Presentation on theme: "EIF at a glance."— Presentation transcript:
0 Regional Business Development Ioannis TsakirisHead of RegionRegional Business Development11 May 2011JEREMIEThis presentation was prepared by EIF. The information included in this presentation is based on figures available for May Any estimates and projections contained herein involve significant elements of subjective judgment and analysis, which may or may not be correct.
2 EIF - The Challenge: Financing Innovation amongst SMEs in Europe SMEs account for a large proportion of Europe’s economic activityMicro-businesses dominate employment in countries such as Italy (48%) and Greece (57%)Successive EU summits put issues of growth, employment, innovation and competitiveness high on agendaSupport to SMEs: one of the top six EIB Group prioritiesEIF is the SME risk financing arm of the EIB GroupSource: Eurostat, Commission Communication on Modern SME policy for Growth and EmploymentImportance of SMEs as the Foundation Stone for Tomorrow’s Prosperity
3 EIF at a Glance EU specialised institution for SMEs, risk financing Venture Capital and Mezzanine (fund of funds)Structuring and Guaranteeing portfolios of SME and microfinance loans/leasesGeographic Focus /IntermediariesEU 27, EFTA,Candidate CountriesDistributing through Banksand FundsAuthorised Capital€ 3bnEIB: 61.2%EU: 30 %Fin. institutions: 8.8 %AAA ratedStaffing, Culture and ValuesLeading-edge modern institutionAdapting to changing market conditionsAttracting talented staffHigh standards of compliance and integrityDual Objective of Meeting EU Policy Goals & Generating a Satisfactory Return on Equity
4 Operating Model of EIF Transformational Role of EIF Suppliers / MandatorsTransformationalKey SuccessFactorsIntermediariesSMEsOwn resourcesEIB (RCM, MEZ)EC (CIP)MA (JEREMIE)MS (ERP)Funds of FundsRegional (LfA)Product DevelopmentMandate ManagementTransaction ExecutionRisk ManagementFollow-up &Relationship FocusCommercial BanksDevelopment & Promotional BanksGuarantee InstitutionsFund ManagersVALUE ADDED
6 JEREMIE: Increasing the Deployment of Self-Sustaining Financial Instruments for SMEs The Joint European Resources for Micro to Medium EnterprisesJoint initiative of the EU (DG Regio & EIB Group) launched in October 2005Joint also because it potentially combines resources from the EU, National Public Authorities, EIF, EIB and/or other financial institutionsParticipation in JEREMIE optional for each country/region – Holding Fund ManagementUses European Regional Development Funds or European Social Funds for enhancing SME access to finance in New Member States and in Regional Development areas through sustainable and “revolving” financial instrumentsCreate and foster entrepreneurship in EuropeEVALUATIONIMPLEMENTATIONDISBURSEMENTPROCESS20062013JEREMIE Phases
7 Why JEREMIE? Use ERDF/ESF to improve SME access to finance; Reduce the practice of “grant financing”;Increase the flexibility of financial engineering instruments by making them permanent and ”revolving”;Leverage effect: try to attract other sources of funding (BEI, national funds, regional funds, banks, etc.);The concept of Holding Fund: a new idea, at the root of JEREMIE; HF provides funds to Financial Intermediaries which operate in the relevant market segments: VC, guarantees, micro-credit, etc...;Simplified procedures, thanks to HF concept;Delegation of the selection of the Financial Intermediaries and the monitoring and the reporting to Commission to an independent external expert,Allocation of funds to a series of financial instrumentsTo support SMEs throughout the lifecycleReallocation of funds within the Holding Fund at any time
8 National /or regional Level Key Structural Benefit: Funds Allocated Upfront to Fund Holder and Managed at Local LevelEU LevelEuropean CommissionERDF – DG RegioDisbursementUp frontIrreversibleManaging AuthorityLocal holding fundGreater delegation to Local AuthoritiesManagement/administration are outsourced to HF Mgr.National /or regional LevelHolding Fund (« HF »)HF ManagerStructure investments, select Financial IntermediariesAdminister, monitor & report on investmentsAttract a syndicate of investorsClosely collaborate with national/regional authoritiesRole of the HF ManagerFinancial intermediariesNational/regional /Local LevelRegional /Local LevelSMEsTHE MANAGER IS SELECTEDBY MEMBER STATE/REGIONMicrofinancebeneficiaries
9 Funded Risk Sharing for SMEs Portfolio Guarantees & Credit Enhancement EIF Tool Kit for SMEsSME Cash FlowsFunded Risk Sharing for SMEsPublic Stock MarketsPortfolio Guarantees & Credit EnhancementFormal VC Funds & Mezzanine FundsFunded Risk Sharing for SMEsVC Seed & Early StageMicrocreditLes PME ont donc des besoins de financement différents en fonction de leur phase de développement. Les instruments CIP visent à promouvoir les possibilités de financement sur les différents besoins des PME, au cours de leur cycle de vie, de la création jusqu'à la transmission d'entreprise,Ici vous voyez les phases différentes du financement pendant le Cycle de vie de l’entreprise:Pendant la première phase, aussi appelée la « Vallée de la mort », peu d’investisseurs sont enclin à venir épauler l’entrepreneur en phase de démarrage. Les appuis viennent essentiellement de la famille et des amis. C’est ce que l’on appelle le capital de proximité.Apres cette phase difficile, les Business Angels interviennent parfois pour les entreprises représentant un potentiel de croissance particulièrement prometteur. A noter que l’UE est en retard par rapport aux Etats-Unis pour ces sources de capital-risque informelles.En effet en 2004 aux Etats-Unis, le nombre de business Angels par rapport au nombre d’habitants était significativement plus élevé qu’en Europe (4 x selon une étude du FEI de 2004).De plus, les business Angels aux USA investissent des montants en moyenne 6 fois plus élevés qu’en Europe.En ce qui concerne le capital risque dans les phases de démarrage et d’expansion, on note que le rendement aux Etats-Unis, sur une période de 3, 5, 10 et 20 ans est 0, voire négatif. Aux Etats-Unis, par contre, le rendement sur les mêmes périodes est largement positif.En Europe, les investissements pour les mêmes périodes dans les « buy out » est positif et comparable au rendement aux Etats-Unis. C’est sans doute une des explications pour l’affectation du capital risque en Europe au secteur des « buy out », au détriment des phases de démarrage et d’expansion.Source: Thomson Financial, 2006Business Angels, TTPre-seed PhaseSeed PhaseStart-up PhaseEmerging GrowthDevelopmentSME Development StagesHIGHER RISKLOWER RISK
12 JEREMIE Process: call for expression of interest Call deadlineProgressQ & A processEnsuring answers are communicated to allPublicationWebsite and other media to ensure market awarenessState aid assessmentFormal state aid assessment by competent local authoritiesInv. Board approvalFull presentation of product and call documents to local IBsSelection criteriaMonitoring committee’s approval of a specific selection criteriaInternal approvalInternal review and approval process including specialists from legal, risk management & complianceInstrument designExpert driven process to specify product details, to meet market needs whilst respecting regulationsFact findingFollow-on from gap analysis, discussions with key market players and associationsProcess
13 JEREMIE Process: selection and approval Communication of decisionTo FI, mandator and media as appropriateProgressBoard submission/approvalProposal presented to EIF Board for approvalDraft board reportPreparation of decision documents reviewed by all depts.Short-listed applicants undergo intensive 2 day interview processDue diligenceFinal SelectionPresentation of FIs to DD team in loco, scores reviewed & minutedInvitations to 2nd screening issued & DD team formalisedSet up of due diligenceDesk-based review of submitted documents with initial scoring (QAC) and then team review (minuted)Pre-selection phaseSelection PanelInternal agreement of members and observers of core selection teamEligibility checkInitial check to ensure ‘EoI’ passes eligibility checklist with support of complianceCall deadlineProcess
14 Outcome of the JEREMIE process to date 121 VC applications received70 Guarantee applications receivedGreeceRomaniaLatviaLithuaniaSlovakiaLanguedoc Roussillon (FR)Campania (IT)CyprusBulgariaSicily (IT)Malta42 Due Diligences carried out31 approved transactions
15 Holding Funds Portfolio Mix (in %) Funded Risk Sharing Product (FRSP)MicrocreditGuaranteesOther EquityRisk Capital FundFlexible non-allocated funds
17 JEREMIE mandates & their financial engineering products
18 Case Study : JEREMIE via ERDF in Languedoc-Roussillon (FR) market analysis : main conclusions Debt:Smaller funding, typically trough “loans”, for small projects concerning the creation of innovative SMEs with good potential.Such financing, which ensures a link with regional venture capital funds, is extremely limited in L-R.Equity:Funding through equity for the creation of enterprises: local intermediaries tend to move further away from this area of financing to focus investment activity on growth and development of enterprises.This failure is noticed for the creation of innovative enterprises.
19 JEREMIE Funding Agreement signed for LR Signature: 22 October 2008Size: EUR 30m in 3 instalments:EUR 11m in 2008, EUR 10m in 2009 and EUR 9m in 2010Duration: until 31 December 2015Governance/Management:EIF = responsibility for JHF operations“Comité de Pilotage” (Investment Board) consisting of representatives of the French State and of the L-R Region with an advisory role and responsibility for the supervision of the operations – the 1st meeting took place in December 2008, and bi-monthly meetings have taken place thereafter.EIF = observer status
20 Languedoc-Roussillon financial instruments Languedoc-Roussillon is characterised by 3 types of financial engineering instrumentsSeed loans: interest-free loans (up to EUR 100,000) for SMEs operating in innovative sectorsCo-investment fund: technology-oriented and innovative SMEs, participation in the equity of the SMEs of up to EUR 2.5mGuarantee: this product can be applied widely, with a minimum leverage effect of x8.4 and better terms for the SMEs (reduction of personal guarantee + interest rate reduction)Financial Intermediaries for all 3 financial products selected
21 What has the JEREMIE initiative brought to the Languedoc-Roussillon authorities? A better understanding of financial engineering.EIF has defined all the three instruments (seed loans, Co-investment, Guarantee), however the LR authority has been heavily involved since the beginning in the process.Encouragement to move away from grant-dependency to a revolving approach.With a grant approach, there is no leverage. However with the implementation of JEREMIE LR, the EUR 30m (50% ERDF, 50% Region LR) will be leveraged into EUR 143 m that will facilitate SMEs access to finance. JEREMIE in LR does not only benefit SMEs but also the LR economy as a whole.Prioritisation of actions to be implemented in order to develop the SMEs.In other words, instead of various initiatives (which may be difficult to follow and monitor, leading to fragmentation of leverage), the JEREMIE initiative will focus all efforts on one accurate target –thus reinforcing the competitiveness of this target (e.g. SMEs with a significant innovative component).
22 What has the JEREMIE initiative brought to the Languedoc-Roussillon authorities? Facilitates the monitoring of selected financial intermediaries.So far, it was not easy for the LR authority to monitor financial intermediaries (time consuming, lack of knowledge, etc.). Thanks to JEREMIE (under EIF) the LR authority was able to outsource the management of the reporting documents to the EIFEncourages to extention of concept to other sources of EU funding (for the next programming period)So far, JEREMIE has been implemented through ERDF. Due to the aforementioned benefits, the LR authority would like to carry out JEREMIE with EARDF and ESF source of funding during
23 ContactEuropean Investment Fund 96 boulevard Konrad Adenauer L-2968 Luxembourg Tel.: (+352) Fax: (+352)