Revolving EFRE Funds for Financing SMEs Brussels, 10 October 2006 Dr. Holger Kuhle, Thomas Hüttich

Promotional Funds Based on Grants vs. Revolving Instruments are the suitable choice when public resources are scarce Promotion Based on Grants Revolving Instruments Tax revenues Money is lost Target projects Grant programmes Funds Reallocation to funds Money remains in circulation

Legal Design of Funds After gaining initial experience in Great Britain a legal basis for the use of EFRE funds in the form of revolving loan and equity instruments was created with Rule No. 8 in the Annex of Regulation [EEC] 448/2004 in the current EU programming period: Revolving use in the objective area even beyond the end of the programming period The fund and not the enterprise is the final beneficiary, i.e. EFRE can be paid in a single sum into the fund (no n+2 restriction before the end of the programming period) There are no extra reporting obligations other than common in banking for SMEs Profitable interim investment of EFRE funds is possible Independent, professional and profit-oriented funds management

EFRE-Funds at IBB In the year 2005 Investitionsbank Berlin (IBB) – the public development bank of the Land of Berlin - established the first Rule No. 8 Fund in Germany with the SME loan fund and the venture capital fund (VC-Fund); a third one will follow in 2006 with the Berlin Capital Fund for mezzanine instruments A new round of the EFRE co-financed funds is also planned for the new EFRE-period Government co-financing of the EFRE funds is effected by IBB loans to the funds which, in turn, are refinanced through the capital market (recognized as public resources) Rule No 8 funds can be structured externally as an independent legal entity for investments (VC-Fund) or internally within development banks as a separate financing block for loans (SME fund)

EFRE Funds Structure without Own Legal Entity (SME-Fund) Senate/Ministry of Economics Regional Support Bank Government co-financing 50% Independent Fund Management EFRE 50% EFRE Fund Investment holdings Loans Target project A Target project B Target project C

SME Funds: Objectives and Application Loans for investments and associated working capital of SMEs in consortium with commercial banks of up to €1m. Up to €25,000 in micro-loans for new businesses and young companies in the form of direct allocations from the SME fund The overall volume of the SME fund amounts to €34m The VC-fund is providing equity financing to young technology-related and Berlin-based companies as Lead-, Co-Lead- or Co-Investor and managed IBB Beteiligungsgesellschaft mbH, a 100% subsidiary of IBB Up to € 0.75m can be invested per financing round with a ceiling of € 2.25m per company and an investment horizon of 5 to 7 years. The VC Fonds Berlin can only invest with further commitments from other sources in the same amount are required. These can stem from other venture capital firms, business angels, industry partners, public grants, or the founders themselves.

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