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Financial Instruments for Innovative SMEs in Bulgaria

Sofia, 30th October 2014

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EIF activity - key figures

“”

We are the prime provider of SME financing in Europe

Equity

2013 commitments:EUR 1.4bn which mobilised EUR 7.1bn

480 venture and growth funds

306 banks, guarantee and promotional institutions

27 funds-of-funds and holding funds

Guarantees & securitisation 2013 commitments:EUR 1.8bn which mobilised EUR 8.6bn

Microfinance

2013 commitmentsEUR 53.8m which mobilised EUR 201m

EUR 13.5bn in total outstanding commitments mobilise EUR 79bn

Instruments tailored at each stage

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SME Development Stages

PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT

HIGHER RISK LOWER RISK

Public Stock Markets

Business Angels,Technology Transfer

Microcredit

VC Seed & Early Stage

Portfolio Guarantees & Credit Enhancement

Formal VC Funds & Mezzanine Funds

EIF-managed Fund-of-Funds and Holding Funds across Europe

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Fund-of-Fund Activity

UK FTF: GBP 200m

ERP (DE): EUR 1000m

LFA-EIF (DE): EUR 50m

Dahlia (FR): EUR 300m

NEOTEC (SP): EUR 183m

PVCi (PT): EUR 111m

iVCi (TR): EUR 160m

Future initiatives

LFF (LU): EUR 150m

BIF (LT,LV,EE): EUR100m

DVI (NL): EUR 150m

PGFF (PL): EUR 90m

Holding Funds Supported by Structural Funds (JEREMIE)

BULGARIA: EUR 349m

CALABRIA (I): EUR 45m

CAMPANIA (I): EUR 90m

CYPRUS: EUR 20m

EXTREMADURA (ES) : EUR 10m

GREECE: EUR 250m

LANGUEDOCROUSSILLON (FR): EUR 30m

LITHUANIA: EUR 67.1m

ROMANIA: EUR 150m

MALTA: EUR 10m

PACA (FR): EUR 20m

SLOVAKIA: EUR 100m

SICILY (I): EUR 60m

SICILY ESF (I): EUR 15m

JEREMIE Equity and Debt Portfolio in Bulgaria

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Venture Capital Fund

Co-investment Funds

First Loss Portfolio Guarantee

Financial Instruments

Ear

ly s

tage

Mat

ure

stag

e

Private funds - investors

OP Competitiveness (JEREMIE)

21 M EUR

60 M EUR

400 M EUR

Seed funds

21 M EUR

Portfolio Risk Sharing Loans

301 M EUR

JEREMIE Start-Up Funds in Bulgaria

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Pool of mentorsPool of mentors

Investment Committee

Acceleration Compartment

Seed Compartment

Acceleration and Seed FundFund Manager

(1% own capital contribution)

Start-ups Pre-seed Seed

A dedicated facility two-compartment structure;

Due to the very high risk no private support could be expected at the facility level;

Investment limit capped at EUR 200k to allow private investor contribution in follow-on rounds

Opened to entrepreneurs from the region to create competition and collaboration across the Balkans

Key Highlights

Acceleration and Seed Funds - Process

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Application Window

Selection & Funding

Incubation

Graduation day

SEED Portfolio

AC

CE

LE

RA

TIO

N S

TAG

ES

EE

D S

TAG

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Application process: Fully online

Investment: EUR 25,000 – 50,000

Equity share: ~10%

Stage term: 3-12 months

Graduation Goal: Working prototype, beta version

Investment: up to EUR 200,000 (on aggregate)

Equity share: 30 - 49% (on aggregate)

Stage term: 12-24 months

Goal: Commercialization, internationalization

External companies

JEREMIE in Bulgaria - Creating start-up ecosystem from scratch

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Two acceleration & seed funds were created in Bulgaria in Q4/2012 with a total budget of EUR 21m. Two years later the developments are as follows:

The Numbers The Details

More than 4,000 applications for funding mainly from BG but also from the entire Balkans;

Investments in 146 start-up companies for a total of EUR 9m;

20-30% of start-ups are set-up by non-BG;

EUR 6m invested as follow-on in 12 successful companies by BAs, VCs;

Over 300 high-paid jobs created;

More than 20 entrepreneurial conferences and workshops were held in BG for 2013 only

The majority of start-ups are in the ICT, digital, engineering and med-tech sectors;

Follow-on investors in the companies include Earlybird, TechStars, Y-combinator, Tim Draper;

More than 20 of the companies are already revenue-generating, with one making EUR 600k for 2013 only;

Employees are 2-4 per company on avg., with one having 20+ people on payroll;

Regional VCs are now looking onto Bulgaria much more opportunistically;

JEREMIE in Bulgaria - Creating start-up ecosystem from scratch

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City # startups in 2013

London 255

Dublin 237

Sofia 92

Berlin 87

Paris 87

Brno 73

Amsterdam 49

Tallinn 44

Barcelona 42

For 2013, Sofia is the #3 accelerator capital in Europe after only London and Dublin, slightly ahead of more established startup hubs like Berlin and Paris;

There are only three accelerators & seed funds that have invested in more startups than Eleven in 2013 and five that have invested in more startups than LAUNCHub;

Sofia’s emerging place as start-up hotspot was not missed by reputable media like Wall Street Journal, Forbes Magazine, TechCrunch and etc;

JEREMIE Seed in Bulgaria – Success Story

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Founded in Dec 2012 through the support of EUR 200k under JEREMIE, with 5 staff including founders;

Tech heavy company with 2 patents (EU and US) in approval process;

The application had 7m downloads and 1.2m regular users within months from inception;

Quick market adoption and start of revenue generation – EUR 600k+ for 2013;

Attracted the attention of reputable US VC investor – Tim Draper who invested USD 450k in the company as a business angel;

Scaled operations and open sales office in San Fran from Q4/2013 to service USA;

Turned down an acquisition offer from US cable operator for USD 10m (3x initial valuation) willing to buy the technology;

Staff on payroll in Bulgaria grew to more than 20 people;

Attracted the attention of big VC investors for Series A round – USD 2.5m from Earlybird, Turkish and Bulgarian business angels;

Current company valuation in excess of USD 15m;

New Instruments for 2014-2020:Tech Transfer Fund

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OPIC Contribution

Private Investors

TT FacilityEUR 30-50mPrivate

Investors

Min 90% of funding

Up to 10% of funding

Management fee

Operational management

TT Facility Manager

Deal sourcing

Expertise contribution

University 1

University 2..

Tech Park 1

Science Lab 2..

Industry Contacts

IP / patent experts

Test Labs Corporates

Patents Licenses

Spin-offs Start-ups

Tech Transfer Facility (2)

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Key Features:

Implement a dedicated facility to serve as a bridge between R&D / science and business, an area currently not adequately supported by public funds.

The Manager of the facility must possess a well-rounded skillset combining financial, industrial and scientific expertise as well as broad network in Bulgaria and abroad.

Could be fine-tuned to support industries and sectors set by State.

Dedicated solely to commercializing technology and innovations deriving from a pool of universities, research centers and tech parks thus fostering entrepreneurship in R&D and capital intensive businesses.

Key Benefits:

Utilize an innovative market-oriented way way of “pushing” innovations to the commercial market.

Mobilizing private funding in an area currently perceived as “too risky” to be funded by the business.

Engagement and signaling effect of the corporate sector in providing expertise at very early stage usually perceived as “too early”.

Strengthening the R&D capacity in universities by providing a natural “next stage” to innovations developed in-house.

New Instruments for 2014-2020:SME Initiative

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Private Investors

Senior risk(EIB, third parties)

Mezzanine risk (EIF, EU Funds,

ESIF)First Loss Piece(ESIF, originator)

Ret

aine

d by

the

orig

inat

or

Risk tranching

EIFguarantee

GuaranteeRate up to 80%Loan by Loan SME Loans

Financial Intermediary (FI)

Beneficiaries

SM

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SM

E 2

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Portfolio of SME Loans

The SME initiative (2)

Key objectives Better access to finance for SMEs through capital relief, loss protection and liquidity Increased multiplier on public budget through participation of EIB/EIF and private sector Reduction of financial markets fragmentation.

Two risk-sharing instruments endorsed by the European Council:1. Guarantee facility for portfolios of new SME loans;

2. Securitisation instrument for portfolios of both new and existing SME loans;

Eligible assets: SME Loans, leasing and guarantees. Restructured loans should be excluded, no refinancing permitted.

Key area of intervention Reduction of collateral requirements for new SME loans Reduction of risk-related interest margins; Unlocking long-term lending – up to 10yrs

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