Download JEREMIE implementation with a regional development agency

JEREMIE implementation with a Regional
Development Agency - The case of Andalucía:
challenges, achievements and perspectives
Francisco Jiménez- Stefan Mathesius
Agencia IDEA
Brussels, 30th November 2010
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
2
Situation Analysis of Andalusia
CARACTERISTICS OF ANDALUSIAN
ENTERPRISES
GEOGRAPHIC SITUATION

Population: 8,3 M

Surface 87.000 km2

“Family companies”

SME:

MACROECONOMIC DATA 2010

“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


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
Fuente: INE
*ratio between total number of employees and population over 16 years and older)
3
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
4
Investment Strategy and Objectives
INVESTMENT STRATEGY
OBJECTIVES

Competitiveness and
globalization of Andalusian
enterprises.
 Encourage consolidation process in
key sectors to obtain “critical mass”.

Creation of sustainable and
qualified jobs
 Global validity of the business model
and value proposition.

Catalization of change of the
Andalusian economic model.
 Financial instruments that facilitate cofinancing mechanisms: Equity +
Mezzanine capital

Facilitation of access to
finance ; reactivation and
normalization of the financial
market
 Investment in companies with high
growth potential.
5
JEREMIE implementation milestones
14Oct 2009
24 Feb 2009
24Jun 2009
Financing agreement
CEH (Regional Economy &
Treasury Ministry),
CICE (Regional Innovation,
Science & Enterprise Ministry):
• Creation Holding
Fund JEREMIE 235
M€
• Holding Fund
Manager = IDEA
Agency*
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
5 Nov 2009
Operative
launch
4 Oct 2010
14 Oct 2009
Adjudication
Intermediary
JEREMIE Risk
Capital SGR:
INVERCARIA
SGECR
Constitution and
operative launch
Negotiation and closing
private investment 25 M €
(saving banks)
*Innovation and Development Agency of Andalusia
6
Operative Management Model
Deal Flow Generation
IDEA territorial Net + Intermediates
(Technological and scientific parks/centres, Business schools,,
business associations, etc.)
JEREMIE Unit (IDEA)
Holding Fund
Entry & Assignation
Debt /Subordinated debt
Analysis and
investment
SOPREA S.A.
Equity
INVERCARIA
S.G.E.C.R.
7
Andalusia bases its future model on reimbursable
instruments
2009
JEREMIE
T1
JEREMIE
Multiinstrument
JEREMIE Risk
Capital FCR
T2
2010
T3
T4
T1
Definition/ Design
T2
T3
T4
operative
Definition/ Design
operative
Business Development
Fund
Definition/ Design
operative
Renewable Energy Fund
Definition/ Design
operative
Sustainable Economy
Fund
Definition/ Design
operative
Total Funds und
management (M €)
185
185
185
469
544
8
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
9
Structure of JEREMIE Fund Andalusia
ERDF
European Regional
Development Fund
Ministry of Economy,
Innovation and Science of
Andalusia
235 M €
30%
70%
Innovation and
Development
Agency of
Andalusia
JEREMIE
FUND
(Holding Fund)
185 M €
Fund
Manager:
SOPREA S.A.
50 M €
Private Participants
(savings banks)
25 M €
FONDO JEREMIE Risk
Capital FCR
FONDO
MULTIINSTRUMENTO
(regulated by Spanish financial authority)
Fund Manager:
INVERCARIA
S.G.E.C.R.
Co-investors
-
ICO-AXIS
-
VC-Funds
-
Financial
institutions
10
Leverage Mechanism of JEREMIE
MULTIINSTRUMENT FUND
JEREMIE VENTURE CAPITAL FUND FCR
540
470
(Real
Leverage)
328
x 4,7
(Real
Leverage)
324
30
309
x 5,4
Minimum
Leverage
(theoretical)
93
> 30% CoInvestment
204
30% Andalusian
Government
100
33% Private
Participtaion
(Sav. Banks)
30% Andalusian
Government
42
Total investment
42
74
Minimum
Leverage
(theoretical)
ERDF
ERDF
100
> 30% CoInvestment
Total investment
62
11
Financial instruments: Risk versus Premium for Risk
crisis
Premium for risk
Cost/ risk relation in
an efficient market
high
Venture
Capital
Mezzanine capital/
Subordinated debt
Bank
financing
Riskless
low
high
Risk
12
Financial instruments: Guaranties versus Premium for Risk
Premium for risk
high
Different analytic
approaches
Upside-potential
Venture
Capital
Risk/guaranty
Mezzanine capital/
Subordinated debt
Bank
financing
low
Guaranties/
collaterals
high
13
Cash flow
Target group: late start-up, growth, expansion
IPO
(potential)
t
stages
Concept
Prototype
Creation
Seed
Market entry
Start-up
Break even CF
Growth
(1st , 2nd round)
Expansion
(3rd round)
14
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
15
JEREMIE’s activity results
(Nov 2009 – Oct 2010)
ACTIVITY RESULTS
 # Projects:
 applied: 204
 approved: 22
 Investment volume:
 applied: 670 M €
 approved: 68 M €
 Ø-investment: 3M €
EFFICIENCY RESULTS
 Ø-term of resolution: 10 weeks
 # Operations/professional:
 JEREMIE: 2,8 per year
 Market: 0,3 per year
GENERATED IMPACT
 Induced investment: 220 M €
 Leverage/Co-investment: 78%
(=> JEREMIE Multiplier x 4,6)
 Employment:
 generated: 3.060
 supported: 2.500
SECTOR’S COMPARISON
 National venture capital market’s
share (investment volume) :
 Total: 8%
 Start up: 16%
 Expansion: 24%
 Transactions 1-10 M €: 11%
16
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
17
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/ multiinstrumental
 Adapt risk levels to market’s necessities. (Who bears the risk?
Guaranty requirement?)
18
APPENDIX
19
Instrument A: Mezzanine Capital (convertible
loan/subordinated debt)
Characteristics:
PASSIVE
• “Equity character” (=> loss support)
• Low collaterals (guaranty = business)
• Yield: fix + variable
example: EURIBOR + 2% + variable(0-10%)
• High flexibility
• Convertible in capital
Mezzanine
capital
Debt
Seniority / Priority
Required profitability
Equity
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
20
Instrument B: Venture Capital
Characteristics :
PASSIVE
•
•
•
•
•
•
Equity
Debt
Seniority / Priority
Required profitability
Venture Capital
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
21
Key point for JEREMIE
Enthusiasts,
Tekis
“Innovators”
Visioners
Pragmatists
“Early
Adopters”
“Early majority”
Conservatives
Sceptics
“Late Majority”
“Laggards”
“Chasm”
Technology adoption model
22