Rudy AernoudT

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ISME Seminar Kanton - 3 july
2008
Funding SMEs in Europe Challenges and policy
answers

• Rudy AernoudT
• rudy_at_aernoudt.com

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(No Transcript)
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Structure

• Five evidences
• EU facts and figures
• Governments role
• Supply side
• Demand side
• Meeting supply and demand
• Conclusion

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I. Five evidences

• Not all markets are the same
• Not all the money is the same
• The market does not function at the lower end
• Negative risk premium
• There is a natural tendency for big deals

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Evidence I

• Not all the markets are the same

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Not all the money is the same
Evidence II
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Evidence III Financing needs are not the same
bank
CF
venture capitalist
business angel
entrepreneur
sweat equity
e x p a n s i o n
start-up
seed money
time
concept
sales
prototype
regional expansion
product introduction
product support
marketing
know how time research engineering
prototype 1st marketing plan
proof of concept product development business
plan production prototype marketing plan
working capital
1st personnel start marketing management
team market studies
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Evidence IV Market does not function at the
lower endSupply/demand and return for risk
capital by development stage
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Evidence IVbis Negative risk premium

Source EVCA
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The market does not function at the lower end

• Demand issue
• Entrepreneurs prefer control over growth
• Only 7 accept to open their capital for external
  money
• Information asymmetry

• Supply issue
• Risk/return example of market imperfection
• Lack of professionalism
• Inverse risk premium

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Evidence VNatural tendency for big deals
Need high fees
High volume
Prove good return
Larger Volume
Big deal
To pay expensive fund managers
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EU Facts and figures (1)

• 1,6 million enterprises created a year
• 150 000 (Bannock) are
• Growth oriented
• Offers a sufficient, but not extra-ordinary
  return
• 3000 get venture capital
• 2 out of 1000 starters get VC in EU

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EU Facts and figures (2)

• 10 000 good technology business ideas
• 1000 get created
• 100 get VC
• 10 go public
• 2 become market leaders

• Go for the market leaders!!
• Policy
• or
• vc wisdom?

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Desired government actions for financing
III. Government role (1)
Source  Bank financing and small firms ,
Prof.dr. Eddy Laveren Johan Bortier.
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Government role - Supply side

• One of the characteristics of an entrepreneurial
  region is the offer of a wide variety of
  financial instruments
• All instruments integrated within one
  organisation
• One-stop shop for SME financing
• Integrated finance approach

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Supply side European initiatives

• FEDER (new financial instruments such as BA,
  Venture capital, Mezzanine, Guarantee)
• EIF (guarantee, venture capital, JEREMIE)
• GIF High Growth initiative
• Fund of funds principle for VC
• Side car fund for BA
• Start-up or expansion phase
• Co- or counterguarantee system
• 7th PCRD (risk sharing)
• PIC
• Venture capital initial investments, expansion
• Guarantee loan, microcredit, own funds,
  titrization

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Government role a country example Belgium
High Risk
ARKIMEDES gt 250.000 Euro
INNOVATION CAPITAL FUND 100.000-250.000 Euro
FRIENDS LOAN lt 75.000 Euro
BUSINESS ANGEL NETWORK And BA 50.000-100.000 Euro
Low risk
PRE-SEED
SEED
START-UP
EARLY-GROW
EXPANSION
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Demand side
Government role

• Investor readiness
• Integrated finance approach (fit 4 finance)
• Stimulate entrepreneurship
• Casebook of VC backed companies

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Government role Demand meeting supply

• Mutual Understanding between bankers and SMEs
• Round tables
• Code of conduct (Basle II)
• Business angels academy
• Creating platforms

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IV. Conclusion

• Need for more entrepreneurial finance
• Need for more real entrepreneurs
• Need for stimulating government measures
• Only then will more venture capital backed
  companies grow, leading to economic growth and
  employment.

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IV. Conclusion (2)

• Added value of public sector is in seed early
  stage
• ? not in later stage (except for high growers)
• Preseed and seed act as trigger
• Subsidize pre-incubation (due diligence on seed)

Rudy Aernoudt
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IV. Conclusion (3)
New Public Role
PPP
Leave it to The market
Rudy Aernoudt
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Leverage principle Archimedes
Give me a lever long enough and a fulcrum on
which to place it, and I shall
move the world
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Read more about it!

• R. Aernoudt, European Enterprise Policy,
  Intersentia, New-York - Antwerp, 2003
  (www.amazon.com)
• R. Aernoudt, Policy towards risk capital, in
  Venture Capital, 1/1999.
• R. Aernoudt, Business angels a policy issue?
  From perverted pecking order to perverted
  risk-return, Venture capital, 1/2005
• R. Aernoudt, Business Angel Academy, Venture
  Capital, 1/2007
• More www.aernoudt.com