Access of Romanian entrepreneurs to funding

Romanian entrepreneurs’ access to funding

25 September 2014

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About the study “Romanian entrepreneurs’ access to funding” – 10 conclusions

The second edition of the study examines the perceptions of 125 entrepreneurs regarding the funding environment in

Romania, 56% of them owning companies with a turnover of less than EUR 1 million, 23% companies with a turnover

between EUR 1-15 million and 21% of them a turnover exceeding EUR 15 million.

The percentage of companies whose funding application has been denied is down 6 percentage points from last year,

which gives a positive signal to entrepreneurs and entrepreneurial companies looking for funding.

Funding destined for investment register a spectacular increase, exceeding 60% of the total.

Most companies haven’t changed their sponsor for the last two years, which suggests either a lack of options or the fact

that they are satisfied with the terms of the obtained funding. The entrepreneur who changed his sponsor the most said that he

made such a change no less than 8 times in the last two years.

70% of entrepreneurs are constantly monitoring their level of debt . For other 20% of respondent companies, the monitoring

of debt level is done by an employee other than the entrepreneur, 9% do not monitor indebtedness, while only 1% said they did

not know how they could monitor this indicator.

The study is based on a survey undertaken during 26 August -19 September 2014. Most of the 125 respondents are young

entrepreneurs, under the age of 40.

1

2

3

4

5

Over half of Romanian companies that accessed funding said they received the latest round of funding last year, while

the share of those who received their last funding more than four years ago decreased. Companies are beginning to finance

their business needs in an accelerated mode, as the funding and investment environment improves.

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About the study “Romanian entrepreneurs’ access to funding” – 10 conclusions

Bank credit continues to remain the most important source of funding for entrepreneurs, but the trend is decreasing (-

10 percentage points) compared to last year.

The second most important source of funding considered by entrepreneurs is represented by European funds. State

aid represents only to a very small extent an option to fund entrepreneurial projects, despite the Romanian state’s efforts to

implement various aid schemes.

The decisive factor for entrepreneurs in choosing a funding offer represents, as last year, maintaining independence in

business decisions (36% of respondents), followed by the lowest cost (23%) and quality of guarantees (17%).

The responses emphasize how important is personal independence for the surveyed entrepreneurs, in an even higher extent

compared to the last edition, which for sponsors is an indicator of an increased need for confidence in the decisions of the

entrepreneur

In terms of ease of attracting funding, entrepreneurs believe that the IT sector continues to be in the first position, registering

however a sharp drop compared to last year's responses, from 39% in 2013 to only 25% in 2014. Other sectors taken into

account - agriculture, green energy and production are all perceived positive regarding attractiveness for sponsors.

For most of the entrepreneurs, the quality of the business plan remains, the most important factor in obtaining funding

(31%). The business idea remains last in order of importance, but records the fastest growth, by 5 percentage points, reaching

14%. Between the two extremes, responses included the quality of the team and previous experience of business, financial

history and quality guarantees.

6

7

8

9

10 Romanian entrepreneurs are not very optimistic about the prospects of accessing funding, in terms of influence of the

economic development. More than half of the entrepreneurs who answered the survey consider the evolution of the economy

in 2014 will not have a positive effect on access to funding.

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Latest funding round

obtained by entrepreneurs

Page 5

Question 1

► Bank lending to companies shows signs of recovery, with an increase of 9 percentage points in the new edition of the survey “Romanian

entrepreneurs’ access to funding”, compared to the previous edition, in September 2013. Also, accessing European funds almost doubled

its share in responses, with an increase from 5% to 9%.

► Other sources of funding have evolved heterogeneous, partially explained by the declining share of startups among companies responding

to the survey, compared to the 2013 edition (for example, in the 2014 edition funding from friends and family decreased).

► It is noted that investors and sponsors specific to mature markets such as venture capital, capital markets and crowd-funding are almost

nonexistent among the answers given by Romanian entrepreneurs.

Total responses 2014 edition: 77

(Skipped this question: 30)

Where did you receive your latest funding round from? (single answer)

0%

5%

10%

15%

20%

25%

30%

35%

40%

2013

2014

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Question 2

► Over half of Romanian companies that accessed funding said they received the latest round of funding last year, while the

share of those who received their last funding more than four years ago decreased. Companies are beginning to finance

their business needs in an accelerated mode, as the funding and investment environment improves.

► The proportion of entrepreneurial companies that have obtained funding in the last half of the year remains at 33%, as in the

previous edition of the survey.

How long ago did you get your last funding? (single answer)


Of which, 94 – obtained funding


33%

18% 19%

11%

19%

33%

22%

15% 14%

16%

0%

5%

10%

15%

20%

25%

30%

35%

Less than 6months

Between 6months - 1 year

Between 1 - 2years

Between 2 - 4years

More than 4years

2013

2014

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How large was your latest funding round? (single answer)

Question 3

► If last year more than half of the respondents had obtained a small grant, of less than EUR 25,000, this edition registers an

increase in the level of funding: over half of the respondents obtained less than EUR 100,000.

► Moreover, all the larger ranges of funding reached higher values, except the range between EUR 500,000 to EUR

1,000,000, which stalled. The largest increase was recorded by funding that is over EUR 1 million, from 11% to 23%.

Total responses: 111

(Skipped this question: 14). Companies that said they did not receive funding were excluded.

0% 10% 20% 30% 40% 50% 60%

Less than 25.000 EUR

25.000-100.000 EUR

100.000-500.000 EUR

500.000-1.000.000 EUR

More than 1.000.000 EUR

2014

2013

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Your last funding round was destined for: (single answer)

Question 4

► Funding destined for investment recorded a spectacular growth, exceeding 60% of the total.

► The percentage of funding destined for new business initiatives fell to 11% from 28% last year.

Total responses: 74

(Skipped this question: 33). Companies that said they did not receive funding were excluded.

3%

28%

27%

42%

1%

11%

25%

63%

0% 10% 20% 30% 40% 50% 60% 70%

Other purpose

Start-up

Working capital

Investitions

2014

2013

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What was the result of your last attempt to obtain funding? (Single answer)

Question 5

► Among those who tried to access funding instruments, the percentage of those who obtained 100% of the amount they

needed fell by two percentage points, but the percentage of those who obtained more than 50%, but not the full amount,

increased by 15 percentage points.

► Note that the percentage of those who were declined funding decreased, which gives a positive signal to entrepreneurs and

entrepreneurial companies looking for funding.

Total responses 2014 edition : 111


49%

10%

20%

21% Finantare 100% din catam cerut

Finantare >50%

Mai putin de 50%

Am fost refuzat

2013 2014

47%

25%

13%

15%

100% of the fundingasked for

Funding > 50%

Less than 50%

I was declined funding

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Entrepreneur – funding

provider relationship

Page 11

Entrepreneur – funding provider relationship

In the past two years,

entrepreneurs have changed

their funding provider

0.5 times, on average.

2,7

The average number of interactions

between entrepreneurs and their

funding provider during one month.

Questions 6 & 7

► Most companies haven’t changed their funder for the last two years, which suggests either a lack of options or the fact that

they are satisfied with the terms of the obtained funding. The entrepreneur who changed his funding provider the most

compared to the rest of the survey’s respondents said that he made such a change no less than 8 times in the last two years.

► On average, Romanian entrepreneurs talk to their funding provider every 10 days, but there are entrepreneurs who consult

their funder daily, whether it is a bank, investment fund, angel investor or other type of investor.

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Do you constantly monitor the level of debt of your company? (single answer)

Question 8

► 70% of entrepreneurs are constantly monitoring their level of debt. For 20% of the entrepreneurial companies, the monitoring

of debt level is done by an employee other than the entrepreneur, 9% do not monitor indebtedness, while only 1% said they

did not know how they could monitor this indicator.

Total answers: 101


No 9%

Do not know how to

monitor this indicator

1%

Yes 70%

Task of an employee

other than the entrepreneur (accountant,

chief financial officer)

20%

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Funding for Romanian

entrepreneurs

Page 14

Do you think that macroeconomic trends in Romania will have a

positive effect on access to funding for businesses this year? (Single answer)

Question 9

► Romanian entrepreneurs are not very optimistic about the prospects of access to funding in the future. More than half of the

entrepreneurs who answered the survey consider that the macroeconomic trends of 2014 will not have a positive effect on

access to funding.



11%

27%

21%

33%

8%

0%

5%

10%

15%

20%

25%

30%

35%

Definitely yes Probably yes Definitely not Probably no Do not know

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Question 10

► In terms of access to funding, 82% of entrepreneurs find it difficult or very difficult, a downward trend relative to the number

of entrepreneurs who have responded to the Entrepreneurs Speak Out: Romanian Entrepreneurship Barometer 2013, which

analyzed responses collected at the end of 2013.

► At EU level, the percentage of those dissatisfied with access to funding in 2013 amounted to 77%, according to the EY report

G20 - The Power of Three.



Do you considered that funding is generally readily available for entrepreneurs in Romania? (Single answer)

8%

1%

4%

51%

36%

9%

1%

8%

53%

29%

0% 10% 20% 30% 40% 50% 60%

Cannot say

Very easy

Easy

Difficult

Very difficult

2014

2013

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What is the institution you turn to in order to fund an entrepreneurial project? (Single answer)

Question 11

► Bank credit remains the most important source of funding for entrepreneurs, but the trend is decreasing (-10 percentage

points), falling below 50% of preferences.

► A second source of funding for entrepreneurs in order of importance are European funds. State aid represents only to a very

small extent (1%) an option to fund entrepreneurial projects, despite the Romanian state’s efforts to implement various aid

schemes.

Total responses 2014 edition 111


52%

14% 14%

10% 9%

1%

42%

26%

13%

5%

13%

1%

0%

10%

20%

30%

40%

50%

Bank Europeanfunds

Joint venture Other Did not needfunding

State funds Do not know

2013

2014

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You need funding for: (Single answer)

Question 12

► Similarly to question 4, there is a growing interest for investments from Romanian entrepreneurs, more than half of the

funding being contracted for this purpose. The fact that entrepreneurs take into account funding such a purpose indicates

positive expectations regarding market demand for the product/service offered.



1%

20%

11%

20%

49%

0.9%

9.0%

14.4%

21.0%

54.1%

0% 10% 20% 30% 40% 50% 60%

Other purpose

Start-up

Do not need funding

Working capital

Investitions

2014

2013

Page 18

What is the deciding factor that would influence your choice of funding source? (single answer)

Question 13

► The decisive factor for entrepreneurs in choosing a funding offer represents, as last year, maintaining independence in business decisions

(36% of respondents), followed by the lowest cost (23%) and quality of guarantees (17%).

► Perhaps surprisingly, the only factor registering a decreasing trend in choosing a funding source is represented by the lowest cost - which

indicates that funding became more accessible in terms of cost.

► The responses emphasize how important is personal independence for the surveyed entrepreneurs, in an even higher extent compared to

the last edition, which for sponsors is an indicator of an increased need for confidence in the decisions of the entrepreneur.



30% 29%

17%

13%

11%

36%

23%

17% 16%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Maintainingindependence in

businessdecisions

Lowest costs Guaranteesrequired

The simplestprocedure

I have no definingselection criteria

2013

2014

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What would be the main reason for which you would accept an investor in the organization? (Single answer)

Question 14

► The surveyed entrepreneurs would accept an investor in the company primarily considering access to additional financial

resources, which means that 36% of them would directly consider a financial investor. The rest of them, representing 65%,

would primarily accept a strategic investor, given the need for access to new markets, know-how, suppliers and new

customers.

► The growing need for financial resources, coupled with a lack of willingness to give up independence in business decisions

indicate an openness towards financial investors interested in minority stakes.



29%

27%

22% 21%

1%

36%

23% 22%

15%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Financialresources

Access to newmarkets

Access to know-how

Access to newsuppliers and

clients

Other

2013

2014

Page 20

What do you think is the sector which can most easily get funding? (Single answer)

Question 15

► In terms of ease of attracting funding, entrepreneurs believe that the IT sector is registering a sharp drop compared to last

year's responses, from 39% in 2013 to only 25% in 2014. However, this sector is still perceived as the easiest to attract

funding of the analyzed sectors.

► Other sectors taken into account - agriculture, green energy and production are all perceived positive regarding

attractiveness for sponsors. By contrast, services show a decreasing trend, while production increased by 9 percentage

points in terms of attractiveness.



1%

8%

3%

5%

8%

13%

21%

39%

2%

3%

5%

5%

17%

18%

25%

25%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Altul

Servicii

Nu stiu

Educatie

Productie

Energie verde

Agricultura

IT si online

2014

2013

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What factor do you think is most important in obtaining funding? (Single answer)

Question 16

► For most of the entrepreneurs, the quality of the business plan remains, the most important factor in obtaining funding. The

business idea remains last in order of importance, but records the fastest growth, by 5 percentage points, reaching 14%.



36%

27%

14% 14%

9%

31%

24%

16% 15%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Business plan The team andpreviousbusiness

experience

Guarantees Financial history The businessidea

2013

2014

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Do you consider crowdfunding an option for financing? (Single answer)

Question 17

► One in two respondents consider crowdfunding to be a funding option.

► Raising financing through crowdfunding begins to be perceived as a viable tool for Romanian entrepreneurs: the number of

those who consider crowdfunding a funding option increased by 10 percentage points.

► Crowdfunding represents a financing tool usually based on small amounts of money collected through the Internet from a

large number of people for a project initiated by individuals or organizations. The projects often fall into creative and

innovative categories.

38%

34%

28% Da

Nu

Nu stiu ce estecrowdfunding-ul

Total responses: 74


2013

48%

25%

27% Yes

No

2014

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Government support

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How would you assess the government’s role in facilitating access to funding for entrepreneurs? (Single answer)

Question 18

► To a great extent, 72% of entrepreneurs believe that the government does not facilitate access to finance for entrepreneurs,

while 6% consider it neither facilitates nor prevents funding.

► Governments can assist entrepreneurs in access to funding, among other, through loan guarantees, aid schemes, simplified

rules for small companies and more, while also by stimulating investment into small businesses through fiscal instruments.



10%

8%

7%

75%

13%

9%

6%

72%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Cannot say

Good and Very Good

Neutral

Lousy si Very lousy

2014

2013

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What are the 3 most important areas that the government should focus on and improve access to finance for entrepreneurs? (Multiple answer)

Question 19

► Entrepreneurs indicated several areas that the government should focus on to improve access to finance: in the first place

they elected tax incentives for investment in small companies, secondly, streamlined and more efficient regulatory business

systems leading to less bureaucracy, and thirdly, providing funds for financing schemes.



Only answers that have gathered over 5% are shown

3%

12%

8%

8%

9%

9%

11%

15%

5%

6%

8%

9%

10%

11%

14%

15%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Investments in infrastructure

Guarantees for loans

Promoting a business environment with few disputes

Reduced tax on capital gains

Providing funds for financing schemes

Simplified and more efficient regulatory systems forbusinesses

Promoting efficient and fair labor laws

Tax incentives for investments in small companies

2014

2013

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Demographics The results of this study reflect responses to EY’s survey

during 26 August – 19 September 2014, from 125

Romanian entrepreneurs.

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Demographics

Do you own a business at the moment? Have you owned a business in the past 2 years?

89%

11%

Yes

No

82%

18%

Yes

No

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The worth of your company: What is the position you hold within the

company?

Demographics

56%

23%

10% 6% 5%

0%

10%

20%

30%

40%

50%

60%

< 1 M EUR 1-14,9 MEUR

15-49,9 MEUR

50-99,9 MEUR

> 100 MEUR

6%

21%

30%

43%

0% 10% 20% 30% 40% 50%

Other

Executive Director / VicePresident / OperationalDirector / Middle Mgmt

Active associate

Chairman of the Board /President / General Director /

Sole shareholder

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What age group do you belong to? What sector does your company/group of companies

activate in?

Demographics

16%

41%

43% 18-29 years old

30-40 years old

Over 40

1% 1%

1% 1% 1% 1%

2% 2%

2% 2% 2%

3% 3%

3% 3%

4% 4%

5% 6% 6%

8% 8%

9% 13%

13%

0% 2% 4% 6% 8% 10% 12% 14%

Telecom

Mining and metals

Consumer Products

Pharma

Oil and Gas

Chemical industry

Electrical and electronic equipment

Furniture

Tourism and hospitality industry

Industrial machinery

Energy

Agriculture

Transportation

Heavy Industry

Financial services

Textiles

Medical services

Construction

Automotive

Other

Media and advertising

Food, beverages, tobacco

Business services

Retail or Wholesale

IT, Software, Internet

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Project team

Page 31

Project team

Elena Badea Head of Market Enablement

EY Romania

[email protected]

Mihaela Matei Special Projects

Communication Officer

EY Romania

Coordinator of the EY study

Entrepreneurs Speak Out

[email protected]

We would like to thank our partners Wall-Street.ro, BusinessDays.ro,

DoingBusiness.ro and Romania Business Leaders Foundation for their

support in conducting this study.

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