1. 1 Encouraging SME innovation and growth: Increasing Capital Access SME access to finance: challenges and solutions European Association of Development Agencies Christian SAUBLENS 2008 INSME International Conference Guangzhou, P.R. China 3rd of July 2008

2. 2 The paradox of access to finance Banks Venture Capitalists have money Stock Exchange But argue that there aren’t enough good projects What is a good project?

3. 3 A good project! A good project is a project presenting in the eyes of an investor: acceptable risk profile a good perspective of return this means: access to market = innovation profits

4. 4 Trial to solve the equity paradox Supply: Increase the volume of money available for seed and early equity Improve the fluidity of the value chain Demand : Make entrepreneurs aware of investors aspirations/ expectations (asymmetric information; all money is not the same) Help entrepreneurs to be ready to receive equity finance (Investment readiness) Improve entrepreneurs proposals

5. 5 Public interventions Mix of non-financial and financial support services This means that intermediaries have to provide added value services and to become more professional

6. 6 Characteristics of most regional stakeholders Supply Proximity Generalist Public fund managers Abundant but little capacity to invest big amounts Fragmented, with no networking Badly equipped for assessing high-tech projects Little demanding in terms of exit and return, leading to « bad habits » in terms of growth and profitability 1. Public sector

7. 7 Reluctant to share the management of their companies with investors Undercapitalized and no guarantees Lack of entrepreneurial and management skills Family entrepreneurs Small businesses Researchers 2. Entrepreneurs Characteristics of most regional stakeholders

8. 8 Supply Proximity Manager Characteristics of most regional stakeholders 3. Private sector Scarcity and looking for high return on investment Not an issue, they are located where the deal flow is high High skills and well-paid expectations

9. 9 Tips for regional access to finance strategy OfferDemandIntermediaries availability of funding source information asymetry infrastructure exit opportunities missing demanding customers interaction between actors critical mass of available money quality of the business proposals government failure risk culture professionalisation of the industry added value support services bureaucracy

10. 10 Regional Financial and Equity Value Chain Infrastructure: business angels networks, incubators, etc. Intermediaries: advice, investment readiness, tutorship Human capital: professional fund managers, state aids experts Entrepreneur’s own resources and reinvestment capacities Equity VC FFF Pre-seed University spin off IPO Business Angels Corporate Venturing, Seed capital FFF : Family, Friends, Founders; BA : Business angels; VC : Venture capital; IPO : Initial Public Offering - Grants- Loans - Micro-credits- Loans on trust -Guarantees- Reimbursable advance -Proof of concept Prerequisites Mezzanine Public funding Risk taking investors: private, public - Banks- Factoring - Guarantees - Micro-credits - Leasing- Export credits Private funding

11. 11 Regions and access to finance Case Study of the Rhône-Alpes (France) Source: RHONE-ALPES CREATION PROJECTS High-tech (strong potential ) INDUSTRY AND INDUSTRIAL SERVICES (product- or process-based innovation) SMALL INDUSTRIES (CAPACITY SUBCONTRACTING) SERVICES AND TRADE (traditional, moderately innovative activities) MICRO BUSINESSES TRADE CRAFTS TRAINING – ADVICE- SUPPORT Incubators CREALYS GRENOBLE INNOEXPERT (CCI Lyon) BUSINESS CENTRE (EM Lyon) BUSINESS INCUBATORS (NOVACITES FRAC CREATION) Business development and reception service (CCI) Sponsorship Local platforms Entreprendre en France Banks + Comité Sofaris CCI + professionals Chartered accountants (ATEN) « 3 hours – 3 days » FINANCING « Venture Capital » (National or International) (Sudinnova, Siparex Venture, Banexi, Partech) « Seed capital » - National (thematic) (I Source, Emertec, BioAm,…) - Regional (Amorçage Rhône Alpes) « Business development venture capital » Rhône-Alpes Création Banque Pop., Crédit Agricole Rhône-Dauphiné Développement DEVELOPMENT TYPES « Réseau Entreprendre » (Loans on trust + Sponsorship) « ARJE » (Regional repayable short-term loans for new businesses—1-5 years) « P.C.E. » (BDPME loans) « Mille et Un Talents » (Regional grants) ANVAR LOCALFUNDINGREQUIREMENTSSCALELOCALFUNDINGREQUIREMENTSSCALE « Local platforms » (Loans on trust) Local initiative platform ADIE Business Angels €300,000 + €300,000 to €45,000 to €15,000 to €7,500 Sup. de Co. Grenoble

12. 12 Case study Wales (United Kingdom) The region of Wales (UK) re-organised all its financial services around a single organisation called Finance Wales (www.financewales.co.uk)www.financewales.co.uk to provide the following financial services and products: Community loans amounting to US$ 10.000 to US$ 100.000 for the social economy Xenos: its business angels network Spinout: unsecured loans without interest of up to US$ 50.000 for university spinouts Venture capital: up to US$ 1.500.000 per financial pool and US$ 3.000.000 in total Mezzanine: US$ 20.000 to US$ 800.000 Loans: from micro-credit of US$ 2000 to US$ 20.000 to loans of up to US$ 1.200.000

13. 13 A) SUPERSONIC IMAGINE –CREATION: 2005 –N° OF STAFF MEMBERS: 15 FOUNDER INVESTMENT: 50.000 € 1 ST ROUND: VC (AURIGA PARTNERS) = 500.000 € SPONSORSHIP FROM: –NATIONAL AWARDS = 450.000 € –REGIONAL GRANTS = 550.000 € 2 ND ROUND: 4 INVESTORS = 10.000.000 € –CRÉDIT AGRICOLE PRIVATE EQUITY –AURIGA PARTNERS –NB6I VENTURES –BIOAM Example of regional market fluidity

14. 14 B) MEILLEURMOBILE.COM –CREATION: 2004 –TURNOVER: 1 MIO € 1 ST ROUND: FOUNDER + BAS = 220.000 € 2 ND ROUND: GRANTS FROM REGIONAL INNOVATION AGENCY = 50.000 € 3 RD ROUND: LOAN ON TRUST = 20.000 € 4 TH ROUND: LOAN ON TRUST = 20.000 € 5 TH ROUND: V.C. (GALILEO PARTNERS) = 1.000.000 € Example of regional market fluidity

15. 15 Price/share (in US $) 1995 Larry Page & Sergey Brin@Stanford University 1997 15 000 US $ creditcards 100 000 US $ B.A. Andy Bechtolstein (Sun Microsystems) Patent OTL 0.06 fin 1998960 000 US $ 3 B.A. OTL receives2 % of the shares 0.50 mai 1999 25 000 000 US $ 2 V.C. Kleiner Perkins (Sequoia) 2.34 2001 15 000 000 US $ of which Yahoo 85 août 2004 2 718 281 828 US $ I.P.O. 295 2005 4 000 000 000 US $ Capital increase A financial chronology of Google.com NB: turnover. 200 000 US $ 1999 8 000 000 000 US $ 2006 Source: Hervé Lebert

16. 16 Added value support services Improvement of business plan Market intelligence Prototyping, design, quality Intellectual property protection and valuation Support to the commercial exploitation of public research results Incubation facilities Clustering Advice regarding human ressources

17. 17 Improving the quality of the demand 1 Technology 7 Leader 8 Team 9 Advisers / Support 6 Customers 5 Marketing 4 Business Plan 3 Development / Manufacturing 2 Product 12 Controls and Processes 11 Funding 10 Cash

18. 18 For more information EURADA info@eurada.orginfo@eurada.org / www.eurada.orgwww.eurada.org