This project is funded by

the European Union

Integrated Innovation Support

Programme

Introduction to Equity Finance for SMEs

21st December 2012

This project is funded by

the European Union Session Outline

Provide an understanding of Private Equity / Venture /

Mezzanine Finance capital through:

• Definitions

• Examples

• Questions

2

Integrated Innovation

Support Programme (IISP)

This project is funded by

the European Union Private Equity & Venture Capital

• Private Equity is the provision of equity (share) capital by

financial investors – over the medium or long term - to non-

quoted companies with high growth potential

• Private Equity is for PRIVATE companies

• Venture Capital is a type of Private Equity focussed on

start-up, early stage companies and emerging growth

companies

3

Integrated Innovation

Support Programme (IISP)

This project is funded by

the European Union Business Angel

Integrated Innovation

Support Programme (IISP) 4

“ ..an individual, acting

alone or in a syndicate,

who invests his own

money directly in an

unquoted business

where there is no family

connection.”

Professors C Mason & J Harrison

This project is funded by

the European Union Bank vs Venture Capital

Integrated Innovation

Support Programme (IISP) 5

Bank Debt

• Secured (collateral)

• Capital & interest repayments

• Risk of withdrawal

• Monitoring relationship

• REPAYMENT – regardless of profitability

Venture Capital

• Risk funding (equity capital)

• Return only on success

• Committed

• Partner relationship - support

• GROWTH – no repayment until sufficient profit and value

This project is funded by

the European Union Europe – investment activity

Private Equity / Venture Capital

ALL VC Buyout/Growth

Amount € 45.5bn 3.9bn (9%) 41.6bn (91%)

Companies 5011 3143 ( 63%) 1885 (37%)

(Source: EVCA Annual Survey 2011)

Angels

EU - approx. €4bn invested p.a. / 50,000 – 70,000 angels

UK - £750m - £1bn p.a. / approx. 18,000 angels

(Source: EBAN and BBAA)

6

Integrated Innovation

Support Programme (IISP)

This project is funded by

the European Union Mezzanine Finance

Mezzanine is a collective term for different financial

instruments that combine the characteristics of both debt and

equity

• Collateral ranks behind bank - sometimes no collateral

• Interest payable

• May convert into equity

• Suitable for mature companies with cash flow

• Usually unsuitable for start up/early stage

7

Integrated Innovation

Support Programme (IISP)

This project is funded by

the European Union Risk Finance Ladder

Integrated Innovation

Support Programme (IISP) 8

This project is funded by

the European Union Example – Biotech start-up

Integrated Innovation

Support Programme (IISP) 9

Activity – crop nutrition & protection products

2003 – start up funding. Owner + business angel

2004 - £50k seedcorn finance (venture capital fund)

2005 – 6 patents – intellectual property secured

2005/06 - £1m. VC funds & business angels

2006 – IPO £3.85m AIM (London Stock Exchange)

www.plantimpact.com

This project is funded by

the European Union What an investor looks for

Integrated Innovation

Support Programme (IISP) 10

High growth prospects

An ambitious management team that can achieve

the growth

Product / service that has a good market and the

ability to reach that market

Competitive edge / unique selling point

Willingness to share ownership

Exit route

This project is funded by

the European Union Summary

• Important alternative funding source for growth SMEs

• Venture capital supports innovation and encourages new

entrepreneurial projects

• Complements traditional bank finance

• Requires an exit to achieve a return

• Business angels are a growing and important source of

finance

• High risk – potentially high reward

11

Integrated Innovation

Support Programme (IISP)

This project is funded by

the European Union How do we encourage VC in Serbia?

• Make it easier to raise and invest PE and VC funds

• Foster the entrepreneurial environment, culture and

education

• Boost innovation and R&D

12

Integrated Innovation

Support Programme (IISP)