JEREMIE implementation with a Regional Development Agency - The case of Andalucía: challenges, achievements and perspectives Francisco Jiménez- Stefan.

JEREMIE implementation with a RegionalDevelopment Agency - The case of Andalucía:

challenges, achievements and perspectives

Francisco Jiménez- Stefan MathesiusAgencia IDEA

Brussels, 30th November 2010

2

Index

Situation analysis of Andalusia

Strategy, Organization and Implementation

Investment Strategy and Objectives

JEREMIE’s 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

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

Index













Results and impacts

Lessons Learned

5


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

JEREMIE implementation milestones

24 Feb 2009

Financing agreementCEH (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€

JEREMIE’s definition/design, objetives, programs/funds and structures.

Adjudication Intermediary: JEREMIE Multiinstrument:SOPREA

Adjudication Intermediary JEREMIE Risk Capital SGR:INVERCARIA SGECR

14Oct 2009

14 Oct 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

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


T1 T2 T3 T4 T1 T2 T3 T4

2009 2010

JE

RE

MIE

Definition/ Design operativeJEREMIEMultiinstrument

JEREMIE Risk Capital FCR

Definition/ Design operative

Business Development Fund

Renewable Energy Fund

Sustainable Economy Fund

operativeDefinition/ Design

Total Funds und management (M €)

185 185 185 469 544



9

Index













Results and impacts

Lessons Learned

10


ERDF

European Regional Development Fund

Ministry of Economy, Innovation and Science of

Andalusia

JEREMIEFUND

(Holding Fund)

FONDO JEREMIE Risk Capital FCR

(regulated by Spanish financial authority)

235 M €

50 M €

FONDOMULTIINSTRUMENTO

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


JEREMIE VENTURE CAPITAL FUND FCRMULTIINSTRUMENT FUND

30328

470

x 4,7

100

30% Andalusian Government

204

ER

DF

42

62

> 30% Co-Investment

MinimumLeverage (theoretical)

To

tal

inv

es

tme

nt

(RealLeverage)

To

tal

inv

es

tme

nt

100

30% Andalusian Government

ER

DF

42

74

33% PrivateParticiptaion(Sav. Banks)

x 5,4

> 30% Co-Investment

93

309MinimumLeverage (theoretical)

(RealLeverage)

540

324

12

Financial instruments: Risk versus Premium for Risk

Premium for risk

Risk

Riskless

Cost/ risk relation in an efficient market

highlow

Mezzanine capital/ Subordinated debt

Bankfinancing

VentureCapital

crisis

high

13

Financial instruments: Guaranties versus Premium for Risk

Pre

miu

m f

or

risk

Guaranties/collaterals

highlow

high

Mezzanine capital/ Subordinated debt

Bankfinancing

VentureCapital

Different analytic approaches

Upside-potential

Risk/guaranty

14

Target group: late start-up, growth, expansionst

ages

Cas

h f

low

tConcept

PrototypeCreation

Market entry Break even CF

IPO(potential)

Seed Start-upGrowth

(1st , 2nd round)Expansion(3rd round)

15

Index













Results and impacts

Lessons Learned

16

JEREMIE’s 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 market’s 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 RESULTS GENERATED IMPACT

SECTOR’S COMPARISONEFFICIENCY RESULTS

17

Index













Results and impacts

Lessons Learned

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 market’s necessities. (Who bears the risk? Guaranty requirement?)

19

APPENDIX

20

Instrument A: Mezzanine Capital (convertible loan/subordinated debt)

Debt

Req

uire

d p

rofit

abili

ty

Sen

iorit

y /

Prio

rity

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

Instrument B: Venture Capital

Debt

Req

uire

d p

rofit

abili

ty 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

Sen

iorit

y /

Prio

rity

22

Key point for JEREMIE

Technology adoption model

Enthusiasts, Tekis

“Innovators”

Visioners “Early

Adopters”

Pragmatists“Early majority”

Conservatives “Late Majority”

Sceptics“Laggards”

“Chasm”

JEREMIE implementation with a Regional Development Agency - The case of Andalucía: challenges, achievements and perspectives Francisco Jiménez- Stefan.

Documents

fund jeremie

jeremie multiinstrument

future model

ine slide

private investment

business model

andalusian economic

operative launch