Financial Instruments for Innovative SMEs in Bulgaria

1. Financial Instruments for Innovative SMEs in Bulgaria Sofia, 30th October 2014

2. EIF activity - key figures “ • We are the prime provider of SME financingin Europe ” 480 venture and growthfunds 306 banks, guarantee and promotionalinstitutions 27 funds-of-funds and holding funds Guarantees & securitisation 2013commitments: EUR 1.8bn whichmobilised EUR 8.6bn Microfinance 2013commitments EUR 53.8m whichmobilised EUR 201m Equity 2013commitments: EUR 1.4bn whichmobilised EUR 7.1bn EUR 13.5bn in total outstandingcommitmentsmobilise EUR 79bn

3. Instruments tailored at each stage Public Stock Markets Portfolio Guarantees & Credit Enhancement Formal VC Funds & Mezzanine Funds Microcredit VC Seed & Early Stage Business Angels,Technology Transfer PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT SME Development Stages HIGHER RISK LOWER RISK

4. EIF-managed Fund-of-Funds and Holding Funds across Europe Fund-of-Fund Activity Holding Funds Supported by Structural Funds (JEREMIE) LITHUANIA: EUR 67.1m ROMANIA: EUR 150m MALTA: EUR 10m PACA (FR): EUR 20m SLOVAKIA: EUR 100m SICILY (I): EUR 60m SICILY ESF (I): EUR 15m UK FTF: GBP 200m ERP (DE): EUR 1000m LFA-EIF (DE): EUR 50m Dahlia (FR): EUR 300m NEOTEC (SP): EUR 183m PVCi (PT): EUR 111m iVCi (TR): EUR 160m • BIF (LT,LV,EE): EUR100m • DVI (NL): EUR 150m • PGFF (PL): EUR 90m BULGARIA: EUR 349m CALABRIA (I): EUR 45m CAMPANIA (I): EUR 90m CYPRUS: EUR 20m EXTREMADURA (ES) : EUR 10m GREECE: EUR 250m LANGUEDOCROUSSILLON (FR): EUR 30m Future initiatives LFF (LU): EUR 150m

5. JEREMIE Equity and Debt Portfolio in Bulgaria 400 M EUR 301 M EUR Mature stage 60 M EUR 21 M EUR 21 M EUR Early stage Co-investment Funds First Loss Portfolio Guarantee Venture Capital Fund Portfolio Risk Sharing Loans Seed funds Financial Instruments Private funds - investors OP Competitiveness (JEREMIE)

6. JEREMIE Start-Up Funds in Bulgaria Key Highlights Investment Committee Pool of mentors • A dedicated facility two-compartment structure; • Due to the very high risk no private support could be expected at the facility level; • Investment limit capped at EUR 200k to allow private investor contribution in follow-on rounds • Opened to entrepreneurs from the region to create competition and collaboration across the Balkans Acceleration and Seed Fund Fund Manager (1% own capital contribution) Acceleration Compartment Seed Compartment Seed Pre-seed Start-ups

7. Acceleration and Seed Funds - Process • Application process: Fully online • Investment: EUR 25,000 – 50,000 • Equity share: ~10% • Stage term: 3-12 months • Graduation Goal: Working prototype, beta version Application Window Selection & Funding ACCELERATION STAGE Incubation Graduation day External companies • Investment: up to EUR 200,000(on aggregate) • Equity share: 30 - 49% (on aggregate) • Stage term: 12-24 months • Goal: Commercialization, internationalization SEED STAGE SEED Portfolio

8. JEREMIE in Bulgaria - Creating start-up ecosystem from scratch • Two acceleration & seed funds were created in Bulgaria in Q4/2012 with a total budget of EUR 21m. Two years later the developments are as follows: The Numbers The Details • The majority of start-ups are in the ICT, digital, engineering and med-tech sectors; • Follow-on investors in the companies include Earlybird, TechStars, Y-combinator, Tim Draper; • More than 20 of the companies are already revenue-generating, with one making EUR 600k for 2013 only; • Employees are 2-4 per company on avg., with one having 20+ people on payroll; • Regional VCs are now looking onto Bulgaria much more opportunistically; • More than 4,000 applications for funding mainly from BG but also from the entire Balkans; • Investments in 146 start-up companies for a total of EUR 9m; • 20-30% of start-ups are set-up by non-BG; • EUR 6m invested as follow-on in 12 successful companies by BAs, VCs; • Over 300 high-paid jobs created; • More than 20 entrepreneurial conferences and workshops were held in BG for 2013 only

9. JEREMIE in Bulgaria - Creating start-up ecosystem from scratch • For 2013, Sofia is the #3 accelerator capital in Europe after only London and Dublin, slightly ahead of more established startup hubs like Berlin and Paris; • There are only three accelerators & seed funds that have invested in more startups than Eleven in 2013 and five that have invested in more startups than LAUNCHub; • Sofia’s emerging place as start-up hotspot was not missed by reputable media like Wall Street Journal, Forbes Magazine, TechCrunch and etc;

10. JEREMIE Seed in Bulgaria – Success Story • Founded in Dec 2012 through the support of EUR 200k under JEREMIE, with 5 staff including founders; • Tech heavy company with 2 patents (EU and US) in approval process; • The application had 7m downloads and 1.2m regular users within months from inception; • Quick market adoption and start of revenue generation – EUR 600k+ for 2013; • Attracted the attention of reputable US VC investor – Tim Draper who invested USD 450k in the company as a business angel; • Scaled operations and open sales office in San Fran from Q4/2013 to service USA; • Turned down an acquisition offer from US cable operator for USD 10m (3x initial valuation) willing to buy the technology; • Staff on payroll in Bulgaria grew to more than 20 people; • Attracted the attention of big VC investors for Series A round – USD 2.5m from Earlybird, Turkish and Bulgarian business angels; • Current company valuation in excess of USD 15m;

11. New Instruments for 2014-2020:Tech Transfer Fund OPIC Contribution University 1 University2.. Science Lab 2.. Tech Park 1 Min 90% of funding Deal sourcing Management fee TT Facility EUR 30-50m TT Facility Manager Private Investors Private Investors Up to 10% of funding Operational management Expertise contribution Patents Licenses IP / patent experts Industry Contacts Start-ups Spin-offs Corporates Test Labs

12. Tech Transfer Facility (2) Key Features: • Implement a dedicated facility to serve as a bridge between R&D / science and business, an area currently not adequately supported by public funds. • The Manager of the facility must possess a well-rounded skillset combining financial, industrial and scientific expertise as well as broad network in Bulgariaand abroad. • Could be fine-tuned to support industries and sectors set by State. • Dedicated solely to commercializing technology and innovations deriving from a pool of universities, research centers and tech parks thus fostering entrepreneurship in R&D and capital intensive businesses. Key Benefits: • Utilize an innovative market-oriented way way of “pushing” innovations to the commercial market. • Mobilizing private funding in an area currently perceived as “too risky” to be funded by the business. • Engagement and signaling effect of the corporate sector in providing expertise at very early stage usually perceived as “too early”. • Strengthening the R&D capacity in universities by providing a natural “next stage” to innovations developed in-house.

13. New Instruments for 2014-2020:SME Initiative Portfolio of SME Loans Senior risk (EIB, third parties) Retained by the originator Risk tranching Financial Intermediary (FI) GuaranteeRate up to 80%Loan by Loan EIF guarantee SME Loans Private Investors Beneficiaries Mezzanine risk (EIF, EU Funds, ESIF) SME n SME 1 SME 2 First Loss Piece (ESIF, originator)

14. The SME initiative (2) • Key objectives • Better access to finance for SMEs through capital relief, loss protection and liquidity • Increased multiplier on public budget through participation of EIB/EIF and private sector • Reduction of financial markets fragmentation. • Two risk-sharing instruments endorsed by the European Council: • Guarantee facility for portfolios of new SME loans; • Securitisation instrument for portfolios of both new and existing SME loans; • Eligible assets: SME Loans, leasing and guarantees. Restructured loans should be excluded, no refinancing permitted. • Key area of intervention • Reduction of collateral requirements for new SME loans • Reduction of risk-related interest margins; • Unlocking long-term lending – up to 10yrs