1

Update on work to Improve data on access to finance

for entrepreneurship

OECD Entrepreneurship Indicators Steering Group (EISG) meeting

Istanbul, 25-26 June 2007Eric Gonnard, Statistics Directorate, OECD

2

OECD “Access to finance” works

The EIP work on data on access to finance for

entrepreneurship responds to four projects:

1. The ICE Project on Risk Capital

2. The WPSMEE Study on Financing High Growth and

Innovative SMEs (HGSME)

3. The EC (joint DG-ENT and Eurostat) work on financing

SMEs

4. The Entrepreneurship Indicators Project

3

SME population target by project (date of issuance)

Entrepreneurship Indicators Project (Preliminary measurement manual end 2007)- All SMEs- Access to financing is one of the determinants for entrepreneurship (with education, R&D, taxation…)

EC work on access to finance (mid-2010)- All SMEs- Debt and equity financing

WPSMEE study(2nd half 2008)- Innovative, HG SME- Debt & Equity financing- >10 employees, >3y old

Risk Capital project (spring 2008)- SMEs seeking Equity finance- Equity financing

4

Financing matrix by type of firm,an overall picture

High GrowthFirms Nascent Gazelles

Innovative

Stage Pre-Seed Start-up Growth High Growthand Seed Phases Phase Phase Phase

Venture Capital X X

Retained earnings X X

Angel Investors X X X

Corporate X X X

Family/Friends X X

Employees X X

Founder(s) X X

Export credit X X

Commercial Credit X X

Bank loans X X X

Factoring X X

Govt-backed Credit X X

leasing X X

Tax credit X

Personal Credit X X

Family/Friends X X

DemandS

up

ply

Eq

uit

yD

ebt

Start-Up

5

1. ICE risk capital project: overview

Investigate risk capital market with two main objectives:

– overview of the risk capital market in each country;– better understand the financing gaps between supply

and demand Policy track handle by FORA: mapping of policy and

policy's performance;

Data track handle by the OECD: glossary of definitions and assessment of data sources;

Result in spring 2008 in the “ICE Risk Capital policy and data handbook”.

6

Risk capital Project: policy study

Pilot study done in the Netherlands in March 2007;

Mapping of policies and policies’ performance analysis based on the FORA Investment Policy Model;

Preliminary outputs:– Investors are concentrated on buy-out segment,

lack of early stage segment skilled investors;– policy instruments should suit the market stage

(kick-start, developing, re-vitalizing)

Pilot used as a template for other countries.

7

Risk capital Project: data track objectives

This data work will assist the policy evaluations in identifying precisely where policy interventions are required and assessing their effectiveness.

Collect and document existing definitions on risk capital and propose compromised definitions;

Identify and document sources of data on risk capital; Propose a collection of comparable data on risk

capital.

8

Risk capital Project: data track status (1/2)

Inventory of the data sources and definitions collection largely completed- On the supply side from Venture Capital industry

Informal investors and Governmental sources- On the demand side from SME surveys conducted

First outputs on the definitions:

– differences exists but more related to wordings rather than substance,

– need to redefine some key terms from a statistical point of view (e.g. start-up)

9

Risk capital Project: data track status (2/2)

First outputs on the data sources: common practices but main differences reside in the dissemination:

level of details published; updates in historical time series not documented; concepts used :

– valuation at book value or fair value– valuation when deals committed or paid in cash– reports based on “office” or “market” approach

other issues (data volatility in growth/drop periods, timing of the data collection,...).

10

Illustration of office and market approaches

Investment flowInvestments allocated to country A or B with the office approachInvestments allocated to country A or B with the market approach

Country A Country B

Investor-X HQ office

Investor-X local office

A

AA

B

A

B

B

B

11

Illustration of deals valuation: USA Venture Capital funds raised

0

20 000

40 000

60 000

80 000

100 000

120 000

2000 2001 2002 2003 2004 2005 2006

(M$)

VentureOne E&YCommitments valuation

NVCA ThomsonPaid in cash valuation

Paid in cash > Commitments in bullish market

12

Illustration of growth/drop period issues: USA Venture Capital investment

0

20 000

40 000

60 000

80 000

100 000

120 000

2000 2001 2002 2003 2004 2005 2006

(M$)

VentureOneE&Y

PWC MoneyTreeThomson

Higher differences in periods of market volatility

13

Illustration of mixed issues: UK Private Equity investment

0

5 000

10 000

15 000

20 000

25 000

30 000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

(M€) Souce: BVCA Source: EVCA

Difference:EVCA population survey= BVCA members + other sources of PE finance

Difference:mix of reasons, in which BVCA valuation at investment cost, EVCA at fair value, timing...

14

2. The WPSMEE Study on Financing High Growth and Innovative SMEs

Study is a module of the 2007/08 program of work on High Growth SMEs, innovation, intellectual assets and value creation;

Objectives: improve the availability of comparable data on financing and contribute to policy development;

Method: use of various sources of data (Community Innovation Survey, BACH,..) and a policy questionnaire built on ICE’s model;

Results published in synthesis report.

15

3.The European institutions work on financing SMEs (1/2)

Eurostat, ECB, European Commission (DG ENTR and DG ECFIN) and the OECD met in may-07 with objectives to:

- examine the interest of the diverse organizations present into “access to finance”;

- set up an overall strategy on sharing statistics already existing;

- assess the opportunities and constraints for a data collection

16

3.The European institutions work on financing SMEs (2/2)

On the demand side, identification of several target populations, and drafting of three indicators:– Percentage of external financing of young firms

– Number of financing applications and reject rates

– Cost of debt instruments

The usage and share of best practices of SME’s survey with other organizations in order to achieve international comparability;

Eurostat present the possibilities and constraints of conducting a new survey, three years will be necessary between this first meeting to the data dissemination.

17

Question to the group:10 indicators on access to finance for entrepreneurship

High GrowthFirms Nascent Gazelles

Innovative

Stage Pre-Seed Start-up Growth High Growthand Seed Phases Phase Phase Phase

Venture Capital X X

Retained earnings X X

Angel Investors X X X

Corporate X X X

Family/Friends X X

Employees X X

Founder(s) X X

Export credit X X

Commercial Credit X X

Bank loans X X X

Factoring X X

Govt-backed Credit X X

leasing X X

Tax credit X

Personal Credit X X

Family/Friends X X

Demand

Su

pp

ly

Eq

uit

yD

ebt

Start-Up