SMEs

1. Access to finance for SMEs Global scenario and opportunities Maciej Otulak SME Access to Finance Brussels28th November 2013

2. Why EU intervention needed SME funding needs and EU opportunities EU financial instruments for SMEs Building on success – results achieved COSME / Horizon 2020 financial instruments debt and equity for R&I and growth for SMEs Budget proposed Implementation

3. 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

4. Why EU intervention needed Pre-seed, technology transfer Seed and start-up Early expansion Expansion Late expansion R&D funding, public grants Entrepreneur, family, friends, business angels, public sources Venture capital funds, business angels Strategic investors (IPO), public markets, banks Likely investors Serious lack of outside investors in the early stages VC market fragmented along national lines Too many small illiquid growth stock markets Policy problems Breakeven point REVENUE Setting up a company TIME Valley of death Graph adapted from Cardullo: Technological entrepreneurism. Note that there are no agreed and fast definitions for most of the concepts used in SME finance.

5. SME funding needs and EU opportunities Financial instruments = indirect financing through financial intermediaries (CIP and JEREMIE) → no grants • DG ENTR D3 “Guide to funding” • ec.europa.eu/enterprise/policies/finance/guide-to-funding Loans or equity for investment SMEs look for Grants for research, general grants, specific project support EU thematic programmes = direct co-financing of projects through calls for proposals (e.g. Life +, FP7 etc.) → grants

6. SME funding needs and EU opportunities Competitiveness and Innovation Programme: venture capital and loan guarantees Find out which local banks and equity investors are benefiting from European funding and contact them (1). Loans or equity for investment JEREMIE scheme of the regional funds: loan guarantees and venture capital EIB loans SMEs look for Grants for research, general grants, specific project support Research framework programme grants Find out about calls for proposals; contact possible partners; fill in the application; wait for the project selection (2). Other grant programmes Grants from European Regional Development Funds (administered locally) (1)access2eufinance.ec.europa.eu (2)ec.europa.eu/contracts_grants

7. SME funding needs and EU opportunities Grants from Brussels Access varies Funding through financial institutions

8. 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

9. EU financial instruments for SMEs EU funding European Investment Fund (EIF) Venture capital investments Guarantee funds Other investors Venture capital fund Guarantor EIF selects its financial intermediaries based on competence. The selection criteria and the list of intermediaries are public. Bank Venture capital investment in SMEs Lending to SMEs

10. 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 • GIFHigh-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

11. Success stories – founded by EU

12. 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 RDI • Loan Guarantee Facility (COSME) • SMEs & Small Midcaps Guarantee Facility for R&I (H2020)

13. 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

14. 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 combined investment in multi-stage funds Equity Facility for R&I Equity Facilityfor Growth Mainly from H2020 Mainly from COSME from start-up/early stage to expansion/growth stage may make growth investments may make early-stage investments up to 20% of total EU investment

15. 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

16. Debt instrument for growth and RDI for SMEs (2) COSME Horizon 2020 Type of operation Loan Guarantees Loan guarantee facility Guarantees for SME loans < = € 150,000* SME loan Securitisation Risk sharing or loans (RSI II) > € 150,000* Target group Growth oriented SMEs RDI-driven SMEs & midcaps

17. 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

18. More information • Existing financial instruments (2007-2013) • SMEG and GIFec.europa.eu/enterprise/policies/finance/cip-financial-instruments • RSFFwww.eib.org/products/rsff/RSIwww.eif.org/what_we_do/guarantees/RSI • Progress Microfinance Facility ec.europa.eu/social/main.jsp?catId=836&langId=en • Proposed (2014-2020) • COSMEec.europa.eu/cip/cosme • Horizon 2020ec.europa.eu/research/horizon2020 • Programme for Employment and Social Innovation

19. Portal on EU finance • http://access2eufinance.ec.europa.eu/

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

21. Thank you for your attention!