EU Financial Instruments for Stimulating R&I and Growth

EU Financial Instruments for Stimulating R&I and Growth Preparations for 2014-2020 Steve Rogers European Commission DG Research & Innovation Financial Engineering Team Nordic-European Public Investor Workshop Stockholm, 28 November 2012

Why EU-level financial instruments? Effective and efficient use of EU resources Multiplier effect: attract additional investors Policy impact widened via financial intermediaries Good use of staff resources: a little goes a long way Political priority (Europe 2020, other declarations)

Building on success: 2007-2013 Venture capital (GIF-1, GIF-2) - EIF o mobilised: over 2 billion so far o final beneficiaries: 236 SMEs EU outlay: 376 million SME Guarantee Facility - EIF o loans: over 11.5 billion via 54 guarantee agreements so far o final beneficiaries: > 191 000 SMEs EU outlay: 393 million Risk-Sharing Finance Facility - EIB large midcaps, big firms o loans: over 8.5 billion from EIB so far o 88 signed operations EU outlay: 888.7 million Risk-Sharing Instrument EIF (pilot) guarantees + counter-g o SMEs, small + medium midcaps undertaking R&I o aim: 2.5 billion loans, 20 banks/guarantors, 1000 firms 3

Lessons learnt o Streamline rules and number of instruments! o Specific legal framework to increase confidence o Think innovation ecosystem o Coordinate more closely with Structural Funds o Prioritise awareness-raising to stimulate demand o Performance incentives work! o Prototype rapidly; evaluate often o Widen range of stakeholders in the governance system

BIGGER R&I and growth FIs: major changes going forward More money in the pot (depending on MFF negotiations) BOLDER Add funds-of-funds to equity support toolbox Further upstream and downstream VC is not the only game in town BETTER Interdependent R&I and growth FI facilities Governance: advisory board of high-level experts Market-test, pilot, review, scale up

FI proposals for 2014-2020 MFF (*) current prices Centrally managed by COM Shared management Research & Innovation Growth, Jobs and Social Cohesion Horizon 2020 Equity and Risk-Sharing Instruments Competitiveness & SMEs (COSME) Equity & guarantees 1.4 bn (*) Social Change & Innovation Micro-finance 192 mn 4 bn (*) Instruments under Structural and Cohesion Funds Creative Europe Guarantee Facility 210 mn Erasmus for all Guarantee Facility 881 mn EU level Off-the shelf instruments Tailor-made instruments Infrastructure Connecting Europe Facility (CEF) Risk-sharing (e.g. project bonds) and equity instruments Budget not yet decided Significantly higher amounts than currently

Equity instrument for SMEs growth and R&I o o Equity Facility for R&I (H2020) Equity Facility for Growth (COSME) Debt instrument for SMEs growth and R&I o o Horizon 2020 and COSME will support two financial instruments for SMEs Loan Guarantee Facility (COSME) SMEs & Small Midcaps Guarantee Facility for R&I (H2020) 7

Equity instrument for SMEs growth and R&I Equity Facility for R&I (H2020) GIF-1 o focus: early-stage VC o final beneficiaries: innovative SMEs and small midcaps o growth-stage to some extent Equity Facility for Growth (COSME) GIF-2 o focus: growth-stage VC o final beneficiaries: growth-oriented SMEs o early-stage to some extent Multi-stage funds: pro-rata support by COSME and H2020 Funds-of-funds NEW Technology transfer fund (option) 8

Funds-of-funds: first thoughts One to three FoFs, depending on budget available Possibly 400 to 500 million per FoF EU cornerstone contribution say up to 150 million per FoF Managers either public or private-public (with private lead) Implemented directly, indirectly or using DIV Risk-sharing based on pari-passu approach, as a rule Assessment of options underway selection of FoF manager reputational risk fees HR impact in Commission investment strategy monitoring and control ramp-up / exit modes incentives

Technology transfer fund: first thoughts Option to include in H2020 equity facility Discussions involving Commission departments, Joint Research Centre, TTOs, EIF Survey of best practices underway Member States, Norway, Israel and other regions Ex ante impact assessment in progress - gap analysis (proof-of-concept, pre-seed, seed phases) - leverage of EU funding via additional (private) capital - critical mass level? (no small-scale EU TTF fund!) - implementation and governance costs

Debt instrument for SMEs growth and R&I Loan Guarantee Facility (COSME) o guarantees for loans to SMEs up to 150 000 o securitisation of SME debt finance portfolios SMEs & Small Midcaps Guarantee Facility (H2020) o guarantees for loans over 150 000 for R&I activities 11

Horizon 2020: debt financing for larger midcaps, large corporates, research bodies, etc Loan & Guarantee Service for R&I demand-driven window (RSFF successor) 12

Budget proposed current prices COSME Actions to improve SME access to finance o 1.436 billion o Equity Facility for Growth: 690 million o Loan Guarantee Facility: 746 million indicative Horizon 2020 Access to risk finance o 3.768 billion net of admin o At least 1/3 likely to be absorbed by SMEs + small midcaps o no breakdown equity debt 13

Full-spectrum approach: - from tech transfer and proof-of-concept - to prototypes, large-scale demonstrators, first-of-a-kind plants Stronger focus on SMEs and medium-sized firms (midcaps, Mittelstand) Market-driven, first-come, first-served basis as now, PLUS Targeting of sectors and policies via ring-fenced budget top-ups from other parts of H2020, MFF frameworks/programmes/budget lines, regions/ms, JTIs (etc), other initiatives Closer links with regional policy Key characteristics What to expect in the debt and equity facilities in H2020 resource pooling with MS Structural Funds foreseen in H2020, CSF (and in COSME) 14

Ideas at early stage Accompanying measures Examples listed in Commission s Horizon 2020 proposal Technical assistance for second-tier financial intermediaries (i.e. banks) Investment-readiness and bankability booster schemes small firms: venture and other forms of investor forums, etc large firms, PPPs, JTIs, complex multi-stakeholder projects, etc: R&I Advisory Service (pilot now running with EIB under RSFF) Awareness-raising (demand stimulation) in under-represented sectors Fostering business angels, crowdfunding, family offices, endowments Encouraging philanthropic foundations and individuals to support R&I 15

Implementation as now o Steering committees for each financial instrument: entrusted entity (EIB, EIF, other bodies) + Commission departments managing and making most use of instrument Policy steer and monitoring as now o Horizon 2020 and COSME programme committees: Member States and countries associated with COSME / H2020 plus strengthened reporting to European Parliament Advice and reality-check Governance o Advisory Group for Access to Risk Finance (Horizon 2020) NEW o High-level experts in debt and equity financing of R&I o Call for expressions of interest planned soon 16