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

2. 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

3. 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

4. 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)

5. 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

6. 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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