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 enterprises
Innovation tools to finance innovative SMEs
Geneva,
Christian SAUBLENS
EBAN

2. 1. Foreword
There 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
Banks
Guaranties
Leasing
Factoring
Grants
Micro-credits
Other public support
SME profitability
Prerequisites
Loans on trust
Pre-seed
Loans for inventors
Reimbursable advance payments
University spin off
Proof of concept
Own resources
FFF BA
Corporate
Venturing
Seed
capital
Mezzanine VC
IPO
Tools
Infrastructure:
business angels networks, incubators, etc.
Advice: investment readiness, tutorship
Expertise: professional fund managers
FFF : Family, Friends, Founders
BA : Business angels
VC : Venture capital
IPO : Initial Public Offering

4. The paradox of access to finance
Banks
Venture Capitalists
Stock Exchange
Have money
But argue that there aren’t enough good projects
What is a good project?
A project which is not perceived as risky
for 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?

6. Venture capital in Europe
3878
3273
Source: EVCA

7. EBAN statistical sample shows:
N° of active angels in the EBAN sample:
N° of projects received: 9.500
N° of deals done: 580
Size of deals: to €
Average size: €

8. New trends B.A. & B.A.N. co-funding vehicles
Proof of concept loans/grants
Repayable advance
Mezzanine
University spin out/off funds
Pipeline research revenue
Non-financial tools

9. 2. Segmentation of the market
Start-up phase
First financial round
Subsequent financial round
Initial and unorthodox sources
Public Support
Debt finance
N.B:
Indirect supports
Integrated actions

10. Start-up Phase Seed capital fund
Loans without interest and/or guarantee
University and research centres spin off funds
Micro-credit
Public or parapublic funds for creation or innovation
Public grants
Reimbursable loans
Proof of concept

11. First Financial Round Business Angels Seed capital fund
Banks loans/Overdraft
Guarantee funds
Public or parapublic investment funds
Regional Public venture capital
Public grants
Corporate venturing

12. Subsequent financial round
Private venture capital
Bank Loans
Share subscription bonus
Mezzanine
OTHER TYPES
Leasing
Factoring

13. Initial an unorthodox ways
Entrepreneurs savings
FFF
Profit reinvestments
Second mortgage
Personal credit cards
Customer advance
Delay of payments
Premises sharing
Employing relatives at below market salaries

14. Debt finance Bank credits: Short term Long term Unsecured Micro
Commercial debt (papers)
Public/semi public loans
Bonds

15. Public finance
Grants
Reimbursable advances
guarantees

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 providers
Eligibility Criteria
Family, Friends and Fools
Personal relationship based on trust
Business angels or
informal investors and
Spin-off corporate venturing
Meeting or matching of individual entrepreneurs with business angels
Atmosphere of trust between individuals
Credible business plan in the eyes of the Business Angel
Good management
Fiscal incentives
Market knowledge of the entrepreneur
Availability of exit route
Return on investment (capital gain)
Banks
Availability of guarantees
Perceived ability to repay the loan
Company track record
Rating

22. Repayable short-term loans
Innovative nature of business projects
Business plan quality
Management team
Venture capital and
Financial corporate venturing
Business plan credibility
Business plan with patent technology
Track record (over previous years)
Ability to grow fast and deliver quick ROI
Management team quality
Public funding
New jobs
Investment in productive tools
Guarantees
Stamina as well as technical and financial skills/abilities

23. Loans on trust
Business plan credibility
Readiness to cooperate with a tutor
Seed capital funds
Business plan quality
Perception of the innovative nature of the project
Intellectual property
High growth potential
Government tax policies
Corporate venturing
Innovative nature of the project in relation to the company’s core business
Industry-specific usefulness of the project, in particular from a technological standpoint
Good management
Tax incentives

24. Institutional investors
Business plan
Proprietary technology (IP)
High growth
Good management
Tax incentives from government
Proof of concept
Innovativeness
Entrepreneurial spirit
Team
IPR – Valorisation of research results

25. New capital markets
Viability and consolidation
At least three years in existence
Positive results at least once within twelve months prior to application
More than €1.5 million in shareholder’s equity
Ability to publish quarterly results
Public recommendation by analyst
Positive media attention
Government tax policies
Capable and experienced management team
Prominent Board
Experienced team of financial, legal and underwriter advisers
New business concept
Large market share
Record of high growth or high growth potential

26. Examples of new trends

27. Proof of concept
AIM: 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/invention
Delivery format
Up to £200k per award (max 2 years)
University team includes academics and commercialisation practitioners
University owns IP generated
Only pre-commercial activity permitted
£28m spent to date
Programme performance to date
85 projects completed
400 jobs created to date
17 companies formed
22 licensing deals
£22m investment into companies
Funded in part with ERDF support from the EU
Source: Scottish Enterprise

29. Mezzanine
AIM: 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 sources
Ex.1: SuperSonic Imagine (F)
creation date: 2005
n° of staff members: 15
founder 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: 2004
Turnover: 1 mio €
1st Round: Founder + BAs €
2ndRound: Grants from Regional
Innovation 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 to
attract 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 academy
Aim: helping potential B.A. to become active angels
Content: - enterprise evaluation
- taxation
- exit route

34. Research to Revenue - Pipeline
Investment/co-investment
Success in marketplace
National High Growth Start Up Unit
Enterprise Fellowship
Proof of concept
Commercial
Pre-commercial
Idea/Invention based on research output
Source: Scottish Enterprise

35. Christian SAUBLENS EBAN
For more information
Christian SAUBLENS
EBAN
Avenue des Arts 12 Bte BRUSSELS – BELGIUM -