Presentation on theme: "SME financing tools for innovation"— Presentation transcript:
1 SME financing tools for innovation Angel Milev, Programme Director ARC FundCoordinator, Enterprise Europe Network-Bulgaria
2 Topics to Discuss The presentation covers the following topics: Funding requirements of innovative SMEs;Different forms of finance and the implications of using them;Role of Government in financing innovative SMEs;Instruments for SMEs under coming Horizon 2020 and COSME.
3 Funding requirements of Innovative SMEs Innovation – “A new idea that can generate profit”Costs that incur before that profit appears:Development costsIntellectual Property costsPrototyping / Proof of Concept costsMarketing costsManufacturing costsDistribution costsEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
4 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costs - for research (including market needs), conceptualisation, design, simulation etc.Usually personal efforts and time – own financing and spare timeEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
5 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costsIntellectual Property costs – To IP or Not to IP. What type of? What area?Prototyping / Proof of Concept costsMarketing costsManufacturing costsDistribution costsEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
6 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costsIntellectual Property costsPrototyping / Proof of Concept costs: materials, development, design, manufacturing;Marketing costsManufacturing costsDistribution costsEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
7 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costsIntellectual Property costsPrototyping / Proof of Concept costsMarketing costs – research, strategy, plan, channelsManufacturing costsDistribution costsEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
8 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costsIntellectual Property costsPrototyping / Proof of Concept costsMarketing costsManufacturing costs – materials, manufacturing, own production or subcontracting?Distribution costsEven when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
9 Funding requirements of Innovative SMEs Costs that incur before that profit appears:Development costsIntellectual Property costsPrototyping / Proof of Concept costsMarketing costsManufacturing costsDistribution costs – transportation, networks etc.Even when income starts to be received the SME will already be considering the next steps necessary to maintain their market position.
10 Forms of financeDifferent forms of finance may be characterised according to:the type of financial instrument involved;the source of the finance;the implications for the SME of using that type of finance, including:CostRelationships and obligationsImplications of changes in business on the financing of the businesswhether they are direct or indirect.
11 Types of financial instrument Forms of finance include:GrantsLoansMezzanineEquity InvestmentsIn general SMEs will seek the least expensive finance first, but cost should not be the only consideration.
12 Types of financial instrument Forms of finance include:Grants - non-repayable funds disbursed by one party (grant makers), to a recipient. In order to receive a grant, some form of "Grant Writing" often referred to as either a proposal or an application is usually required.LoansMezzanineEquity Investments
13 Types of financial instrument Forms of finance include:GrantsLoans - An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time.MezzanineEquity Investments
14 Types of financial instrument Forms of finance include:GrantsLoansMezzanine - A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is aggressively priced with the lender seeking a return in the 20-30% range.Equity Investments
15 Types of financial instrument Forms of finance include:GrantsLoansMezzanineEquity Investments - Money that is invested in a firm by its owner(s) or holder(s) of common stock (ordinary shares) but which is not returned in the normal course of the business. Investors recover it only when they sell their shareholdings to other investors, or when the assets of the firm are liquidated and proceeds distributed among them after satisfying the firm's obligations. Also called equity contribution.
16 Types of financial instrument Forms of finance include also:In the beginning: 3f (family, friends, fools)Business angelsVenture capital fundsEtc.
17 Relationships and obligations associated with different forms of finance By accepting external finance the SME creates a new relationship and obligations:personal liability arising from providing personal security in support of a loan;relationship between the business owner / innovator / entrepreneur and a Business Angel investor;ability to raise further finance in the future being linked to the existing financing arrangement;alignment between owner’s preferred direction for the business and exit route for equity investor.
18 Indirect financing Mechanisms other than direct investments: tax reliefs;reductions of or exemptions from other charges;guarantees and other risk-sharing arrangements;procurement initiatives;Relevant infrastructure;Specialised support services.This type of mechanisms are usually applied by the Government.
20 What is Horizon 2020The EU framework programme for Research and Innovation:Commission proposal for a 80 billion euro research and innovation funding programme ( )Part of proposals for next EU budget, complementing Structural Funds, education, etc.A core part of Europe 2020, Innovation Union & European Research Area:Responding to the economic crisis to invest in future jobs and growthAddressing peoples’ concerns about their livelihoods, safety and environment.Strengthening the EU’s global position in research, innovation and technology
21 What’s newA single programme bringing together three separate programmes/initiativesMore innovation, from research to retail, all forms of innovationFocus on societal challenges facing EU society, e.g. health, clean energy and transportSimplified access, for all companies, universities, institutes in all EU countries and beyond.*The 7th research Framework Programme (FP7), Competitiveness and Innovation FP (CIP), European Institute of Innovation and Technology (EIT)
23 Priority 1 Excellent science 31,70% Why: • World class science is the foundation oftomorrow’s technologies, jobs and wellbeing• Europe needs to develop, attract and retain research talent• Researchers need access to the best infrastructures
24 Proposed funding (million euro, 2014-20) European Research Council13.095Frontier research by the best individual teamsFuture and Emerging Technologies2.696Collaborative research to open new fields of innovationMarie Curie actions*6.162Opportunities for training and career developmentResearch infrastructures (including e-infrastructure)2.488Ensuring access to world-class facilities
25 Industrial leadership 23,11% Priority 2Industrial leadership 23,11%Why:• Europe needs more innovative SMEs to create growth and jobs• Strategic investments in key technologies (e.g.micro-electronics) underpin innovation across existing and emerging sectors• Europe needs to attract more private investment in research and innovation
26 Proposed funding (million euro, 2014-20) Leadership in enabling and industrialtechnologies (ICT, nanotechnologies, materials, biotechnology, manufacturing, space)Access to risk financeLeveraging private finance and venture capital for research and innovationInnovation in SMEsFostering all forms of innovation in all types of SMEs
27 Priority 3 Societal challenges 40,91% • EU policy objectives (climate, environment, energy, transport etc) cannot be achieved without innovation• Breakthrough solutions come from multi-disciplinary collaborations, including social sciences & humanities• Promising solutions need to be tested, demonstrated and scaled up
29 SMEs in Horizon 2020SMEs will be encouraged to participate across Horizon 2020 programmes through a new dedicated SME instrument.It aims to fill gaps in funding for:early-stage, high-risk research and innovation by SMEs;stimulating breakthrough innovations.
30 SMEs in Horizon 2020It is expected that through this integrated strategy around €6.8 billion, of the total combined budgets of the 'Tackling societal challenges' Specific Programme and the 'Leadership in enabling and industrial technologies' objective will be devoted to SMEs.
31 SMEs in Horizon 2020A new dedicated SME instrumentSimilar to the SBIR model ( It will provide easy access with simple rules and procedures. It will be used across all societal challenges and the enabling and industrial technologies. The new instrument will encourage SMEs to put forward their most innovative ideas with an EU dimension. It will target highly innovative SMEs showing a strong ambition to develop, grow and internationalise, regardless of whether they are high-tech and research-driven or non- research conducting, social or service companies.
32 SMEs in Horizon 2020Only SMEs will be able to apply for funding, even single company support will be possible to ensure market relevance and to increase commercialisation of project results. SMEs can decide how to organise the project and with whom to collaborate, including subcontracting tasks if they lack in-house capabilities.
33 SMEs in Horizon 2020 A new dedicated SME instrument The new instrument will integrate the specific SME measures of FP7 in one comprehensive, simple and easily accessible scheme. It covers the possibility to outsource research and development critical to the innovation projects of non- research intensive SMEs, currently supported under 'Research for the Benefit of SMEs'.
34 SMEs in Horizon 2020 How it works Support is provided in three different stages covering the whole innovation cycle (similar to the US SBIR model – Small Business Innovation Research -A feasibility part will allow an assessment of the technological and commercial potential of a project;
35 SMEs in Horizon 2020 How it works Support is provided in three different stages covering the whole innovation cycle (similar to the US SBIR model – Small Business Innovation Research -А main grant will be provided to undertake research and development with the emphasis on demonstration and market replication;
36 SMEs in Horizon 2020 How it works Support is provided in three different stages covering the whole innovation cycle (similar to the US SBIR model – Small Business Innovation Research -The commercialisation phase will be supported indirectly through simplified access to debt and equity financial instruments as well as other measures, for example on IPR protection. Successful completion of one stage will allow an SME to move on to the next.
37 SMEs in Horizon 2020 How it works Relying on existing SME support networks (Enterprise Europe Network), a mentoring and coaching scheme shall be provided to beneficiaries so as to accelerate impact from funding under the SME instrument.SME Associations may continue to assist and to support their member companies in a European project as part of an SME-led consortium formed under the SME instrument. Such Associations will thus be able to play an important role in the dissemination of project results.
38 SMEs in Horizon 2020 Support for research intensive SMEs A specific action will promote market-oriented innovation of R&D-performing SMEs, building on the Eurostars Joint Programme.SMEs will be able to participate in other parts of Horizon 2020, such as the Marie Curie Actions or the activity on Future and Emerging Technologies.
39 SMEs in Horizon 2020Financial instruments (equity and debt) will support SMEs€ 3.5 billion is budgeted for financial instrument facilities, and accompanying measures, for research and innovation At least one-third of this amount will be dedicated to SMEs and small mid-caps.A leverage of up to 5 is envisaged, meaning that for every Euro provided through the financial instruments, additional finance of up to 5 Euro will be generated.
40 SMEs in Horizon 2020A debt facility providing loans, guarantees and other forms of debt finance to entities of all forms and sizes, including research and innovation-driven SMEsAn equity facility providing finance for early- and growth-stage investments, with a particular focus on early-stage SMEs with the potential to carry out innovation and grow rapidly.
41 SMEs in Horizon 2020These Horizon 2020 facilities will be operated in conjunction with the financial instrument facilities of COSME, the Programme for the Competitiveness of Enterprises and SMEs, where €1.4 billion has been allocated to debt and equity financing in support of SMEs.
42 SMEs in COSMECOSMEStrengthening the competitiveness and sustainability of the Union’s enterprises, particularly SMEsEncouraging an entrepreneurial culture and promoting the creation and growth of SMEs€2,3 billion for 2014 – 2020(current prices)
43 SMEs in COSMECOSME’s 2 financial instruments:Equity facility for Growth (EFG) to invest in SMEs in expansion phaseLoan guarantee facility (LGF) to provide guarantees to cover loans for SMEs for up to EURBudget 2014: €
44 Horizon 2020 & COSME financial instruments Equity instrumentsEquity Facility for R&I (H2020)Equity Facility for Growth of SMEs (COSME)Debt instrumentsSMEs & Small Midcaps Guarantee Facility for R&I (H2020)Loan Guarantee Facility for SMEs (COSME)
45 Rules for Participation: what’s new? 1. A SINGLE SET OF RULESAdapted for the whole research and innovation cycleAligned to the Financial Regulation, coherent with other new EU Programmes.2. ONE PROJECT - ONE FUNDING RATEMaximum of 100% of direct costs (except for actions close to market, where a 70% maximum will apply)Indirect eligible costs: a flat rate of 25 % of direct eligible costsCovering all research programmes and funding bodies
46 Rules for Participation: what’s new? 3. SIMPLE EVALUATION CRITERIAExcellence - Impact - Implementation (Excellence only, for the ERC)4. NEW FORMS OF FUNDINGAimed at innovation: pre-commercial procurement, inducement prizes, dedicated loan and equity instruments.5. INTERNATIONAL PARTICIPATION:Facilitated but better protecting EU interests.
47 Rules for Participation: what’s new? 6. SIMPLER RULES FOR GRANTS:Broader acceptance of participants accountingPractices for direct costs, flat rate for indirect costs, no time-sheets for personnel workingFull time on a project, possibility of output-based grants.7. FEWER, BETTER TARGETED CONTROLS AND AUDITSLowest possible level of requirements for submission of audit certificates without undermining sound financial management;Audit strategy focused on risk and fraud prevention.
48 Broader access• For SMEs - dedicated SME projects to address societal challenges and enabling technologies• For all regions - tailored support to policy learning, twinning, networking, complementing Structural Funds• For international partners - broad access to Horizon 2020• For all forms of innovation - social innovation, services,pilots, stimulating demand through public procurement, standard settingBUSINESS COACHING
49 Next stepsBy the end of 2013: Adoption of legislative acts by Parliament and Council on Horizon 202011/12/2013: Horizon 2020 starts; launch of first call
50 Find out more: www.ec.europa.eu/research/horizon2020
51 Programme Director, ARC Fund Thank you for your attention!Angel MilevProgramme Director, ARC Fundtel.: 02/ , fax: 02/Как да се свържете с мрежата? Посетете нашия сайт и разгледайте международната ни и локална мрежа. Където и да сте, мрежата е там в подкрепа на вашия бизнес! Благодаря Ви за вниманието!