IMPROVING ACCESS TO FINANCING FOR SMEs

1. IMPROVING ACCESS TO FINANCING FOR SMEs JEREMIE Initiative Evgeny Angelov – Deputy Minister Economy, Energy and Tourism

2. Overview • Bulgarian SMEs “competitive disadvantage” – lack of risk capital • Investments in innovation – a road to higher economic growth • VC/PE funding – a key factor in improving competitiveness • MEET actions - increased the % allocation of risk capital schemes under the JEREMIE initiative Ministry of Economics, Energy and Tourism

3. Gap Analysis - Findings Debt Equity • Only 2.2% in 07, 7.9% in 08 of all PE investments are early stage • Lack of VC/PE financing • Few meet-up events (i.e. Seedcamp, VC forums) • 0.6% drop in aggregate loan portfolio to NFIs for Q1/2010 • Risk-aversion of banks - tightened evaluation criteria • Limited guarantee instruments present on the market Business Opportunities • Few active BSOs (Incubators, Tech parks, etc.) • 70% of SMEs rely only on own capital • Under developed entrepreneurial / Investment culture Source: EIF, BNB Ministry of Economics, Energy and Tourism

4. Financing products SME Cash Flows Public Stock Markets Portfolio Guarantees & Credit Enhancement Formal VC Funds &Mezzanine Funds VC Seed &Early Stage Microcredit Business Angels, TT Development Emerging Growth Pre-seed Phase Seed Phase Start-up Phase SME Development Stages Ministry of Economics, Energy and Tourism

5. JEREMIE Concept JEREMIE is EU initiative enabling countries to create a Holding Fund using ‘Structural Funds’ to finance a portfolio of Financial Engineering Instruments via selected intermediaries eg: Banks, VCs 3rd party funding Structural Funds ERDF (& ESF) National Contribution Investment Board Holding Fund (« HF ») Financial intermediaries Tailor made portfolio of instruments created to address Member States needs in SME Finance. SMEs Ministry of Economics, Energy and Tourism

6. JEREMIE Country Date Amount in EUR m Greece June 2007 100 Romania February 2008 100 Latvia July 2008 91.5 Lithuania October 2008 290 Languedoc-Roussillon (F) October 2008 30 Campania (I) December 2008 90 Slovakia December 2008 100 Cyprus April 2009 20 Bulgaria May 2010 200 Sicily November 2009 60 Ministry of Economics, Energy and Tourism

7. JEREMIE Bulgaria – Holding Fund Structure Ministry of Economy, Energy and Tourism Investment Board SPV EIF FI 2 FI 1 SMEs SMEs Ministry of Economics, Energy and Tourism

8. JEREMIE Bulgaria – Investment Strategy • Overall goals: • Support equity financing initiatives • Enhance micro-lending schemes • Support of SME lending through guarantees • Balanced portfolio of investment products: • EUR 30m venture capital fund (JHF contribution 70% - EUR 21m) • EUR 60m growth capital fund (JHF contribution 50% - EUR 30m) • EUR 60m mezzanine fund (JHF contribution 50% - EUR 30m) • EUR 74m allocation for debt products & guarantees • Allocation of the remaining EUR 44m to be decided in the course of 2010 based on market absorption of launched products. Ministry of Economics, Energy and Tourism

9. JEREMIE Bulgaria – Features & Process • Main features of equity products: • Fund investments between 50 – 70% • Only locally registered funds • Bulgarian SMEs to be financed • Restriction of EUR 1.5m per annum per investee (only VC Fund) • Focus on expansion and prior to expansion stages • Fund manager selection process: • Calls for expression of interest (June for VC Fund) • Eligibility criteria evaluation • Commercial due diligence • Signing of operational agreement Ministry of Economics, Energy and Tourism

10. Venture Capital Fund – How it works Pari-Passu JEREMIE Holding Fund (JHF) Private Investors Cash flows paid into escrow as money is drawn from the JHF Cash flows to fund from inception till end of 2015 or until JHF commitment is fully drawn Min. 30% Max. 70% Cash flows to fund after end of 2015 or when JHF fully drawn Escrow Account Venture Capital Fund SMEs SMEs Ministry of Economics, Energy and Tourism

11. Thank you … Ministry of Economics, Energy and Tourism