport (STEER)
• Main instruments
• Promotion and dissemination projects 
• Market Replication Projects

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Eco-Innovation in EIP
CIP ECO-Innovation ( 430)
LIFE (? 2006)
Nature
Environment
Access to finance (200 million) Articles 11,
16-19 Risk capital (GIF 12), capacity building,
including resources dedicated to support SMEs
developing or using environmental
technologies Networking of Eco-Innovation
actors Articles 13, 21 Clusters, partnerships,
networks, technology transfer, intellectual
property Business and innovation support, policy
development exchange
Environmental technologies Pilot and Market
Replication projects
FROM 2007
E.T.A.P.
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FINANCIAL INSTRUMENTS

• JEREMIE (Structural funds)
• Risk sharing facility (FP7)
• Financial instruments for SMEs (CIP)
• EIF/EIB own resources
• Some more activities technology transfer
  accelerator

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CIP financial instruments - Meeting SMEs
financial needs
Enterprises Revenue
Public stock markets
Venture Capital Funds
Bank loans and guarantees
Seed/early stage VC funds
Business Angels
Entrepreneur, friends, family
Pre-seed phase
Seed phase
Start-up phase
Emerging growth
Expansion
Valley of Death
Enterprises development stage
HIGHER RISK
LOWER RISK
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Financial instruments for SMEs CIP

• Three instruments
• High growth and innovative SME facility (GIF12)
• SME Guarantee Facility (SMEG 1 to 4)
• Capacity building (CBS)
• A budget of 1129 Mio including an eco-innovation
  component 228 Mio

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CIP financial instruments - Meeting SMEs
financial needs
Enterprises Revenue
Risk Capital
Debt financing guarantees

• High Growth Innovative Companies Scheme (GIF)
• VC funds ( 500 mio)
• Seed and start-up
• Early expansion stage (new)
• Business Angels (new)
• Capacity Building ( 60 mio)
• Seed Capital Action

• SME Guarantees ( 500 mio)
• Loan
• Micro-credit
• Equity and mezzanine (modified)
• Securitisation (new)
• Capacity Building
• Partnership with IFIs (new)

Pre-seed phase
Seed phase
Start-up phase
Emerging growth
Expansion
Enterprises development stage
Valley of Death
HIGHER RISK
LOWER RISK
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Venture Capital for early stages
Trends in VC early stages - of investments
European VC - amounts invested in 2005
Source EVCA
Sources DB Research EVCA, PwC Money Tree
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Equity Investments
European Private Equity Investments (2005) 47
billion
Stage distribution by of Amount Invested
Returns (IRR) as at 31.12.2005
Source EVCA 2005
Source Thomson Financial, 2006
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CIP financial instruments

• Commercially oriented / best market principles
• Minimum 50 of private investors
• Pari passu with private investors
• Catalytic effect
• Includes eco-innovation

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RISK CAPITAL (GIF) principles

• PRE-SEED EARLY STAGE (GIF1)
• SMEs lt 10 years
• Focus on high growth potential
• Support co-investment with business angels
• Typically up to 25 EU investment
• EXPANSION STAGE (GIF2)
• Lower EU intervention
• More sizeable VC funds
• Typically up to 15 EU investment

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Debt finance main issues

• The main source of external finance for the
  majority of SMEs
• New bank requirements ( Basel II )
• Collateral SMEs can provide often insufficient
• Specific financial needs in different phases of
  SME life cycle

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SMEG Facility

• Four windows
• SMEG1 debt finance with loans or leasing
• SMEG2 microcredit financing
• SMEG3 equity and quasi equity instruments for
  SMEs (incl. Mezzanine finance)
• SMEG4 securitisation of SMEs debt portfolios.
• Providing counter guarantees or co-guarantees for
  guarantee schemes.
• Providing direct guarantees for financial
  intermediaries.

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SMEG 1 TO 3

• Intermediaries
• Guarantee schemes (incl. mutual guarantee)
• Financial organisations (banks, leasing
  companies, mezzanine funds, micro-finance
  institutions, etc) operating in participating
  countries.
• Objectives
• cover part of the risk (for instance 50 for
  loans, 75 for microcredit) taken by financial
  intermediaries in financing individual
  transactions (capped with pre-agreed amount)
• Permanent open call
• Pari passu clause subject to guarantee cap, EIF
  will usually rank pari-passu with the
  intermediary, with regard to loss payments.
• Selection process based on selection criteria in
  conformity with market and business practices.
• Monitoring, audit and promotion

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SMEG 4

• Provides guarantees for originators to securitise
  portfolios of loans to SMEs with the aim to
  enable those originators to provide further SME
  financing.
• Originators banks, leasing companies and other
  financial Institutions. Committed to SME
  financing with a particular attention for small
  entities.
• Guarantee rate 100 (except first loss piece
  where a maximum of 50 is guaranteed) guarantee
  fee (and where appropriate commitment fees).

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CBS

• Two windows
• Seed capital action (SCA)
• Partnership Action (PA)
• SCA provides grants for the recruitment of staff
  with financial or technological expertise.
• PA provides grants for technical assistance to
  improve credit appraisal procedures for SME debt
  financing in countries with low banking
  intermediation.

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MAP FINANCIAL INSTRUMENTS IMPLEMENTATION
European Union budget
Provides funds
Invests
Co-Guarantees
Venture capital Fund
Guarantee Society
EIF selects its financial intermediaries based on
capability, history and solidity
Bank
Invests
Lends
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Achievements (1998-2005)

• SME Guarantees

• VC funds

Up to 31 December 2005
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Information Slide - The New SME Definition

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Further Information

• http//europa.eu.int/comm/enterprise/enterprise_po
  licy/cip/index_en.htm

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CONTACT

• Enterprise Industry Directorate-GeneralFin
  ancing SMEs, entrepreneurs innovatorsEuropean
  CommissionB-1049 BrusselsFax 32 2 295 21 54
• E-mail entr-finance-smes-entr-innov_at_ec.europa.eu