Presentation on theme: "Innovation tools to finance innovative SMEs"— Presentation transcript:
1 Innovation tools to finance innovative SMEs WIPO-INSME Training program on the role of intellectual property in raising finance by small and medium-sized enterprisesInnovation tools to finance innovative SMEsGeneva,Christian SAUBLENSEBAN
2 1. ForewordThere is an asymmetry of information between entrepreneurs and investors;It’s not only a question of access to money but also a question of life cycle of a company and about … sales and market penetration;Investment readiness is needed;All money is not the same;
3 Financial Supply Chain BanksGuarantiesLeasingFactoringGrantsMicro-creditsOther public supportSME profitabilityPrerequisitesLoans on trustPre-seedLoans for inventorsReimbursable advance paymentsUniversity spin offProof of conceptOwn resourcesFFFBACorporateVenturingSeedcapitalMezzanineVCIPOToolsInfrastructure:business angels networks, incubators, etc.Advice: investment readiness, tutorshipExpertise: professional fund managersFFF : Family, Friends, FoundersBA : Business angelsVC : Venture capitalIPO : Initial Public Offering
4 The paradox of access to finance BanksVenture CapitalistsStock ExchangeHave moneyBut argue that there aren’t enough good projectsWhat is a good project?A project which is not perceived as riskyfor an investor
5 Trial to analyse the equity paradox Supply:Is there enough money available for seed and early equity?Demand:Are entrepreneurs aware of investors aspirations/ expectations (asymmetric information; all money is not the same)?Are entrepreneurs ready to receive equity finance (Investment readiness)?Are entrepreneurs proposals/ideas really innovative for investors?
7 EBAN statistical sample shows: N° of active angels in the EBAN sample:N° of projects received: 9.500N° of deals done: 580Size of deals: to €Average size: €
8 New trends B.A. & B.A.N. co-funding vehicles Proof of concept loans/grantsRepayable advanceMezzanineUniversity spin out/off fundsPipeline research revenueNon-financial tools
9 2. Segmentation of the market Start-up phaseFirst financial roundSubsequent financial roundInitial and unorthodox sourcesPublic SupportDebt financeN.B:Indirect supportsIntegrated actions
10 Start-up Phase Seed capital fund Loans without interest and/or guaranteeUniversity and research centres spin off fundsMicro-creditPublic or parapublic funds for creation or innovationPublic grantsReimbursable loansProof of concept
11 First Financial Round Business Angels Seed capital fund Banks loans/OverdraftGuarantee fundsPublic or parapublic investment fundsRegional Public venture capitalPublic grantsCorporate venturing
13 Initial an unorthodox ways Entrepreneurs savingsFFFProfit reinvestmentsSecond mortgagePersonal credit cardsCustomer advanceDelay of paymentsPremises sharingEmploying relatives at below market salaries
14 Debt finance Bank credits: Short term Long term Unsecured Micro Commercial debt (papers)Public/semi public loansBonds
15 Public financeGrantsReimbursable advancesguarantees
16 3. Sources of finance All money is not the same! Business angels (informal risk capital): private individuals investing part of their personal assets in businesses and contributing their managerial skills and experience.Business Angels Networks (BANs): regional platforms that match business angels with businessmen.Buyouts: existing investors’ shares in a business are bought by the latter’s own management team (MBO-Management Buy Out) or by another management team supported by a venture capital fund.Corporate venturing: venture capital supplied by existing companies for the purpose of financing innovative businesses set up by their own personnel or active in industries considered to be of strategic importance.
17 Development or expansion capital: financing provided for the growth and expansion of a company, which may or may not break even or trade profitably. Capital may be used to: finance increased production capacity; market or product development; provide additional working capital.Early-stage finance/Start-up: funds invested downstream of research and development, in businesses that need additional finance to start marketing their products and services.Equity: Ownership interest in a company, represented by the shares issued to investors.Expansion: growth, bridging or restructuring capital.Factoring: a technique whereby SMEs sell invoices to specialised firms.Financial package: a combination of various sources of finance.
18 Grants: subsidies paid - without an obligation to refund – by public authorities to companies investing in a region for the purpose of facilitating their establishment or expansion.Leasing: hire/purchase of capital goods.Loans and debt: the main sources of funding for SMEs.Mezzanine: intermediate layer of financing products (between equity and debt). Interest rates are often quite high.Proof of concept: fund provided by public bodies to a research team in order to assess the viability of a new enterprise.Quasi-equity investment instruments: instruments whose return for the holder (investor/lender) is predominantly based on the profits or losses of the underlying target company, are unsecured in the event of default and/or can be convertible into ordinary equity.
19 Replacement capital (also called secondary purchase): purchase of existing shares in a company from another private equity investment organisation or from another shareholder or shareholders – an investor buys another’s stake.Risk capital: equity and quasi-equity financing to companies during their early-growth stages (seed, start-up and expansion phase) in the hope of a return on investment (ROI) that is both large and speedy, on a par with the level of risk taken. It includes: informal investment by business angels; venture capital; alternative stock markets specialised in SMEs and high-growth companies.
20 Seed capital: capital required for the purpose of financing projects upstream of product or service marketing. Seed capital is often essential for hi-tech projects in order to allow businesses to study, research and develop prototypes of the products that later come to constitute heir core business.Start-up capital: financing provided to companies for product development and initial marketing. Companies may be in the process of being set up or may already exist, but have not sold their product or service commercially and are not yet generating a profit.Venture capital: assets temporarily invested as stock by specialised firms expecting return on investment that is both fast and very substantial, i.e. commensurate with the level of risk. Such specialised investors play a role during both start-up and development.
21 4. Priorities for equity and loan providers Equity providersEligibility CriteriaFamily, Friends and FoolsPersonal relationship based on trustBusiness angels orinformal investors andSpin-off corporate venturingMeeting or matching of individual entrepreneurs with business angelsAtmosphere of trust between individualsCredible business plan in the eyes of the Business AngelGood managementFiscal incentivesMarket knowledge of the entrepreneurAvailability of exit routeReturn on investment (capital gain)BanksAvailability of guaranteesPerceived ability to repay the loanCompany track recordRating
22 Repayable short-term loans Innovative nature of business projectsBusiness plan qualityManagement teamVenture capital andFinancial corporate venturingBusiness plan credibilityBusiness plan with patent technologyTrack record (over previous years)Ability to grow fast and deliver quick ROIManagement team qualityPublic fundingNew jobsInvestment in productive toolsGuaranteesStamina as well as technical and financial skills/abilities
23 Loans on trustBusiness plan credibilityReadiness to cooperate with a tutorSeed capital fundsBusiness plan qualityPerception of the innovative nature of the projectIntellectual propertyHigh growth potentialGovernment tax policiesCorporate venturingInnovative nature of the project in relation to the company’s core businessIndustry-specific usefulness of the project, in particular from a technological standpointGood managementTax incentives
24 Institutional investors Business planProprietary technology (IP)High growthGood managementTax incentives from governmentProof of conceptInnovativenessEntrepreneurial spiritTeamIPR – Valorisation of research results
25 New capital marketsViability and consolidationAt least three years in existencePositive results at least once within twelve months prior to applicationMore than €1.5 million in shareholder’s equityAbility to publish quarterly resultsPublic recommendation by analystPositive media attentionGovernment tax policiesCapable and experienced management teamProminent BoardExperienced team of financial, legal and underwriter advisersNew business conceptLarge market shareRecord of high growth or high growth potential
27 Proof of conceptAIM: helping innovative enterprises to develop their products or services until their introduction to the market.Average of amount provided: 40 to €Mixture of grants and equity
28 Pre-commercial support to university To prove “market potential” for research idea/inventionDelivery formatUp to £200k per award (max 2 years)University team includes academics and commercialisation practitionersUniversity owns IP generatedOnly pre-commercial activity permitted£28m spent to dateProgramme performance to date85 projects completed400 jobs created to date17 companies formed22 licensing deals£22m investment into companiesFunded in part with ERDF support from the EUSource: Scottish Enterprise
29 MezzanineAIM: to improve the balance sheet of an enterprise by a combination of subordinated loans or participating loans and equity.The loans might be either reimbursed or transformed in shares at a given moment.Average size of deals:at regional level: to € in Wales (UK)up to € in Berlin (D)at private equity level: 20 to €N° of deals in Europe: ± 100/year
30 University spin out/off funds AIM: to support universities staff & students to start their own businesses. Good tool to support the commercialisation of research results.Size of funds: in Belgium between 5 and 15 mio €.
31 All money is not the same Start-ups are funded from different sourcesEx.1: SuperSonic Imagine (F)creation date: 2005n° of staff members: 15founder investment: €1st Round:VC (Auriga Partners) = €Sponsorship from:- National awards = €- Regional grants = €2nd Round:4 investors = €- Crédit agricole Private Equity- Auriga Partners- NB6I Ventures- BioAm
32 Ex.2: MeilleurMobile.com Creation: 2004Turnover: 1 mio €1st Round: Founder + BAs €2ndRound: Grants from RegionalInnovation Agency €3rd Round: Loan on trust €4th Round: Loan on trust €5th Round: V.C. (Galileo Partners) €(March 2006)
33 Non-financial tools Investment readiness schemes Aim: improve the quality of Business plan and business presentation in order toattract the attention of potential investors (B.A. – V.C. – …)Content: - business plan review- knowledge of funding sources- understanding timing and amounts to be expected- needs & expectations of the various potential investors- how to submit a business proposal.BA academyAim: helping potential B.A. to become active angelsContent: - enterprise evaluation- taxation- exit route
34 Research to Revenue - Pipeline Investment/co-investmentSuccess in marketplaceNational High Growth Start Up UnitEnterprise FellowshipProof of conceptCommercialPre-commercialIdea/Invention based on research outputSource: Scottish Enterprise
35 Christian SAUBLENS EBAN For more informationChristian SAUBLENSEBANAvenue des Arts 12 Bte BRUSSELS – BELGIUM-