Andrus Treier

1. Public support is needed and
reasonable
Andrus Treier
CEO
KredEx
17 August 2006

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. Start and growth need money
Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999

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/D
E = Equity Investment FFF
Banks
D = Debt
Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999

5. Financing sources
• Seed capital
• Loans
• Mezzanine financing, quasi equity
• Venture capital
• Own cash flow
• Business partners
• Grants, subsidies, incubators etc

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 expectations
Used:
Usually for expansion, occasionally for buy
out

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 modest
Used:
Usually for buying out and enlargement of the
business

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. 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. Combining instruments makes big
projects work
• EBITDA= 1 million
Financing
• Bank loan 3 millions
• Subordinated loan 2 millions
• Owners equity 2 millions
• Total 7 millions

11. Different state organisations do exist
Debtors (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 financing
Equity Financing
• State owned/participated Venture Capital Funds
Grants
• Knowledge based, high tech projects, infrastructure, incubators, training,
consulting etc

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. 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. 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. Loan guarantees help to get loan
and 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. 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. 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. Contact
Credit and Export Guarantee
Fund KredEx
Pärnu mnt 67b Tel: +372 6 819 950
10134 Tallinn, Estonia Fax: +372 6 819 951
E-mail: kredex@kredex.ee
www.kredex.ee