WIPO-INSME Training program on the role of intellectual property
in raising finance by small and medium-sized enterprises
Innovation tools to finance innovative SMEs
Geneva, 12.07.2006
Christian SAUBLENS
EBAN
1. Foreword
 There is an asymmetry of information between
entrepreneurs and investors;
 It’s not only a question of access to money but also a
question of life cycle of a company and about … sales
and market penetration;
 Investment readiness is needed;
 All money is not the same;
Financial Supply Chain
Prerequisites
Banks
Guaranties
Leasing
Factoring
Loans on trust
Pre-seed
Loans for inventors
Reimbursable advance
payments
University spin off
Proof of concept
Own
resources
FFF
Tools
Infrastructure:
business angels networks,
incubators, etc.
Grants
Micro-credits
Other public support
SME profitability
BA
Corporate
Venturing
Seed
capital
Advice: investment
readiness, tutorship
FFF : Family, Friends, Founders
BA : Business angels
VC : Venture capital
IPO : Initial Public Offering
Mezzanine
VC
Expertise:
professional fund
managers
IPO
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?
A project which is not perceived as risky
for an investor
Trial to analyse the equity paradox
Supply:
Is there enough money available for seed and early equity?
Demand:
 Are entrepreneurs aware of investors aspirations/ expectations
(asymmetric information; all money is not the same)?
 Are entrepreneurs ready to receive equity finance (Investment
readiness)?
 Are entrepreneurs proposals/ideas really innovative for investors?
Venture capital in Europe
25000
20000
Expansion
Millions of euros
Start-up
15000
Seed
10000
5000
3878
3273
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: EVCA
EBAN statistical sample shows:
 N° of active angels in the EBAN sample: 12.775
 N° of projects received: 9.500
 N° of deals done: 580
 Size of deals: 25.000 to 250.000 €
 Average size: 75.000 €
New trends
 B.A. & B.A.N. co-funding vehicles
 Proof of concept loans/grants
 Repayable advance
 Mezzanine
 University spin out/off funds
 Pipeline research revenue
 Non-financial tools
2. Segmentation of the market






Start-up phase
First financial round
Subsequent financial round
Initial and unorthodox sources
Public Support
Debt finance
N.B:
 Indirect supports
 Integrated actions
Start-up Phase
 Seed capital fund
 Loans without interest and/or guarantee
 University and research centres spin off funds
 Micro-credit
 Public or parapublic funds for creation or innovation
 Public grants
 Reimbursable loans
 Proof of concept
First Financial Round
 Business Angels
 Seed capital fund
 Banks loans/Overdraft
 Guarantee funds
 Public or parapublic investment funds
 Regional Public venture capital
 Public grants
 Corporate venturing
Subsequent financial round
 Private venture capital
 Bank Loans
 Share subscription bonus
 Mezzanine
OTHER TYPES
 Leasing
 Factoring
Initial an unorthodox ways
 Entrepreneurs savings
 FFF
 Profit reinvestments
 Second mortgage
 Personal credit cards
 Customer advance
 Delay of payments
 Premises sharing
 Employing relatives at below market salaries
Debt finance
 Bank credits:
 Short term
 Long term
 Unsecured
 Micro
 Commercial debt (papers)
 Public/semi public loans
 Bonds
Public finance
 Grants
 Reimbursable advances
 guarantees
3. Sources of finance
All money is not the same!
 Business angels (informal risk capital): private individuals
investing part of their personal assets in businesses and
contributing their managerial skills and experience.
 Business Angels Networks (BANs): regional platforms that
match business angels with businessmen.
 Buyouts: existing investors’ shares in a business are bought by
the latter’s own management team (MBO-Management Buy
Out) or by another management team supported by a venture
capital fund.
 Corporate venturing: venture capital supplied by existing
companies for the purpose of financing innovative businesses
set up by their own personnel or active in industries
considered to be of strategic importance.
 Development or expansion capital: financing provided for the
growth and expansion of a company, which may or may not
break even or trade profitably. Capital may be used to: finance
increased production capacity; market or product development;
provide additional working capital.
 Early-stage finance/Start-up: funds invested downstream of
research and development, in businesses that need additional
finance to start marketing their products and services.
 Equity: Ownership interest in a company, represented by the
shares issued to investors.
 Expansion: growth, bridging or restructuring capital.
 Factoring: a technique whereby SMEs sell invoices to specialised
firms.
 Financial package: a combination of various sources of finance.
 Grants: subsidies paid - without an obligation to refund – by
public authorities to companies investing in a region for the
purpose of facilitating their establishment or expansion.
 Leasing: hire/purchase of capital goods.
 Loans and debt: the main sources of funding for SMEs.
 Mezzanine: intermediate layer of financing products (between
equity and debt). Interest rates are often quite high.
 Proof of concept: fund provided by public bodies to a research
team in order to assess the viability of a new enterprise.
 Quasi-equity investment instruments: instruments whose
return for the holder (investor/lender) is predominantly based
on the profits or losses of the underlying target company, are
unsecured in the event of default and/or can be convertible
into ordinary equity.
 Replacement capital (also called secondary purchase):
purchase of existing shares in a company from another private
equity investment organisation or from another shareholder or
shareholders – an investor buys another’s stake.
 Risk capital: equity and quasi-equity financing to companies
during their early-growth stages (seed, start-up and expansion
phase) in the hope of a return on investment (ROI) that is both
large and speedy, on a par with the level of risk taken. It
includes: informal investment by business angels; venture
capital; alternative stock markets specialised in SMEs and
high-growth companies.
 Seed capital: capital required for the purpose of financing
projects upstream of product or service marketing. Seed
capital is often essential for hi-tech projects in order to allow
businesses to study, research and develop prototypes of the
products that later come to constitute heir core business.
 Start-up capital: financing provided to companies for product
development and initial marketing. Companies may be in the
process of being set up or may already exist, but have not
sold their product or service commercially and are not yet
generating a profit.
 Venture capital: assets temporarily invested as stock by
specialised firms expecting return on investment that is both
fast and very substantial, i.e. commensurate with the level of
risk. Such specialised investors play a role during both startup and development.
4. Priorities for equity and
loan providers
Equity providers
Eligibility Criteria
Family, Friends and Fools
 Personal relationship based on trust
Business angels or
informal investors and
Spin-off corporate venturing
 Meeting or matching of individual entrepreneurs with
business angels
 Atmosphere of trust between individuals
 Credible business plan in the eyes of the Business Angel
 Good management
 Fiscal incentives
 Market knowledge of the entrepreneur
 Availability of exit route
 Return on investment (capital gain)
Banks
 Availability of guarantees
 Perceived ability to repay the loan
 Company track record
 Rating
Repayable short-term loans
 Innovative nature of business projects
 Business plan quality
 Management team
Venture capital and
Financial corporate venturing





Public funding
 New jobs
 Investment in productive tools
Guarantees
 Stamina as well as technical and financial
skills/abilities
Business plan credibility
Business plan with patent technology
Track record (over previous years)
Ability to grow fast and deliver quick ROI
Management team quality
Loans on trust
 Business plan credibility
 Readiness to cooperate with a tutor
Seed capital funds





Corporate venturing
 Innovative nature of the project in relation to the
company’s core business
 Industry-specific usefulness of the project, in
particular from a technological standpoint
 Business plan quality
 Good management
 Tax incentives
Business plan quality
Perception of the innovative nature of the project
Intellectual property
High growth potential
Government tax policies
Institutional investors
 Business plan
 Proprietary technology (IP)
 High growth
 Good management
 Tax incentives from government
Proof of concept




Innovativeness
Entrepreneurial spirit
Team
IPR – Valorisation of research results
New capital markets
 Viability and consolidation
 At least three years in existence
 Positive results at least once within twelve months
prior to application
 More than €1.5 million in shareholder’s equity
 Ability to publish quarterly results
 Public recommendation by analyst
 Positive media attention
 Government tax policies
 Capable and experienced management team
 Prominent Board
 Experienced team of financial, legal and underwriter
advisers
 New business concept
 Large market share
 Record of high growth or high growth potential
Examples of new trends
Proof of concept
AIM: helping innovative enterprises to develop their
products or services until their introduction to
the market.
Average of amount provided: 40 to 400.000 €
Mixture of grants and equity
 Pre-commercial support to university
 To prove “market potential” for research idea/invention
 Delivery format
 Up to £200k per award (max 2 years)
 University team includes academics and commercialisation practitioners
 University owns IP generated
 Only pre-commercial activity permitted
 £28m spent to date
 Programme performance to date
 85 projects completed
 400 jobs created to date
 17 companies formed
 22 licensing deals
 £22m investment into companies
Funded in part with ERDF support from the EU
Source: Scottish Enterprise
Mezzanine
AIM:
to improve the balance sheet of an enterprise by a
combination of subordinated loans or participating loans
and equity.
The loans might be either reimbursed or transformed in
shares at a given moment.
Average size of deals:
at regional level:
100.000 to 350.000 € in Wales (UK)
up to 2.225.000 € in Berlin (D)
at private equity level:
20 to 50.000.000 €
N° of deals in Europe:
± 100/year
University spin out/off funds
AIM:
to support universities staff & students to
start their own businesses. Good tool to
support the commercialisation of research
results.
Size of funds: in Belgium between 5 and 15 mio €.
All money is not the same
Start-ups are funded from different sources
Ex.1: SuperSonic Imagine (F)
creation date: 2005
n° of staff members: 15
founder investment: 50.000 €
1st Round:
VC (Auriga Partners) = 500.000 €
Sponsorship from:
- National awards = 450.000 €
- Regional grants = 550.000 €
2nd Round:
4 investors = 10.000.000 €
- Crédit agricole Private Equity
- Auriga Partners
- NB6I Ventures
- BioAm
Ex.2: MeilleurMobile.com
Creation: 2004
Turnover: 1 mio €
1st Round: Founder + BAs
2ndRound: Grants from Regional
Innovation Agency
3rd Round: Loan on trust
4th Round: Loan on trust
5th Round: V.C. (Galileo Partners)
220.000 €
50.000 €
20.000 €
20.000 €
1.000.000 €
(March 2006)
Non-financial tools
 Investment readiness schemes
Aim: improve the quality of Business plan and business presentation in
order to
attract the attention of potential investors (B.A. – V.C. – …)
Content:- business plan review
- knowledge of funding sources
- understanding timing and amounts to be expected
- needs & expectations of the various potential investors
- how to submit a business proposal.
 BA academy
Aim: helping potential B.A. to become active angels
Content:- enterprise evaluation
- taxation
- exit route
Research to Revenue - Pipeline
Investment/co-investment
Success in marketplace
National High Growth Start Up Unit
Enterprise Fellowship
Proof of concept
Idea/Invention based
on research output
Source: Scottish Enterprise
For more information
Christian SAUBLENS
EBAN
Avenue des Arts 12 Bte 7 1210 BRUSSELS – BELGIUM
www.eban.org - info@eban.org