finnetsme: what has been achieved? detailed outputs financing enterprise growth in the regions of...

FinNetSME: What has been achieved?

Detailed outputs

Financing enterprise growth in the regions of the EU – models and recommendations

FinNetSME Final Conference, Brussels, 6 June 2007

Christian Müller, NRW.BANK – Christian Saublens, EURADA – Martin Dastig, Investionsbank Berlin –

Thomas Hüttich, Investitionsbank Berlin – Juris Cebulis, Mortgage and Landbank of Latvia –

Cornelia Gerster, EAPB

2 FinNetSME Final Conference, Brussels, 6 June 2007

Contents

Christian Müller, NRW.BANK

I. FinNetSME: objectives and approach

II. Market gaps along the regional value chain of SME finance

III. Financial models and best practice examples

IV. Making FinNetSME’s results accessible

V. Conclusions and outlook


I. FinNetSME: Objectives and Approach

Importance of SME Finance for Reaching the Lisbon Goals

SMEs play a central role in achieving the Lisbon objectives

23 million SMEs account for 99% of all enterprises and 66% of private employment in the EU.

SMEs are a major source of entrepreneurial skills, innovation and contribute to economic and social cohesion

Strengthening the competitiveness of SMEs is the key to more economic growth and employment!

Access to finance is one of the most severe bottlenecks in this field!

FinNetSME strives to address the existing market gaps by developing innovative financing models and strategies!



I. FinNetSME: Objectives and Approach

FinNetSME – Methodological Approach


1. Stock-taking: accumulation of information on practices in the various regions of the EU

2. Analysis: assessment and clustering of most common financing problems of SMEs (market gaps) in FinNetSME’s four working groups, each focusing on a specific issue of SME financing: Regional value chain (coordinator: EURADA)

Early-stage finance (coordinator: INEC)

Micro-financing schemes (coordinator: IBB)

Equity-financing (coordinator: IB-SH)

3. Development of models, i.e. templates, as guidance for the development of innovative instruments to increase SMEs’ access to finance


II. Market Gaps along the Regional Value Chain

Starting Point: The Regional Value Chain of SME Finance

FFF: Family, Friends, FoundersBA : Business angelsVC : Venture capitalIPO : Initial Public Offering

Infrastructure:business angels

networks, incubators, etc.

Intermediaries: advice, investment readiness, tutorship

Human capital: professional fund managers, state

aids experts

Entrepreneur’s own resources

and reinvestment

capacities

Equity VCFFF

Pre-seedUniversity spin off

IPOBusiness Angels

CorporateVenturing,

Seedcapital

- Grants - Loans- Micro-credits - Loans on trust - Guarantees - Reimbursable advance- Proof of concept

Prerequisites

Mezzanine

Public

funding

Risk taking investors:private, public

- Banks - Factoring- Guarantees - Micro-credits - Leasing - Export credits

Private funding

FFF: Family, Friends, FoundersBA : Business angelsVC : Venture capitalIPO : Initial Public Offering

Infrastructure:business angels

networks, incubators, etc.

Intermediaries: advice, investment readiness, tutorship

Human capital: professional fund managers, state

aids experts

Entrepreneur’s own resources

and reinvestment

capacities

Equity VCFFF

Pre-seedUniversity spin off

IPOBusiness Angels

CorporateVenturing,

Seedcapital

- Grants - Loans- Micro-credits - Loans on trust - Guarantees - Reimbursable advance- Proof of concept

Prerequisites

Mezzanine

Public

funding

Risk taking investors:private, public

- Banks - Factoring- Guarantees - Micro-credits - Leasing - Export credits

Private funding

Christian Saublens, EURADA



Different Perspectives of the Same Problem

To get a comprehensive view of financing problems / suitable tools, FinNetSME focuses on all players of the regional value chain:

Aspects deriving from the sphere of the SME, e. g. Equity capital base Collateral position Managerial skills

Aspects deriving from the sphere of the suppliers of finance, e. g. Profitability Risk

Aspects deriving from the sphere of the public hand, e. g. Bureaucracy Lack of transparency Lack of financial resources State-aid-rules




Identification of Specific Market Gaps

Based on the analysis of the ideal typical Regional-Value-Chain and the discussions in FinNetSME’s working groups, three specific market gaps will serve to demonstrate the results:

1. Early-stage-finance, esp. SMEs’ access to venture capital

2. Micro-finance solutions for small and micro-enterprises

3. Combination of financing and consultancy / investment readiness

schemes



III. Financial Models and Best Practice Examples

Early Stage Finance / SME Access to Venture Capital

A. Clustering of Problems Cluster 1 – Sphere of the SME

Lack of knowledge and asymmetrical information Lack of equity capital base

Cluster 2 – Sphere of the supplier Market not developed Market cyclical Specific management challenges (Risk assessment, controlling of

portfolio companies, exit)

Cluster 3 – Sphere of the public hand Bureaucracy (reporting requirements) Attracting private funding as co-financers EU rules for using European means

Martin Dastig, Investitionsbank Berlin




B. Instruments, Tools and Models Instruments

Equity Silent partnership / Soft loans

Tools Funds Fund management EU-Funding

Models Use of ERDF-funds Attraction of private investors’ money Sector-specific VC-funds


Venture

Equity-Investment of VC provider

Profit potential

Company growth




C. The FinNetSME Model: Equity Financing

Private Funds

ERDF-VC-Fund company

Fund Management Company

Regional Business Development Bank or Agency

EU-Funds

Regional Authority

Management Contract

Investments

50%

30% on top

100 %

Company A Company B Company C

National Cofinancing 50%





D. Best Practice: Equity Financing in Berlin, Germany VC Fonds Berlin

VC Fonds Berlin GmbH Management IBB Beteiligungsgesellschaft mbH Fund volume: 20 mill. EUR

Berlin Kapital Fund inside the bank without own fund vehicle (SPC) Fund management by the bank Fund volume: 15 mill. EUR

In structuring: VC Fonds for the creative industries 1st regional non-technology-oriented VC Fund in Berlin Fund Volume: 30 mill. EUR





D. VC Fonds Berlin


Private investors‘ money

VC Fonds Berlin GmbHIBB-Beteiligungs-gesellschaft mbH

Investitionsbank Berlin

EFRD

Management- contract

Portfolio Companies

50%

30%

on top

100 % owner

Venture A Venture B Venture C

National co-financing 50%




E. EU Funding CIP Framework

Co-Investments in regional or specialised VC Funds (High Growth and Innovative SME Facility (GIF))

SME Guarantee Facility (SMEG)

Grants in the framework of the Capacity Building Scheme (CBS)

ERDF financial engineering

University spin outs as an efficient instrument for technology transfer?




Micro-loans for Small and Micro-Enterprises

A. Clustering of Problems Cluster 1 – the sphere of the SME

Lack of sound business and management experience Weak collateral position of micro-enterprises and start-ups

Cluster 2 – the sphere of the supplier High administration and credit assessment costs due to small

size of loans High risk associated with the start-up phase of the enterprise

Cluster 3 – the sphere of the public hand Lack of financial resources Bureaucracy and complex eligibility rules, banking regulations

Thomas Hüttich, Investitionsbank Berlin




B. Instruments, Tools and Models FinNetSME partnership offers a variety of instruments and

tools for tailor-made micro-finance-schemes. Some sort of public subsidies is crucial: national, regional or EU

funds for capital, guarantee scheme or accompanying measures.

Accompanying business support measures can reduce risk and lower costs of the financier

Different tools cluster around two main approaches that have been formed into general models:

1. Facilitating micro-credit supply through commercial banks by forwarding refinancing advantages and risk sharing with public guarantee scheme (“house bank-principle”)

2. Revolving regional micro-credit fund co-financed by EU-Structural Funds (ERDF/ESF) with independent fund management by regional finance institution (“financial engineering”)





C. The FinNetSME Model 1: Public private risk sharing FinNetSME examples:

INVEGA (LT)

Investitionsbank Berlin (D)

NRW.BANK (D)

TEMPME S.A. (GR)

Finpiemonte Turin (IT)

Fon@de Castilla y León (E)

Latvian Guarantee Agency


Guarantee Agency

Bank

Micro-Credit

Guarantee

SMEs

Counter-Guarantee

Credit lines

Public Hand

Public Promotion Bank




C. The FinNetSME Model 2: Financial Engineering FinNetSME examples:

MBL (LV)

Finnvera (FI)

IBB-SME Fund (D)

SAB (D)

NRW.BANK (D)



BBB GuaranteeAgency

InvestitionsBank Berlin EntrepreneurBank

12

Application (loan + guarantee)

4

Acceptance + payment

5

3

Application( loan + guarantee)

6

Acceptance loan+ payment

Applicationguarantee

Acceptanceguarantee



D. Best Practice Example: Berlin Start


Promotional loans up to 100 TEUR for investments and working capital

Target group: Start-ups and young enterprises up to 3 years

Obligatory combination with 80% guarantee by regional guarantee agency (BBB), thus no collateral needed

Favourable interest rates, maturity 6-10 years, 2 years repayment exemption, financing up to 100 % of costs

Attractive bank margin for credit delivery, risk assessment and remaining liability

Integrated application process, duration 10 days



Combining Financing and Consultancy

A.Clustering of Problems Cluster 1 – the sphere of the start-up/SME

Lack of skills to start/develop a business Insufficient financing (e.g., lack of collateral) Information asymmetry (e.g. on funding sources, state support etc.)

Cluster 2 – the sphere of the supplier High administration costs Lack of credit history in case of start-ups High risk associated with the start-up phase of the enterprise

Cluster 3 – the sphere of the public hand Low level of initiative in starting own businesses (regional disparities) Limited funding and support instruments for business start-ups Insufficient skills/experience in providing financial/training support for special target

groups (e.g. young people, unemployed, people with special needs etc.)

Juris Cebulis, Mortgage and Land Bank of Latvia




B. Instruments, Tools and Models Existing non-financial instruments include:

Potential start-up training Staff/entrepreneur/investor training Advisory services Mentor networks Business plan contests

Existing financial instruments: loans, guarantees, grants, equity financing

Possible tools/ models on combining both financial and non-financial support to SMEs involves solutions like:

One stop-shops (information+ advise/consultancy+ financial support); Pre-loan coaching schemes (consultancy+ financing)





C. The FinNetSME Model:

Business plan preparation Project application

Start-up

StateESF

Financing consultancy

Analysis of business plans Consultants

Financial institution

Start up grantsMicro loans

Financial

support

Training/consulting

Loan fund





D. Best-practice example: Integrated support for creation of SMEs in Latvia

In December 2006, MBL launched a new programme co-financed by ESF: “Training, consultancy and financial support to business start-ups”.

Goal: to stimulate small business activities by encouraging people, especially first-time entrepreneurs, to start their own business.

Results/ future perspectives: 1.000 start-ups to be trained until mid-2008; 300 to be financially supported; programme to continue in new programming period





D. Best-practice example: Integrated support for creation of SMEs in Latvia

Training

O u t c o m e:

GrantsMicro-loan

Financial Support

2-3 month course; 1000 participantsBusiness plans (BP) preparedAnalysis of BPAdequate BP get financed (300)

up to 25k EUR1. Start up grant (investment in start capital);

2. First year's salary grant

3. Mentoring grant

Loan fund (11,9 mill. EUR):

• MBL -3,7 • State - 2,0• ESF - 6,2



IV. Making FinNetSME Results Accessible

The FinNetSME Database

A. Why a FinNetSME database? Pools, categorises and analyses information on

74 financial and 24 non-financial business support instruments 19 participating regions 21 formal members and associated partners and 14 related

institutions Details of 86 relevant contact persons Models

Transfers knowledge on good solutions onto the European level and into other regions.

Builds the cornerstone for sustainable project results and a competence centre on regional SME finance.

Is available at www.finnetsme.org.




The FinNetSME Database

B. How does the database describe instruments?


Concise overall description

+ Basic information on eligible beneficiaries/investments/ amounts and financing sources

+ Cross-references to region, responsible partner, contact person, supplementary instruments

+ Class/Type: categorization

+ Assessment



FinNetSME – Guide on “Experiences and Practices”

A major FinNetSME print publication providing information on the project history, the activities of FinNetSME and the partners.

Gives detailed explanation of FinNetSME models of the regional value chain, on early stage finance, equity financing and micro-credits.

Hardcopies available on the documentation table.



V. Conclusions and Outlook

Key Achievements

Financing and consultancy for SME are an important key to growth and innovation in the EU.

FinNetSME developed recommendations for policy-makers and providers of innovative financing products to address the needs of these companies.

Financial models based on FinNetSME‘s ideas have already successfully been implemented in some regions.

The proposed financial models can serve as a basis for financial engineering during the new programming period.

But: State aid rules often limit the possibilities of public support measures for SMEs!



Thank you very much for your attention!

Additional information about the work of FinNetSME is available at

www.finnetsme.org and

in the “Experiences and Practices” guide!


finnetsme: what has been achieved? detailed outputs financing enterprise growth in the regions of...

Documents

bank finnetsme

finance slide

approach market gaps

eurada slide

bank slide

existing market gaps

bank christian saublens

ideal typical regionalvalue