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3. Sources of finance All money is not the same!
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.
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 start-up and development.
Mezzanine : intermediate layer of financing products (between equity and debt). Interest rates are often quite high.
Financial package : a combination of various sources of finance.
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.
6. Regions and access to finance Case Study of the Rhône-Alpes (F) 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 L O C A L F U N D I N G R E Q U I R E M E N T S S C A L E « Local platforms » (Loans on trust) Local initiative platform ADIE Business Angels € 300,000+ € 300,000 to € 45,000 € 45,000 to € 15,000 € 15,000 to € 7,500 Sup. de Co. Grenoble
7. The Commercialisation Cycle Source: Presentation by Mr Lex de Lange, Managing Director, Zernike Group, made at PARTNER Focus Group in Tartu, Estonia, May 2003
c) project investment readiness: certain credit and venture capital tools are not adapted to the needs of all businesses at all stages of their development;
d) difficulties in identifying, and reckoning with, the administrative requirements of venture capital and credit providers. Such requirements include information on projects as well as financial and managerial data (corporate governance). Downstream of investment, businesses should also recognise the importance of regular, properly formatted reporting to investors .
Business angels: bringing potential to become serial angels (not training but capacity building);
Business Angels Network management: improving the market place. BAN is a place where angels meet with entrepreneurs.
13. The role of public authorities at the regional level
Support for the setting up and financing of the operational cost of a regional business angels network;
Setting up of seed capital funds;
Support for repayable short-term loan schemes;
Setting up of investment capital funds;
Deployment of guarantee schemes;
Priority access for innovative SMEs to public procurement;
14. Financial Supply Chain Banks Garanties Leasing Factoring Infrastructure: business angels networks, incubators, etc. Advice: investment readiness, tutorship Expertise: professional fund managers Own resources FFF VC Loans on trust Pre-seed Loans for investors Reimbursable advance payments IPO BA Corporate Venturing Seed capital FFF : Family, Friends, Fools BA : Business angels VC : Venture capital IPO : Initial Public Offering Grants Micro-credits Other public support Prerequisites Tools
The gathering of several business angels into an informal consortium for the purpose of creating a critical mass of funds above what each business angel could—or would be prepared to—invest. This term also applies to the pooling of competencies in order to offer more managerial skills than any individual business angel could display.
Diluting the risk to take for individual investors;
Broadening the panel of possible investment sectors
In some countries syndication allows for eligibility to a fiscal regime equivalent to that of formal risk capital investors.
An investment fund dedicated to the provision of equity finance to SMEs in which business angels have already invested in. The co-investment fund invests under the same terms and conditions as the angels, on a pari-passu basis. The fund is run by an independent management team,which trusts to a large extent the due diligence work done by the business angels. In some cases (side-car funds), angels that are already part of an investment structure (BAN) pool resources into a fund for specific investments, in parallel to the activities operated at the BAN level. First fund launched in December 2002 and is managed by Greater London Enterprise ( www.londonseedcapital.com ). 16. Co-investment funds
SME FUNDING PATHWAYS Has your business plan been found to be robust by a specialised organisation ? Are you prepared to accept third-party shareholders in your SME? You should consider asking for the provision of: specialised advice (pre-)incubation services business development funding entrepreneurship training You can enter a business plan or business development competition Are you ready to meet potential investors? Do you have personal guarantees? Attend an investment readiness training course Get in touch with: A bank to secure: a loan a financial lease micro-credit Public authorities to apply for subsidies, including in the form of reduced interest rates A factoring corporation Contact an organisation that provides: guarantees loans on trust subsidies YES NO YES NO NO YES YES NO Source: EURADA, December 2003 Understanding the Decision Path
Is your product / service ready for the market? YES NO Check the existence of support from: innovation grants incubation technology centres seed capital firms public authorities universities and technological parks How much equity /money do you expect to need? BANKS (If banks say no) Up to €250,000 Contact: a business angel a regional business angels network a corporate venturing firm a local financing company € 500,000-1,500,000 Contact: a business angels syndicate a seed capital or other public or private fund specialising in start-ups a regional public equity participation fund an industrial reconversion company Over 3,000,000 Contact: a public or private venture capital firm a regional equity participation fund an organisation that specialises in bond issues Also check the attractiveness of your project—as adequately funded—with: banks guarantee firms public authorities to secure subsidies and grants venture capital funds Finally, consider: an MBO (Management buyout) an IPO (Initial Public Offering) Source: EURADA, December 2003
For more information EUROPEAN BUSINESS ANGEL NETWORK Avenue des Arts 12, Bte 7 B- 1210 Brussels T.: + 32 (0)2 218 43 13 F.: +32 (0)2 218 45 83 [email_address] www.eban.org