Experiences with assistance to Startups in Central and Eastern Europe

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Experiences with assistance to Start-ups in
Central and Eastern Europe

• Dick Moor Senior SME Development Specialist
  FACET BV Zeist The Netherlands

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Objectives of this lecture

• To communicate experiences with assistance to
  starters in CEE and CIS countries
• In order to initiate a discussion about what
  could be done in the Serbian reality

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Development stages of an enterprise

• Birth of an enterprise
• Start-up phase (2 3 years from start)
• Early stage of further development (2 5 years
  from start)
• Expansion phase (often after 5 years)

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Major problems of SME at the initial stageSurvey
conducted in 3 Russian Regions (2002)
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Comments

• Most of the starters anywhere in CEE and CIS
  complain about the lack of finance
• They almost always underestimate the importance
  of a sound marketing plan
• Starters in innovative enterprises usually have
  serious problems acquiring state of the art
  equipment
• Problems in the relation with authorities often
  refer to lack of transparent taxation laws

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Start-up capital sources

• Personal savings
• Money from friends, associates and relatives
• Money contributed by business partners
• Bank loans, mainly short-term
• Funds provided under foreign enterprise
  development programmes

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Summary SME Financing Stages

• In the start-up phase most starters rely on seed
  capital
• Business Angels and Venture Capitalists can offer
  a source of finance after the initial start-up
  phase
• When enterprise development stabilizes, financial
  tools are financing of working capital,
  equipment leasing, discounting receivables and
  trade credits
• In later stages of the development re-investment
  of profits, (long-)term lending and equity
  investments will also be part of the financing
  mix

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Explanation

• Business angels Private investors in SME. They
  often sold their own enterprise. They provide not
  only finance but experience and business skills.
  Their motivation ranges from simple return on
  investment to community benefits.
• Venture capital - Equity investment in
  enterprises by outsiders who are not the main
  owners.

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Why no external financing in the start-up phase?

• Starters usually have poor possibilities to
  provide collateral for borrowing and they have no
  credit history. This makes external bank
  financing in the start-up phase very difficult.
• Financing and monitoring starters is relatively
  expensive.
• One way to solve this problem is the Guarantee
  Fund. In my country this is an effective
  instrument for more than 50 years.

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Services of BAS providers

• In all stages of enterprise creation and
  development providers of Business Advisory
  Services play an essential role.
• In the early stages these services are often free
  (for would-be entrepreneurs) or subsidised (for
  starters)
• In later stages entrepreneurs are able to pay a
  more commercially calculated price.

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Forms of assistance by a BAS provider

• Technical assistance (e.g. business planning,
  loan applications, market evaluation)
• Training
• Information dissemination
• Referral to specialists
• Support to networking
• Assistance to implementation
• Counselling
• Mentoring

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When could assistance be fruitful?

• When the starter has a concrete and realistic
  idea for the business (s)he wants to start.
• When he or she has a (more or less) clear idea
  about the markets (s)he will operate in.
• When the starter disposes of the characteristics
  necessary to have a chance be successful.
• When there is a relation of mutual thrust and
  acceptance between the starter and the consultant
  and a readiness to accept advise.