1. Public support is needed andreasonableAndrus TreierCEOKredEx17 August 2006

2. Biggest fears and worries Too big risks to start business- low entrepreneurship, 65% prefer not to be entrepreneurs Hard to find seed capital and other financing- start-ups, small companies, loss bearing companies Fear to share knowledge Fear to loose control over business- only 27% of SMEs are willing to take in other investors Loan is expensive (and you sell your sole)- 60% of enterprises utilise retained profits for investments- Companies utilising loans grow 50% faster Estonia is a small country 3. Start and growth need moneyBased on: M. Cardullo, Technological Entrepreneurism, Research Studies Press, 1999 4. Investment Flows E Government AngelInstitutionalInvestors InvestorsInvestors EE/D E Business Venture & PrivateAngel Equity Funds NetworksE E/DE/DE/D DEntrepreneur Enterprise Banks E/DE/DE = Equity Investment FFF BanksD = Debt Based on: M. Cardullo, Technological Entrepreneurism, Research Studies Press, 1999 5. Financing sources Seed capital Loans Mezzanine financing, quasi equity Venture capital Own cash flow Business partners Grants, subsidies, incubators etc 6. Bank loans Strong and steady historical cash flow,easily projected in the future Sufficient collaterals (1.5x market value) Good relations with bank Loan < 3x operating cash flow (EBITDA) Clear and positive future expectationsUsed:Usually for expansion, occasionally for buy out 7. Mezzanine Financing(Quasi Equity, Subordinated Loan) Strong and steady cash flow Positive future expectations No collaterals, bank not willing to grant loans Loan < 5x operating cash flow (EBITDA) No intervention in ownership Not more than 50% of the owners equity Not possible, if growth prospects are modestUsed:Usually for buying out and enlargement of thebusiness 8. Owners Equity Current cash flow insufficient Future vision must be clearly positive,even if uncertainty is big No collaterals Strong intervention in management Highest price!Used:Starting, buying out or expanding thecompany 9. Impact to cash flow and P/L Bank loan: low price, principal paymentsand interest to be paid Mezzanine financing: medium price,interests to be paid, can be related tosuccess, principal payments flexible Owners equity: high price, no direct impactto P/L, no principal payments 10. Combining instruments makes bigprojects work EBITDA= 1 millionFinancing Bank loan 3 millions Subordinated loan 2 millions Owners equity 2 millions Total 7 millions 11. Different state organisations do existDebtors (Export Credit Agencies) Short term export guarantees (up to 90% for commercial risks) Long term export guarantees (up to 100%, capital goods)Bank Loans (Guarantee organisations) Additional guarantee replacing or in addition to collaterals(up to 75%)Mezzanine Financing Different products provided by the state organisations, additional toprivate financingEquity Financing State owned/participated Venture Capital FundsGrants Knowledge based, high tech projects, infrastructure, incubators, training,consulting etc 12. State organisations in Estonia Enterprise Estonia Grants and awareness programs Incubators KredEx Export guarantees SME loan guarantees Equity financing Housing loan guarantees Estonian Development Fund (?) Public VC fund for seed capital investments 13. Start and growth need money Development FundEquity LoanLoan and Leasing GuaranteesStart-Up LoanExport GuaranteesBased on: M. Cardullo, Technological Entrepreneurism, Research Studies Press, 1999 14. What is KredEx? A self-sustaining guarantee fund that offers: Export guarantees50 MEUR guaranteed in 2005 SME guarantees 27 MEUR outstanding in 2005 Equity financing 3 MEUR estimated 2006 Housing loan guarantees44 MEUR outstanding in 2005 Our aim: Export guarantees To raise competitiveness of Estonian companies by improving financing possibilities and mitigating credit risks To enhance living conditions in Estonia by widening financing possibilities and promoting energy efficient behaviour Established: 2001 Owner: Ministry of Economic Affairs and Communications 15. Loan guarantees help to get loanand mitigate risk Up to 75% of principal amount Max amount EEK 15 million Working capital and investment loans,bank guarantees Guarantee fee 0.4-3.0% pa Export guarantees Conclusion fee 1% Start-Up loan30% of personal surety, no other collateralsUp to EEK 500 thousand 16. Equity loan helps companies to grow Loan amount EEK 1-16 million Maturity 5-10 years Owners equity less or equal No intervention to management,convertability option No collaterals needed Long grace period, flexible chedule Subordinated loan Interest rate about 20% pa 17. Why state should interviene? Low or no profitability Creation of market with normal conditions Reducing fears and changing understanding Mitigating risks in economic downturn 18. ContactCredit and Export GuaranteeFund KredExPrnu mnt 67bTel: +372 6 819 95010134 Tallinn, Estonia Fax: +372 6 819 951E-mail: kredex@kredex.eewww.kredex.ee