2nd INSME Annual meeting

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2nd INSME Annual meeting

• Innovation tools to finance innovative SMEs

Montevideo, 25.4.2006
Christian SAUBLENS EURADA
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Foreword

• Innovative SMEs are the base of regional
  competitiveness
• All money is not the same
• Its not only a question of access to money but
  also a question of life cycle of a company and
  about sales and market penetration
• Its more and more difficult for start-ups to
  access finance
• There is an asymmetry of information between
  entrepreneurs and investors
• Investment readiness is needed
• Theres still a lot to be done in our regions in
  order to build a supply chain.

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Regional Competitiveness Supply Chain Based on
Entrepreneurship and Innovation
Basic activities
Training talents
Finance
Possible University Role
Infrastructures
Entrepreneurship training, general advice and
support, spin-offs, technology transfer
Culture of innovation and Awareness programmes

• Training centres
• Technology transfer agencies

Entrepreneurship training
Spin outs and spin-offs Creation of
laboratories Provision of expertise University-bas
ed seed capital funds
Technology centres Innovation
centres University/SME interfaces Laboratories
Prototyping
Subsidy programmes, (pre-) seed and venture
capital
Proof of concept, leveraging the outcomes of
research and innovative concepts Assistance with
registering new businesses
First advisory stop shops Business consulting
Bank loans Subsidy programmes FFF (Friends,
family, fools i.e. co-founders) (Pre-)seed Busin
ess angels Venture capital Guarantees Leasing Micr
o-credits and other forms of start-up capital
Investment readiness schemes Entrepreneurship
advisory programmes
Industrial parks Incubators Science
parks Provision of premises on flexible lease
terms
Access to start-up equity and business
infrastructure
Incubators Technological parks
Tutoring
Access to initial clients and markets
Providing assistance to entrepreneurs in
overcoming the valley of death
Competitiveness support schemes
Access to growth capital and advanced support
services to introduce innovation
Advanced advisory services University/business
interfaces
Advances support services
Mezzanine

• Clusters

Involvement in clusters
Needs-oriented auditing
Venture capital, IPO
Global market player
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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 the concept
Own resources
FFF
VC
IPO
BA Corporate Venturing
Seed capital
Mezzanine
Infrastructure business angels networks,
incubators, etc.
Advice investment readiness, tutorship
Expertise professional fund managers
Tools
FFF Family, Friends, Founders BA Business
angels VC Venture capital IPO Initial Public
Offering
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The paradox of access to finance

• Banks
• Venture Capitalists have money
• Stock Exchange
• But argue that there arent enough good projects
• What is a good project?
• A project which is not perceived as risky
• for an investor

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Trial to analyse the equity paradox
SupplyIs 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?

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Venture capital in Europe
3878
3273
Source EVCA
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New tools

• B.A. B.A.N.
• Proof the concept loans/grants repayable
  advance
• Mezzanine
• University spin out/off funds
• Non-financial tools

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Examples of regional supply chain

• London

• Greater London Enterprise developed a complex
  scheme integrating financial instruments such as
• GLE Development Capital
• One London Business Angels
• Factoring/Invoice Finance
• Small Business Loan
• Mentoring and Investment Readiness Programmes.
• The amounts available from these instruments are
• 750,000-7,500,000 from GLE Development Capital
• 140,000-1,000,000 from One London Business Angels

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• Wales

• The region of Wales (UK) re-organised all its
  financial services around a single organisation
  called Finance Wales to provide the following
  financial services and products
• Community loans amounting to 5,000-50,000 for
  the social economy
• Xenos unsecured loans without interest of up to
  25,000 for university spinouts
• Venture capital up to 750,000 per financial
  pool and 1,500,000 in total
• Mezzanine 10,000-412,500
• Loans from micro-credit of 1,000-10,000 to
  loans of up to 600,000.

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B.A. B.A.N.

• B.A.

Individuals generally experienced entrepreneurs
who invest their money, skills and time in
newly created businesses in exchange for a share
of the enterprise capital (OLD TOOL)

• B.A.N.

Matching platform between entrepreneurs seeking
equity and investors (B.A.) (NEW TOOL)
In Europe - 220 B.A.N. - EBAN
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Relative importance in decision to be a business
angel

• To make a capital gain
• For enjoyment and satisfaction
• To assist small businesses
• To take advantage of EIS and other tax breaks
• For income generation purposes
• To keep active
• To create a part time job for yourself
• To create a full time job for yourself

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Result of exiting investment by B.A.

• Full loss 20-30
• Partial loss 15-20
• Break Even 10-15
• Profit 35-45

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Factors influencing ability to invest

• Insufficient quality deal flow
• Insufficient deal flow
• Insufficient available time to work with investee
  companies
• Insufficient available time to evaluate
  opportunities
• Narrow investment criteria
• Insufficient available investment funds
• Insufficient experience in business angel type
  investments
• Other

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EBAN statistical sample shows

• N of active angels in the EBAN sample 12.775
• N of projects received 9.500
• N of deals done 580
• Size of deals 25.000 to 250.000
• Average size 75.000

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Example of results in one region Cataluña (E) -
2005

• 7 BAN
• 292 Angels
• 24 deals
• 7.400.000 of investment

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Role of BANs

• Angel syndication
• Setting up of dedicated funds that invest
  alongside angels
• Provision of easier exit route for angels
• Business angels academies
• Investment readiness programmes
• Integrated finance scheme
• Co-investment funds

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Proof the concept grants/loans Repayable
advance

• AIM helping innovative enterprises to develop
  their products or services until their
  introduction to the market.
• Average of amount provided 40 to 400.000

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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 100.000 to 350.000 in
  Wales (UK)
• at private equity level 20 to 50.000 .
• N of deals in Europe 100/year

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University spin out/off funds

• AIMS 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 .

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All money is not the same

• Start-ups are funded from different sources
• Ex SuperSonic Imagine (F)
• creation date 2005
• n of staff members 15
• founder investment 50.000
• 1st Round VC (Auriga Partners) 500.000
• Sponsorship from
• National awards 450.000
• Regional grants 550.000
• 2nd Round 4 investors 10.000.000
• - Crédit agricole Private Equity
• - Auriga Partners
• - NB6I Ventures
• - BioAm

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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

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Christian SAUBLENS
EURADA Avenue des Arts 12 Bte 7 - 1210 Brussels
- BELGIUM Tel. [phone] - Fax 32 2
218 45 83 info_at_eurada.org - www.eurada.org