European Commission Economic and Financial Affairs DG - Luxembourg, Unit L2 Jim Mc Ging - Head of Unit and Roger Havenith - Deputy Head of Unit Financial Instruments for Innovation Bruxelles, 14 November 2006
WHY FINANCIAL INSTRUMENTS?
SMEs on the European market EU25 + EFTA: approx 25 million SMEs: 99.8% of total number of enterprises (Micro 93%) 66% of total employment Access to finance second business constraint for 13% of SMEs (3,25 mio)* CIP financial instruments target approx. 500,000 SMEs *Source: Flash Eurobarometer 174 survey, September 2005
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
Equity Investments European Private Equity Investments (2005) : 47 billion* Stage distribution by % of Amount Invested* Returns (IRR) as at 31.12.2005** Expansion 21,8% Replacement Capital 4,8% Start-up 5,0% Seed 0,2% Buyout 68,2% *Source: EVCA 2005 **Source: Thomson Financial, 2006
Venture Capital investments By country of management as % of GDP 17,4 bn 12,7 bn Source: DB Research
Venture Capital investments Number of deals (2005) Average deal size ( mio/ deal) 2040 8,7 950 3,8 US EU US EU Source: DowJones VentureOne, E&Y 1Q2006
Venture Capital for early stages European VC - amounts invested in 2005 Trends in VC early stages - % of investments Seed 1% Start-up 18% Expansion 81% Source: EVCA Sources: DB Research: EVCA, PwC Money Tree
Pre-money Valuations US EUROPE Source: DowJones VentureOne, E&Y 1Q2006
CIP FINANCIAL INSTRUMENTS
CIP Financial Instruments Competitiveness and Innovation Framework Programme (2007 2013) Entrepreneurship and Innovation Programme CIP Financial Instruments Objective: Support high growth potential SMEs and more traditional ones from pre-seed to early expansion stage Budget: 1.1billion (vs 500 mio for MAP)
CIP financial instruments - Meeting SMEs financial needs Enterprise s 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 Enterprise s development stage HIGHER RISK LOWER RISK
CIP financial instruments - Meeting SMEs financial needs Enterprise s Revenue Risk Capital High Growth Innovative Companies Scheme (GIF) VC funds (~ 500 mio) o Seed and start-up o Early expansion stage (new) Business Angels (new) Capacity Building (~ 60 mio) Seed Capital Action Debt financing & guarantees 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 Valley of Death Enterprise s development stage HIGHER RISK LOWER RISK
CIP financial instruments - RISK CAPITAL (GIF) principles Commercially oriented / best market principles Minimum 50% of private investors Pari passu with private investors Catalytic effect Includes eco-innovation PRE-SEED & EARLY STAGE (GIF1) SMEs < 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
CIP financial instruments - SME GUARANTEES principles Adapted to market realities of each country/ region Additionality Risk sharing Instruments: Loan guarantees Micro-credit guarantees Equity and mezzanine guarantees Securitisation
Achievements (1998-2005) EU budgetary funds committed VC funds Total funds committed 153 mio 920 mio SME Guarantees EU budgetary funds committed Total aggregate Loan amount 400.7 mio 20 290 mio 28 FUNDS + 14 VCFs in the pipeline (Investment Amount of EUR 150 M) Nr of Portfolios of Financial Intermediaries 69 Innovative SMEs Supported 323 Nr of SMEs supported 277 033 Up to 31 December 2005
Achievements Leverage Effects VC funds SME GUARANTEES 6 of total funds for 83 of investment and 1 of EU funds committed 50 of loan amount for 1 of EU funds committed 1.000 900 800 920 35.000 30.000 33.467 700 600 500 25.000 20.000 20.290 400 15.000 300 200 100 0 Total funds 153 EU Budgetary Funds Committed 10.000 5.000 0 Amount of Investment Loan Amount 401 EU Budgetary Funds Committed
Geographical Distribution (MAP) EU 25+NO+BG+RO+TR
MAP financial instruments in Norway Instrument: Loan Guarantee Financial Intermediary: Innovation Norway Guarantee Cap: 2 million Availability Period: 01.01.2005-31.12.2006 Average loan amount: 245 000* Nr of SMEs: 20* Instrument: Microcredit Guarantee Financial Intermediary: Cultura Bank and Microinvest Guarantee Cap: 93,750 Availability Period: 01.01.2006-30.06.2007 Average loan amount: 12 000* Nr of SMEs: 15* * At 30 June 2006
CIP financial instruments - Economic impacts VC funds SME Guarantees Nr of SMEs 1 200 460 000* Nb of jobs 62 000 460 000* Average cost 8 100 1 130 * + Securitisation
Outlook Smooth transition from MAP to CIP Reach significant number of SMEs in participating countries (including EFTA!!) seeking finance Help SMEs to grow and innovate using costeffective instruments
Thank you for your attention