Paul Samsonoff - Portfolio Guarantees June 9 th 016
EIF at Glance EU specialised institution for Companys risk financing Debt - Structuring and Guaranteeing portfolios of Company loans/leases and microcredit Equity - Venture Capital and Mezzanine (fund of funds) Geographic Focus: EU 8, EFTA, Candidate Countries Distribution through Banks and Funds (Full delegation) Founded in 1994 & started providing VC to businesses in 1997 Multilateral Development Bank status Basel II 0% risk weighting Aaa/AAA/AAA ratings (Moody s/s&p/fitch) Shareholding Structure: EIB: 61.% (EIB shareholders: 8 EU Member States) European Commission: 6.5% 9 European Financial Institutions: 1.3%
InnovFin Company - Key Guarantee Terms Up to 50% loss coverage (Principal + Interest 90days) Full Delegation to Financial Intermediaries Automatic Coverage/ Inclusion Attractive Guarantee Terms Favourable Capital Treatment Guarantee and Counterguarantee 3
Underlying Transaction Criteria Purpose of Financing: Tangible & Intangible Assets Working Capital Business Transfers Type of debtors: Companys (EC definition) and small mid-caps (< 500 FTE employees) Type of financing: Term Loans (including RCFs), Financial Leases and Mini-Bonds Transaction amount: min EUR 5k - max EUR 7.5m (only Senior Debt) Transaction maturity: min 1 year - max 10 years Currency: EUR and local currency Max (counter-)guarantee amount of EUR 00m per intermediary and EUR500m per intermediary group, to cover transactions originated within a -year period by the selected intermediary 4
Eligibility Rules Recipient type Companys Means a micro, small or medium-sized enterprise as defined by the European Commission Small mid-caps Enterprise which has up to 499 employees is not an Company Eligibility criteria Innovation eligibility At least one of the criteria 1 1 Broad criteria, focused on investment. Please refer to Appendix for more detail and examples 5
Pricing Guarantee Fee: Company 0.50% p.a. Guarantee Fee: Small Mid-Cap 0.80% p.a. Payable either quarterly based on the average portfolio balance or up-front (based on an amortisation schedule) Financial Intermediaries are required to transfer the Financial Benefit to Companys & Small Mid-caps: reduced interest rate (direct guarantees) reduced guarantee fee premium (counter-guarantees) 6
Indicative pricing model components Transfer of Benefit (indicative example) Without InnovFin Financing at 4% With InnovFin Financing at 3.5% Total = 4% Total = 3% Cost of Risk Other / Margin 1.5% 1.5% Reduction of Cost of Risk with InnovFin 0.5% 1.5% FI to replace the cost of risk of the loan portion that is guaranteed, by the cost of the InnovFin guarantee: 0.5% (or 0.8% for small mid-cap) Fixed Costs 0.5% 0.5% Funding Costs 0.5% 0.5% 50% of financing 50% of financing 7
InnovFin: A Win-Win Facility Financial Intermediary Beneficiary Reduced Capital Allocation Unchanged Expected Margin Increased Return on Capital Enhanced Access to Finance Flexible Funding Reduced Cost of Funding Competitive Pricing Proposal 8
Appendices
Selected Innovation Eligibility Criteria (at least one to be met) Short Description Description Example Innovative products / processes / services Fast-growing enterprise R&I costs 5% of operating costs Innovation potential Innovation support / grants Venture Capital Annual R&I expenses 0% of transaction size 80% of funds spent on R&I activities Technology right Company intends to use the funds to invest in producing, developing or implementing new or substantially improved products, processes or services that are innovative (i.e. implying a technological or industrial risk) Company operating for less than 1 years, with an average annualised employee or turnover growth greater than 0% a year, over a 3-year period. Company must have ten or more employees at the beginning of the observation period Company operating in a market for less than 7 years, whose R&I costs represent at least 5% of its total operating costs, in at least one of the 3 years preceding the loan application. In case of an Company (eg. start-up) without financial history, the calculation is done using its current financial statements The company shall have a significant innovation potential or be an R&Iintensive enterprise. This is assessed through additional 11 sub-criteria, where the most used criteria are detailed below Company has been formally awarded grants, loans or guarantees from European R&I schemes (Horizon 00/FP7) or national research or innovation support schemes Early stage Company that has received an investment over last 4 months from a venture capital investor / business angel Annual R&I expenses 0% of underlying transaction size. Also the increase in R&I expenses is at least equal to the underlying transaction size as per business plan Company will spend at least 80% of the transaction on R&I activities. The remaining 0% will be spent on costs that enable such activities (eg. salaries) Company has registered at least one technology right in the last 4 months, and the purpose of the loan is to enable the use of this technology. Technology right could be patent, utility model, software copyright, etc Company investing in a new machine that will improve its current production Company with 0% average annual growth in turnover between year 7 and 9 of its incorporation Car rental Company investing in a new car fleet, which represents 5% of its operating costs in the previous year As per one of the below criteria Pharmaceutical Company is eligible after receiving a grant from a national research scheme Venture capital investor decided recently to invest in the Company Investment in a new online page that will increase sales is more than 0% of the loan amount 80% of loan will be used to invest in a new delivery service Company recently registered a patent for a production process and now intends to build it 10
Portfolio Origination 0% 5% 10% 15% 0% 5% 30% 35% 40% Innovation support/grants criteria Innovation products/processes Venture Capital investment R&I expense 0% R&I costs 10% Technology right Fast growing enterprise Other 11.98% 6.78% 5.88% 5.85% 4.08% 7.6% 17.41% 40.41% Typical Company or small mid-cap loan covered by InnovFin guarantee: Received grants/schemes form EU R&I schemes (Horizon 00 or FP7); Are producing, developing or implementing innovative new products, processes or services; Had a venture capital/business angel investment; Is a fast growing enterprise; Has registered at least one technology right; or Has satisfactory proportion of R&I Costs as % of total operating costs. 11
Success Stories Final Recipient Company NetThings Country United Kingdom Type of business Technology, controlling energy consumption over the web EU-supported guarantee InnovFin, EFSI Final recipient type: small business Edinburgh based technology firm which developed universal platform for connecting and controlling devices over the Internet Loan purpose: trial and testing of energy management system, Click, with a major hospitality group which includes national chain of pubs, restaurants, hotels and shops Click, the companies flagship product, enables costeffective management of large estates or small commercial outlets Targeted at the energy and building automation market Financial Intermediary: Barclays 1
Success Stories (cont d) Final Recipient Company Smart Eye AB Country Sweden Type of business Technology, eye tracking EU-supported guarantee InnovFin, EFSI Final recipient type: small business Located in Gothenburg, Sweden s second largest city Team of 40 specialists developing and selling innovative eye tracking technology Loan purpose: working capital financing to secure two key contracts and hire additional staff to deliver the product to customers Flagship product, Smart Eye Pro, measures a persons eyelid opening, gaze direction, head positioning and other variables Applied in automotive and transport industry, aerospace and defence, IT and consumer electronics, etc. Financial Intermediary: Almi Företagspartner 13
InnovFin Product Overview 14 14
InnovFin SME Venture Capital - Key Features VC and BA funds focusing on early stage companies Focus on Horizon 00 objectives (e.g. ICT, life sciences, clean energy, technology) Companies in pre-seed, seed, start up phases Pari-passu, at least 30% investment from private investors Open Call for Expression of Interest until 30/09/00 Investment size up to EUR 30m up to 50% of total commitments (catalytic) 15 15