1. JEREMIE implementation with a Regional Development Agency - The case of Andalucía: challenges, achievements and perspectives Francisco Jiménez- Stefan Mathesius Agencia IDEA Brussels, 30 th November 2010

2. 2 Index Situation analysis of Andalusia Strategy, Organization and Implementation Investment Strategy and Objectives JEREMIEs implementation milestones Operative management model Andalusia bases its future model on reimbursable instruments JEREMIE structure and operations Structure of JEREMIE Fund Andalusia Leverage Mechanism of JEREMIE Financial instruments Target group: late start-up, growth, expansion Viable projects vs. suitable projects Results and impacts Lessons Learned

3. 3 Situation Analysis of Andalusia GEOGRAPHIC SITUATION CARACTERISTICS OF ANDALUSIAN ENTERPRISES Convergence objective Unemployment rate: 28% Employment rate: 42% GDP: -0,1% CPI: 2,1% Trade deficit : -11,5% (national) Domestic deficit: -9,8% (national) Income per capita: 79% of European level *ratio between total number of employees and population over 16 years and older) Family companies SME: 95% Micro enterprises (<10 employees) 99,9% SME 80% employment in SME Only 430 enterprises > SME Main activity / employment Sectors: Tourism Construction Agriculture Public Administration Strategic Sectors: Renewable Energies (thermo solar)/ Clean tech Agribusiness Aeronautics TIME Biotech MACROECONOMIC DATA 2010 Population: 8,3 M Surface 87.000 km2 Fuente: INE

4. 4 Index Situation analysis of Andalusia Strategy, Organization and Implementation Investment Strategy and Objectives JEREMIEs implementation milestones Operative management model Andalusia bases its future model on reimbursable instruments JEREMIE structure and operations Structure of JEREMIE Fund Andalusia Leverage Mechanism of JEREMIE Financial instruments Target group: late start-up, growth, expansion Viable projects vs. suitable projects Results and impacts Lessons Learned

5. 5 Investment Strategy and Objectives Competitiveness and globalization of Andalusian enterprises. Creation of sustainable and qualified jobs Catalization of change of the Andalusian economic model. Facilitation of access to finance ; reactivation and normalization of the financial market OBJECTIVES Investment in companies with high growth potential. Encourage consolidation process in key sectors to obtain critical mass. Global validity of the business model and value proposition. Financial instruments that facilitate co- financing mechanisms: Equity + Mezzanine capital INVESTMENT STRATEGY

6. 6 JEREMIE implementation milestones 24 Feb 2009 Financing agreement CEH (Regional Economy & Treasury Ministry), CICE (Regional Innovation, Science & Enterprise Ministry): Creation Holding Fund JEREMIE 235 M Holding Fund Manager = IDEA Agency* 24Jun 2009 Public tender: JEREMIE Multiinstrument 185 M JEREMIE Risk Capital 50 M JEREMIEs definition/design, objetives, programs/funds and structures. Adjudication Intermediary: JEREMIE Multiinstrument: SOPREA Adjudication Intermediary JEREMIE Risk Capital SGR: INVERCARIA SGECR 14Oct 2009 Operative launch 5 Nov 2009 Constitution and operative launch 4 Oct 2010 Negotiation and closing private investment 25 M (saving banks) *Innovation and Development Agency of Andalusia

7. 7 Operative Management Model IDEA territorial Net + Intermediates (Technological and scientific parks/centres, Business schools,, business associations, etc.) JEREMIE Unit (IDEA) Holding Fund SOPREA S.A. INVERCARIA S.G.E.C.R. Deal Flow Generation Entry & Assignation Analysis and investment EquityDebt /Subordinated debt

8. 8 Andalusia bases its future model on reimbursable instruments T1T2T3T4T1T2T3T4 20092010 JEREMIE Definition/ Designoperative JEREMIE Multiinstrument JEREMIE Risk Capital FCR Definition/ Designoperative Business Development Fund Renewable Energy Fund Sustainable Economy Fund operativeDefinition/ Design Total Funds und management (M ) 185 469544 operativeDefinition/ Design operativeDefinition/ Design

9. 9 Index Situation analysis of Andalusia Strategy, Organization and Implementation Investment Strategy and Objectives JEREMIEs implementation milestones Operative management model Andalusia bases its future model on reimbursable instruments JEREMIE structure and operations Structure of JEREMIE Fund Andalusia Leverage Mechanism of JEREMIE Financial instruments Target group: late start-up, growth, expansion Viable projects vs. suitable projects Results and impacts Lessons Learned

10. 10 Structure of JEREMIE Fund Andalusia ERDF European Regional Development Fund Ministry of Economy, Innovation and Science of Andalusia JEREMIE FUND (Holding Fund) FONDO JEREMIE Risk Capital FCR (regulated by Spanish financial authority) 235 M 50 M FONDO MULTIINSTRUMENTO 185 M 30%70% Innovation and Development Agency of Andalusia Fund Manager: INVERCARIA S.G.E.C.R. Fund Manager: SOPREA S.A. Private Participants (savings banks) Co-investors -ICO-AXIS -VC-Funds -Financial institutions 25 M

11. 11 Leverage Mechanism of JEREMIE JEREMIE VENTURE CAPITAL FUND FCRMULTIINSTRUMENT FUND 30 328 470 x 4,7 100 30% Andalusian Government 204 ERDF 42 62 > 30% Co- Investment Minimum Leverage (theoretical) Total investment (Real Leverage) Total investment 100 30% Andalusian Government ERDF 42 74 33% Private Participtaion (Sav. Banks) x 5,4 > 30% Co- Investment 93 309 Minimum Leverage (theoretical) (Real Leverage) 540 324

12. 12 Financial instruments: Risk versus Premium for Risk Premium for risk Risk Riskless Cost/ risk relation in an efficient market high low Mezzanine capital/ Subordinated debt Bank financing Venture Capital crisis high

13. 13 Financial instruments: Guaranties versus Premium for Risk Premium for risk Guaranties/ collaterals high low high Mezzanine capital/ Subordinated debt Bank financing Venture Capital Different analytic approaches Upside-potential Risk/guaranty

14. 14 Target group: late start-up, growth, expansion stages Cash flow t Concept Prototype Creation Market entryBreak even CF IPO (potential) SeedStart-up Growth (1st, 2nd round) Expansion (3rd round)

15. 15 Index Situation analysis of Andalusia Strategy, Organization and Implementation Investment Strategy and Objectives JEREMIEs implementation milestones Operative management model Andalusia bases its future model on reimbursable instruments JEREMIE structure and operations Structure of JEREMIE Fund Andalusia Leverage Mechanism of JEREMIE Financial instruments Target group: late start-up, growth, expansion Viable projects vs. suitable projects Results and impacts Lessons Learned

16. 16 JEREMIEs activity results (Nov 2009 – Oct 2010) # Projects: applied: 204 approved: 22 Investment volume: applied: 670 M approved: 68 M Ø-investment: 3M Induced investment: 220 M Leverage/Co-investment: 78% (=> JEREMIE Multiplier x 4,6) Employment: generated: 3.060 supported: 2.500 National venture capital markets share (investment volume) : Total: 8% Start up: 16% Expansion: 24% Transactions 1-10 M : 11% Ø-term of resolution: 10 weeks # Operations/professional: JEREMIE: 2,8 per year Market: 0,3 per year ACTIVITY RESULTSGENERATED IMPACT SECTORS COMPARISONEFFICIENCY RESULTS

17. 17 Index Situation analysis of Andalusia Strategy, Organization and Implementation Investment Strategy and Objectives JEREMIEs implementation milestones Operative management model Andalusia bases its future model on reimbursable instruments JEREMIE structure and operations Structure of JEREMIE Fund Andalusia Leverage Mechanism of JEREMIE Financial instruments Target group: late start-up, growth, expansion Viable projects vs. suitable projects Results and impacts Lessons Learned

18. 18 Lessons Learned Selection of the fund manager (intermediate) is key for a successful implementation and execution of JEREMIE: Fit-in of JEREMIE into regular activity of the Intermediate Avoid conflict of interest between regular activity and JEREMIE (¡commission scheme!) Close coordination and transparency between Holding Fund and Intermediates Implementation of leverage mechanism: Positioning: No competition with financial institutions (=> differentiation and complementarity: subordinated debt) Enforce Co-investment by limiting level of financing (max. 70%) Trade-off: Specific funds/mono-instrument versus macro funds/ multi- instrumental Adapt risk levels to markets necessities. (Who bears the risk? Guaranty requirement?)

19. 19 APPENDIX

20. 20 Instrument A: Mezzanine Capital (convertible loan/subordinated debt) Debt Required profitability Seniority / Priority Equity PASSIVE Mezzanine capital Characteristics: Equity character (=> loss support) Low collaterals (guaranty = business) Yield: fix + variable example: EURIBOR + 2% + variable(0-10%) High flexibility Convertible in capital Advantages for the entrepreneur: Improvement of the statement of financial position with no dilution Keeps operative control Interests rates and amortization related to business evolution. No personal guaranties subordinated =>leverage capacity

21. 21 Instrument B: Venture Capital Debt Required profitability Equity PASSIVE Venture Capital Characteristics : Investment in Equity (=> loss support) Tailor-made Temporary stage (4-8 years) and minority Without collaterals (guaranty = business) High yield but 100% variable Exit scenario/ drag along option Advantages for the entrepreneur : Keeps management/operative control Stable financing (=> no cash exit ) Added value (relations + management support) Without personal guaranties Image y reputation Leverage capacity Seniority / Priority

22. 22 Key point for JEREMIE Technology adoption model Enthusiasts, Tekis Innovators Visioners Early Adopters Pragmatists Early majority Conservatives Late Majority Sceptics Laggards Chasm