The EU has stepped up its investment in the venture capital industry and will make a €1 billion fund available by the end of 2012, European Investment Bank (EIB) Vice-President Matthias Kollatz-Ahnen told EURACTIV in an interview.
Matthias Kollatz-Ahnen is vice-president of the European Investment Bank (EIB).
He was speaking to Gary Finnegan.
The EIB has stepped up lending in response to the crisis, especially to get cash to SMEs. However, it emerged in your annual report that corporate clients are taking up a larger proportion of loans (EURACTIV 26/2/10). Are bigger companies taking up funds earmarked for smaller companies?
No, bigger companies are not taking up funds earmarked for SMEs. The Bank identifies targets for lending to different objectives, including SMEs, as part of its operational plan, but does not have specific quotas for objectives or indeed total lending.
The 2009 plan, where the Bank significantly increased both its total lending target and its SME objective in response to the financial crisis, demonstrates the EIB's flexible approach to making support available where it is needed.
In 2009 the EIB renewed its support, started in 2008, to SMEs that are most affected by the ongoing credit crunch resulting from the 2008/09 financial crisis by lending €12.7 billion to small businesses. In total, EIB funding reached more than 50,000 SMEs across the EU during 2009. It was promised in 2008 to support SMEs until 2011 with €30 billion: there, the EIB is on track and will most likely overshoot the target.
The EIB product line foresees different product offers. Individual loans target large projects, normally with total costs of €25 million or more, which are financed by the Bank through a direct operation. Loans for SMEs are lines of credit to a financial intermediary, which then on-lends the proceeds to SMEs for the financing of small and medium-scale projects and since 2008 also working capital with a total cost of less than €25 million in the EU-27, candidate and potential candidate countries.
The two product lines are separate, target different types of enterprise and have different risk profiles and counterparties.
There have been some reports that the funds, which are channelled through commercial banks, are not getting through to SMEs (EURACTIV 08/07/09). Has this problem arisen in many countries? What can be done to address it?
EIB funding reaches SME final beneficiaries through intermediary banks, and the EIB therefore relies on them to identify suitable SME beneficiaries and deliver funding to them. Intermediaries must periodically report on the allocation of funds to final beneficiaries, and the Bank has been monitoring the rate at which funding has been reaching individual SMEs closely.
In 2008 the EIB revised its SME product offer, putting considerable efforts into simplifying the product and making it more flexible so as to encourage intermediaries to speed up lending; furthermore in 2009 we continued to work closely with them to speed up the allocation process. As a result, we saw a higher value of allocations approved in 2009 than 2008.
In 2008 and 2009 allocations to SME final beneficiaries were some 90% of amounts disbursed in support of SMEs during the period. EIB relationship managers work closely with their individual counterparts. The next disbursement of each SME loan or the follow-up loan is subject to the allocation of the previous tranche or loan. So we are confident we are addressing this question.
When companies receive money through their local bank which has come from the EIB, do they know it is European money? Is there enough awareness about the EIB's role in the economic recovery?
Financial intermediaries have a contractual obligation to inform SMEs of the EIB intervention. The method to provide such information is jointly agreed between the EIB and the financial intermediary and specified in the finance contract. It could vary from specific product labelling, other forms of communication (including exchange of letters or electronic means) or an agreed contractual reference.
We also invite intermediaries to insert an information page on the EIB's activities in favour of SMEs on their website dedicated to SME financing products. A template, which can be customised to the specific product needs, is made available by the EIB to provide a consistent basis for smaller and less experienced intermediaries.
Is the EIB providing loans and guarantees for companies that are deemed by private banks not to be creditworthy? Is there a risk of public money being put at risk in an effort to keep unviable businesses afloat?
The EIB's lending to the SME sector is primarily undertaken through financial intermediaries, who evaluate and review the SME projects being funded, and retain the credit risk against the SME final beneficiaries. These SME projects are therefore evaluated by the financial intermediaries using normal commercial banking criteria. The EIB is not becoming involved in lending outside those normal criteria.
The EIB also offers risk-sharing to experienced partner banks. This may be valuable in those cases where the demand from viable SME projects exceeds the risk-bearing capacity of the respective bank. We think that this approach will become even more valuable in times of increased capital requirements for banks.
There has been a lot of speculation about how to improve the flow of venture capital in Europe. What role has the European Investment Fund (EIF) in this? When it comes to choosing which high-risk innovation projects to support, is the EIF in a position to pick winners or does it support several competing technologies?
The EIB Group is already closely involved in funding for innovative projects undertaken by SMEs and midcaps, but also increasingly other forms of innovation such as Intellectual Property Rights or projects, both through the EIF and through the Bank's own initiatives – particularly the RSFF (Risk-Sharing Finance Facility), which is mainly for mid-caps and large corporates. Therefore venture capital is just a part of the SME and knowledge-transfer funding cycle – from seed or angel capital through venture capital to mezzanine and conventional debt.
The EIF is active across the value chain of SME and midcap enterprise creation, from the earliest stages of intellectual property and knowledge transfer development to mid- and later-stage companies. The EIF provides equity through investments in venture capital, lower mid-market and mezzanine funds to improve the availability of risk finance to innovative SMEs. Increasingly, incubators and technology transfer investments are also covered.
Over the years, the EIF has been a cornerstone investor for the European venture capital industry. The EIF has in the crisis stepped up its support to promising teams, increasing its relative stakes in the first closing of funds to ensure that funds reach at least the critical fund size to execute on their investment strategies.
In 2009, the EIB mandated – as part of anti-crisis means – the EIF to manage the €1 billion Mezzanine Mandate for Growth (MFG), and the first deals were approved and signed in record time. The facility should be fully deployed before the end of 2012.
The EIF also pursued its investment strategy in Growth Capital/Lower Mid-Market by continuing to support a number of successful funds focused on SMEs while also selecting new emerging teams. Although affected by the current credit market conditions, the LMM sector remains one of the few market segments that still offers interesting opportunities for investors with adequate capital.
Total Equity and Mezzanine commitments for 2009 amount to €733 million, an 80% increase over 2008.
This being said, it is not the role of EIF to pick winning technologies. EIF operates as a fund-of-funds aiming at building a performing infrastructure for venture capital funding of high-potential European technology companies. It is the competition between funds in the market and the competition of promising technology companies for capital from skilled venture capital fund managers that ultimately will lead to the selection of the winning business models in various industries.
In addition, the EIB has been strengthening its capabilities to react to the individual financing needs of innovative Mid-Cap companies under its SFF (Structured Finance Facility)/RSFF financing programme. Individual Mid-Cap financings have so far concentrated on the transport sector with the European Clean Transport Facility (ECTF), the healthcare/biotech industries and information and communications technologies (ICT). The risk profile of such corporations requires tailor-made solutions covering a wide range of corporate finance and individual mezzanine structures.
Recent criticism has suggested it is difficult to secure funding for large demonstration projects. Is this a concern to you?
We have to live with this. The EIB finances new technologies and new technological approaches, but only if we are convinced that it already is or that it can become a viable project step by step. In this respect it is natural that there will always be differences of opinion, because we are in unknown territory with unproven models.
Let's look at this the other way around: the EIB finances a lot of innovative projects, a lot of pilot plants and demonstration projects in sectors where commercial banks don't. We contribute to developing markets with these catalytic projects. And we are proud of it.
Finally, what role can the EIB play in supporting struggling member states like Greece? Is the Bank coordinating with the European Central Bank, the European Commission and member states on rescue packages?
The EIB cannot bail out member states. Our statute simply does not allow for pure budgetary support. What we can do is finance viable projects or programmes in Greece or other countries as long as they are in line with our objectives.
In the SME sector as well as others, we continue to work with eligible Greek projects and financial intermediaries to ensure a continued supply of funding to the underlying Greek economy. Last year the EIB financed projects for €1.6 billion in Greece. We are ready to do more – in the remits of our activities defined by the statute aimed at financing projects in the real economy.