Public support is needed and              reasonableAndrus TreierCEOKredEx17 August 2006
Biggest fears and worries• Too big risks to start business  - low entrepreneurship, 65% prefer not to be entrepreneurs• Ha...
Start and growth need money        Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
Investment Flows                                                     E             Government                             ...
Financing sources     • Seed capital• Loans• Mezzanine financing, quasi equity• Venture capital     • Own cash flow     • ...
Bank loans• Strong and steady historical cash flow,  easily projected in the future• Sufficient collaterals (1.5x market v...
Mezzanine Financing(Quasi Equity, Subordinated Loan)• Strong and steady cash flow• Positive future expectations• No collat...
Owners Equity• Current cash flow insufficient• Future vision must be clearly positive,  even if uncertainty is big• No col...
Impact to cash flow and P/L• Bank loan: low price, principal payments  and interest to be paid• Mezzanine financing: mediu...
Combining instruments makes bigprojects work• EBITDA= 1 millionFinancing• Bank loan           3 millions• Subordinated loa...
Different state organisations do existDebtors (Export Credit Agencies)• Short term export guarantees (up to 90% for commer...
State organisations in Estonia• Enterprise Estonia           » Grants and awareness programs           » Incubators• KredE...
Start and growth need money Development Fund                                Equity Loan          Loan and Leasing Guarante...
What is KredEx?• A self-sustaining guarantee fund that offers:             »   Export guarantees          50 MEUR guarante...
Loan guarantees help to get loanand mitigate risk• Up to 75% of principal amount• Max amount EEK 15 million• Working capit...
Equity loan helps companies to grow•   Loan amount EEK 1-16 million•   Maturity 5-10 years•   Owners equity less or equal•...
Why state should interviene?• Low or no profitability• Creation of market with “normal” conditions• Reducing fears and cha...
ContactCredit and Export GuaranteeFund KredExPärnu mnt 67b              Tel: +372 6 819 95010134 Tallinn, Estonia     Fax:...
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Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier)

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Slides from Connect Estonia seminar CONNECT WITH THE SMART MONEY, on August 29, 2006.

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Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier)

  1. 1. Public support is needed and reasonableAndrus TreierCEOKredEx17 August 2006
  2. 2. Biggest fears and worries• Too big risks to start business - low entrepreneurship, 65% prefer not to be entrepreneurs• Hard to find seed capital and other financing - start-ups, small companies, loss bearing companies• Fear to share knowledge• Fear to loose control over business - only 27% of SMEs are willing to take in other investors• Loan is expensive (and you sell your sole) - 60% of enterprises utilise retained profits for investments - Companies utilising loans grow 50% faster• Estonia is a small country
  3. 3. Start and growth need money Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
  4. 4. Investment Flows E Government Angel Institutional Investors Investors Investors E E/D E Business Venture & Private Angel Equity Funds Networks E E/D E/D E/D D Entrepreneur Enterprise Banks E/D E/DE = Equity Investment FFF BanksD = Debt Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
  5. 5. Financing sources • Seed capital• Loans• Mezzanine financing, quasi equity• Venture capital • Own cash flow • Business partners • Grants, subsidies, incubators etc
  6. 6. Bank loans• Strong and steady historical cash flow, easily projected in the future• Sufficient collaterals (1.5x market value)• Good relations with bank• Loan < 3x operating cash flow (EBITDA)• Clear and positive future expectationsUsed:Usually for expansion, occasionally for buy out
  7. 7. Mezzanine Financing(Quasi Equity, Subordinated Loan)• Strong and steady cash flow• Positive future expectations• No collaterals, bank not willing to grant loans• Loan < 5x operating cash flow (EBITDA)• No intervention in ownership• Not more than 50% of the owners equity• Not possible, if growth prospects are modestUsed:Usually for buying out and enlargement of the business
  8. 8. Owners Equity• Current cash flow insufficient• Future vision must be clearly positive, even if uncertainty is big• No collaterals• Strong intervention in management• Highest price!Used:Starting, buying out or expanding the company
  9. 9. Impact to cash flow and P/L• Bank loan: low price, principal payments and interest to be paid• Mezzanine financing: medium price, interests to be paid, can be related to success, principal payments flexible• Owners equity: high price, no direct impact to P/L, no principal payments
  10. 10. Combining instruments makes bigprojects work• EBITDA= 1 millionFinancing• Bank loan 3 millions• Subordinated loan 2 millions• Owners equity 2 millions• Total 7 millions
  11. 11. Different state organisations do existDebtors (Export Credit Agencies)• Short term export guarantees (up to 90% for commercial risks)• Long term export guarantees (up to 100%, capital goods)Bank Loans (Guarantee organisations)• Additional guarantee replacing or in addition to collaterals (up to 75%)Mezzanine Financing• Different products provided by the state organisations, additional to private financingEquity Financing• State owned/participated Venture Capital FundsGrants• Knowledge based, high tech projects, infrastructure, incubators, training, consulting etc
  12. 12. State organisations in Estonia• Enterprise Estonia » Grants and awareness programs » Incubators• KredEx » Export guarantees » SME loan guarantees » Equity financing » Housing loan guarantees• Estonian Development Fund (?) » Public VC fund for seed capital investments
  13. 13. Start and growth need money Development Fund Equity Loan Loan and Leasing Guarantees Start-Up Loan Export Guarantees Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
  14. 14. What is KredEx?• A self-sustaining guarantee fund that offers: » Export guarantees 50 MEUR guaranteed in 2005 » SME guarantees 27 MEUR outstanding in 2005 » Equity financing 3 MEUR estimated 2006 » Housing loan guarantees 44 MEUR outstanding in 2005• Our aim: » Export guarantees » To raise competitiveness of Estonian companies by improving financing possibilities and mitigating credit risks » To enhance living conditions in Estonia by widening financing possibilities and promoting energy efficient behaviour• Established: » 2001• Owner: » Ministry of Economic Affairs and Communications
  15. 15. Loan guarantees help to get loanand mitigate risk• Up to 75% of principal amount• Max amount EEK 15 million• Working capital and investment loans, bank guarantees• Guarantee »fee 0.4-3.0% pa Export guarantees• Conclusion fee 1%• Start-Up loan 30% of personal surety, no other collaterals Up to EEK 500 thousand
  16. 16. Equity loan helps companies to grow• Loan amount EEK 1-16 million• Maturity 5-10 years• Owners equity less or equal• No intervention to management, convertability option• No collaterals needed• Long grace period, flexible chedule• Subordinated loan• Interest rate about 20% pa
  17. 17. Why state should interviene?• Low or no profitability• Creation of market with “normal” conditions• Reducing fears and changing understanding• Mitigating risks in economic downturn
  18. 18. ContactCredit and Export GuaranteeFund KredExPärnu mnt 67b Tel: +372 6 819 95010134 Tallinn, Estonia Fax: +372 6 819 951E-mail: kredex@kredex.eewww.kredex.ee

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