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From MAP to CIP: the financial instruments EPP-ED hearing on CIP , 8 Dec 2005

From MAP to CIP: the financial instruments EPP-ED hearing on CIP , 8 Dec 2005 Francis Carpenter, EIF Chief Executive. EIF at a glance. WHEN? Created in 1994. EU specialised financial institution ( MDB, Triple – AAA) for SMEs, acting through:

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From MAP to CIP: the financial instruments EPP-ED hearing on CIP , 8 Dec 2005

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  1. From MAP to CIP: the financial instruments EPP-ED hearing on CIP , 8 Dec 2005 Francis Carpenter, EIF Chief Executive

  2. EIF at a glance WHEN? Created in 1994. EU specialised financial institution (MDB, Triple – AAA) for SMEs, acting through: Venture Capital (fund of funds) and Guarantees for SME portfolios • WHY ? • Art 2 : « pursuit of Community objectives » such as growth, employment, knowledge-based economy, innovation, regional development, Lisbon • Art 24 : « generate an appropriate return on its resources  » • WHO ? • Subscribed capital of EUR 2 billion : • - 62 %: European Investment Bank • - 30 %: EC for the EU • 8 %: 25 financial institutions

  3. EIF resources / instruments ERP+ others... European Community (MAP) EUR 250m – EUR 1bn EUR 600m EUR 4 000m EUR 450m Being increased Being increased Being extented Evergreen To be committed in venture capital funds and financial institutions in the EU and Candidate Countries 500 000 SMEs indirectly benefited from EIF Largest EU early-stage fund of funds, leading microcredit guarantor. Total portfolio of EUR 11bn

  4. CIP: building on MAP credentials • SME loan guarantees • 27 countries covered, 66 portfolios of intermediaries • €4.5bn of EC guarantees • €15bn worth of loans guaranteed • Each euro has leveraged 44 euros of funding • Over 220 000 SMEs benefited from guarantees • More than 90% are small and micro-entreprises • Each quarter, 12 000 new SMEs benefit from the SME GF • Venture capital (seed, early stage) - Budget allocation EUR 130m - Some 300 high-growth SMEs have benefited - Mobilised €800m of total investment (total leverage estimated EUR 3bn) • Evaluation - 2 independent reports by EC: “ EIF is a must-have” for management of financial instruments, MAP has “made contribution to improving financial environment for SMEs”.

  5. MAP Case study • Skype Technologies SA is a peer-to-peer phone services provider using the Voice over Internet Protocol (VoIP). The Skype software downloaded more than 155 million times ! • Skype benefits from Community resources under the ETF Start-up facility through New Tech Venture Capital Fund (“NTVCF”). NTVCF has received a EUR 10m investment (19.5% of the fund size) from the EIF in June 2000. ETF – SU Skype investment amounted to some EUR 300 000. • NTVCF was the very first institutional investor in Skype • On 12 September 2005, Ebay agreed to acquire Skype for EUR 2.1bn in a half cash, half stock deal. An earn-out structure is foreseen that could bring the final consideration to EUR 3.3bn if certain performance milestones are met (EUR 30m return for ETF SU investment)! EUR 300 000 ------------------------------------------------- EUR 30m, X 100 !

  6. CIP instruments: addressing market failures • Venture capital: industry recovering, but early-stage segment still an issue: low profitability, lack of critical mass, absence of tech transfer bridge between research and early stage VC investors. • Microcredit: key for economic activity (91% of total SMEs in EU), need to increase supply of Micro Finance Providers in EU (enhance their lending capacity), in particular for social inclusion (eg French riots) • Guarantees: enhance lending capacity of banks for all SMEs. Also focus on smaller and regional banks through securitisation of SME loan portfolios. Adapting CIP to market gaps through new windows:

  7. CIP: a More Ambitious Programme More windows, more countries: budget is an issue !

  8. The innovation cycle covered by EIF equity European Investment Fund « VENTURE CAPITAL » « PRIVATE EQUITY » Tech Transfer Incubators Business Angels Pre-Seed Seed Early Stage Expansion / Dev. Capital Later-stage Buy-out IPOs New policy areas New policy areas GAP CIP COVERAGE CIP COVERAGE SME LIFE CYCLE

  9. CIP: preparing the grounds in the EU ecosystem “The European Council would urge EIF to diversify its activities, in particular towards the financing of innovative SMEs through individual-investor (business-angel) and technology-transfer networks. This action should also be supported by the new Community competitiveness and innovation programme”.Spring EU Council, March 2005  ” The European Parliament committee calls for adequate funding for the support of innovative SMEs and initiatives aimed at helping the commercialisation of research and the transfer of technology, notably through EIF”. EP REPORT on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013, May 2005 • « The analysis unerlines the considerable weakness of early stage ventures in Europe… due to structural differences in the transfer of technology from labs to industry (compared to US) ». ECFIN paper for the EFC – March 2005

  10. European Investment Fund 43, avenue J. F. Kennedy L-2968 Luxembourg tel.: (00 352) 42 66 88 1 Brussels: 02.235.00.71 fax: (00 352) 42 66 88 200 www.eif.org info@eif.org

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