SMEs Global scenario and opportunities

Maciej OtulakSME Access to Finance

Brussels

28th November 2013

Access to finance for

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Why EU intervention neededSME funding needs and EU opportunitiesEU financial instruments for SMEsBuilding on success – results achievedCOSME / Horizon 2020 financial instruments

debt and equity for R&I and growth for SMEs

Budget proposedImplementation

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Why EU intervention needed

• Market failures in debt and equity markets for SMEs• Information asymmetry and transactions costs• Encouraging more private investment • Complementing national and regional schemes• Financial crisis and risk-averse of banks and investors• Supply/demand gap for loans and guarantees for

enterprises’ growth and RDI• Difficulties in accessing start-up/growth finance• Need for an integrated European venture capital market

Commitments in Europe 2020 Strategy, Single Market Act, Innovation Union Flagship Initiative, Action Plan on SME Access to Finance

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Why EU intervention needed

Graph adapted from Cardullo: Technological entrepreneurism. Note that there are no agreed and fast definitions for most of the concepts used in SME finance.

TIME

RE

VE

NU

E

Seed and start-up Expansion

Strategic investors (IPO), public markets, banks

Valley of death

Entrepreneur, family, friends, business angels, public sources

Venture capital funds, business angels

Early expansionPre-seed,

technology transfer

R&D funding,public grants

Setting up a company

Breakevenpoint

Likelyinvestors

Serious lack of outsideinvestors in the early stages

VC market fragmented along national lines

Too many small illiquid growth stock markets

Late expansion

Policyproblems

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SME funding needs and EU opportunities

Loans or equity for investment

Grants for research, general grants,specific project support

SMEs look for

Financial instruments = indirect financing through financial intermediaries (CIP and JEREMIE) → no grants

EU thematic programmes = direct co-financing of projects through calls for proposals (e.g. Life +, FP7 etc.) → grants

• DG ENTR D3 “Guide to funding”• ec.europa.eu/enterprise/policies/finance/guide-to-funding

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SME funding needs and EU opportunities

Loans or equity for investment

Grants for research, general grants,specific project support

SMEs look for

Find out which local banks and equity investors are benefiting from European funding and contact them (1).

Find out about calls for proposals; contact possible partners; fill in the application; wait for the project selection (2).

(1) access2eufinance.ec.europa.eu(2) ec.europa.eu/contracts_grants

Competitiveness and Innovation Programme: venture capital and loan guarantees

EIB loans

JEREMIE scheme of the regional funds: loan guarantees and venture capital

Research framework programme grants

Grants from European Regional Development Funds (administered locally)

Other grant programmes

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SME funding needs and EU opportunities

Grants Loans Equity

Local or regional Local and regional programmes

Possibly Jeremie (ERDF) instrumentsOther programmes

Possibly Jeremie (ERDF) instrumentsOther programmes

National National programmes National programmes National programmes

European Thematic European programmes based on calls: FP7, etc

CIP guarantees for loans; EIB loans

CIP and other EIF-managed venture capital investments

Grants from Brussels

Funding through financial institutions

Access varies

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EU financial instruments for SMEs

• Part of the EU toolkit for over a decade

• Efficient way of spending the EU budget - leverage

• Broad range of interventions:• Guarantees to mutual guarantee societies and banks lending to SMEs

• Equity participations for early and growth stage investments

• Common features:• Aim to increase access to finance for SMEs

• Delivered via financial intermediaries on behalf of the European Commission

mutual guarantee societies, banks, funds, etc

• Operated by the EIB/EIF

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EU financial instruments for SMEs

European Investment Fund (EIF)

Venture capital investment

in SMEs

Lending to SMEs

EIF selects its financial intermediaries based on competence. The selection criteria and the list of intermediaries are public.

Guarantee fundsVenture capital investments

Other investors

EU funding

Venture capital

fund Bank

Guarantor

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Building on success – results achieved

• Competiveness & Innovation Framework Programme (CIP)With a budget of € 1.1 billion, the CIP programme has helped to mobilise over € 15 billion for SMEs across Europe

•SMEG SME Guarantee Facility => Loan Guarantee Facilitymore than 250,000 SMEs benefited from a guaranteed loan or lease •GIF High-Growth&Innovative SMEs Facility => Equity Facility

more than 2.4 billion euros mobilised in equity investments

• Cohesion policy instruments•Financial instruments for SMEs through JEREMIE scheme (over €7.5 billion)

• EIB lending and EIF equity/mezzanine and risk-sharing operations (€13 billion in 2012) including Risk Sharing Instrument, Risk Sharing Finance Facility

• Progress microfinance

• Seventh Framework Program•Grants for EU research projects; goal of 15% SME participation

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Success stories – founded by EU

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COSME / Horizon 2020 financial instruments

• COSME in conjunction with Horizon 2020 will support two EU financial instruments for SMEs:• Equity instrument for SME’s growth and RDI

Equity Facility for R&I (H2020)Equity Facility for Growth (COSME)

• Debt instrument for SME’s growth and RDILoan Guarantee Facility (COSME)SMEs & Small Midcaps Guarantee Facility for R&I (H2020)

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Equity instrument for R&I and growth of SMEs (1)

• Equity Facility for R&I (H2020)• focus: early stage• final beneficiaries: innovative SMEs and small midcaps

• Equity Facility for Growth for SMEs (COSME)• focus: growth stage • final beneficiaries: growth-oriented SMEs

• Multi-stage funds: contribution of resources from COSME and H2020 on a pro-rate basis based on fund investment policy

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Equity instrument for R&I and growth of SMEs (2) • Two complementary facilities working

together to support access to risk capital and stimulate the development of the European VC industry

Equity Facilityfor Growth

Equity Facility for R&I

from start-up/early stage to expansion/growth stage

may make growth investments may make early-stage investmentsup to 20% of total EU investment

combined investment in multi-stage funds

Mainly from H2020

Mainly from COSME

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Debt instrument for growth and RDI for SMEs (1)

• Loan Guarantee Facility (COSME)• guarantees for loans to SMEs up to € 150 000** also above € 150 000 threshold for SMEs which do not meet the

innovation criteria under Horizon 2020• securitisation of SME debt finance portfolios

• SMEs & Small Midcaps Guarantee Facility (H2020)• guarantees for loans over € 150 000* for R&I activities* also below € 150 000 threshold for R&I-driven SMEs and small mid-caps

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Debt instrument for growth and RDI for SMEs (2)

Horizon 2020

Loan Guarantees

COSME

Growth oriented SMEsTarget group

Type of operation Guarantees for

SME loans < = € 150,000*

SME loanSecuritisation

RDI-drivenSMEs & midcaps

Risk sharing or loans (RSI II)> € 150,000*

Loan guarantee facility

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Implementation

• Budget of COSME financial instruments: EUR 1,4 billion EUR

• Commission delegates implementation to the so called entrusted entity

• Equity and debt facilities may pool resources with Member States willing to contribute part of their Structural Funds

• Debt and equity funding may be combined• Demand-driven; applications to entrusted entity

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More information

• Existing financial instruments (2007-2013)• SMEG and GIF ec.europa.eu/enterprise/policies/finance/cip-

financial-instruments • RSFF www.eib.org/products/rsff/

RSI www.eif.org/what_we_do/guarantees/RSI• Progress Microfinance Facility ec.europa.eu/social/main.jsp?

catId=836&langId=en

• • Proposed (2014-2020)

• COSME ec.europa.eu/cip/cosme • Horizon 2020 ec.europa.eu/research/horizon2020 • Programme for Employment and Social Innovation

Portal on EU finance

• http://access2eufinance.ec.europa.eu/

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• http://access2eufinance.ec.europa.eu/

• Thank you for your attention!