The Portuguese ExperienceThe Portuguese Experience

INOFININOFIN

Financial innovation Framework ProgrammeFinancial innovation Framework Programme

Instruments to Enhance the Access of Instruments to Enhance the Access of SMESME’’ss to Financial Marketsto Financial Markets

José Furtado, Vice-ChairmanGeneve, 10.04.08

International Conference

Investing in Innovation

The INOFIN Initiative

I. Overall Perspective

II. Supply Side Approach - Risk Sharing Instruments

III. Demand Side Approach - Investment Readiness Programs

2

Contents

BankIntermediation

EquityChain

Hands -- onProximityCapillarity

Hands- - offImmaterial

Scale

A Systemic ApproachFinancial Markets Channeling Savings for Investment

SAVIN

GS

BU

SIN

ESSE

S

ScopeRational for Incomplete Financial Markets

Financial MarketsFinancial Markets

Supply(Operators)

Demand(SME)

MIS-MATCHBusiness Profile• Stage position in “life curve”• Level of specialization• Critical size

Available Resources• Human Capital• Financial Structure

Entrepreneurial Culture• Entrepreneurial spirit• Market culture

Management Skills• Management Teams• Organization• Information Systems

MIS-MATCHDetermined byEnvironment• Regulatory issues• Regulation • Taxation• Contracting and Law

Transaction Costs• Scale of Operations• Geographical Dispersion• Appraisal / Evaluation

Risk-Reward Patterns • Asymmetric Information• Risk Perception• Risk Profile of operators

Liquidity • Nature of assets • Secondary / Exit Markets

Determined by

There’s a role for Stateunder certain circumstances

Insufficient coverage for certain segments

Segments of limited attractiveness for financial operators

Strategic Guidelines

The Role of Public Policies

- Promote a Better Environment - Reiforcing the efficiency of thebank intermediation process and the enlargement of capital markets

- Promote Business Dynamics – Programs designed according theSME needs along their life cycle and for improving their adaptabilityfacing the new challenges

- Promote Macro-Economic Goals – Stimulate investment andgrowth, encourage innovation and entrepreneurship

3

1

2

The INOFIN Initiative

I. Overall Perspective

II. Supply Side Approach - Risk Sharing Instruments

III. Demand Side Approach - Investment Readiness Programs

6

Contents

Provide co-investment

and other risk-sharing

features to the venture

capital and private

equity industry

Provide guarantees to

credit enhance the

cash-conversion of

bank loans through

securitisation

Provide guarantees

to reduce the

exposure of mutual

guarantee societies

MutualCounter-Guarantee

Fund

FCGM

CreditSecuritisation

GuaranteeFund

FGTC

VentureCapital

SyndicationFund

FSCR

StateState

Supply Side ApproachPublic Instruments for Risk Sharing

The Role of Public InstrumentsEnhancing the Market Players

FCGMMutual

Guarantee FSCRVentureCapital

FGTCLoans

Securitisation

State FundedInstruments

Bank Intermediation

Equity Markets

SAVINGSSME

Financial intermediaries and Investors

Mutual Guarantee SystemGeneral Framework

FCGM

SPGM

SGM ... ...

Balcão 1 ... ... ... ...

Banks, Business Chambers, Municipalities, Univ…

SME

State

GuidelinesFunding

PublicAgencies

Securitization of SME LoansGeneral Framework

Banks

SME

FGTC

TermDeals Warehousing

MultissellerUnisseller

Investors

State

GuidelinesFunding

PublicAgencies

Universities , BA, VC, Intermediaries and Investors

SME

FSCR

SyndicationCo-Invest.

Fund RaisingMechanism

Tech TransferAccelerator

PublicAgencies

State

Venture Capital ActivityGeneral Framework

GuidelinesFunding

NewNew

EQUITY CHAIN

SAVIN

GS

CO

MPA

NIE

S

Private Equity

Plataform

VentureCapital

Alternative Stock Markets

INOFINMarketPlace EIF PVCi

Fund of Funds

Plataform

Plataform

FINCRESCE

FINICIA

FINTRANS

Development of Capital Markets in PortugalA Huge Challenge - The INOFIN Roadmap

The INOFIN Initiative

I. Overall Perspective

II. Supply Side Approach - Risk Sharing Instruments

III. Demand Side Approach - Investment Readiness Programs

13

Contents

FINICIA FINCRESCE FINTRANS

Programmes Alongside the Business Life Cycle

Demand Side ApproachInvestment Readiness for Sustainable Deal Flow

FINICIA ProgrammeFinancing Start-Ups

Facilitating accessto finance for

Entrepreneurs andSmall Companies

at the initialphases of their life

cycle

HIGH INNOVATION PROJECTS

SMALL-SCALE BUSINESS START-UPS

REGIONAL BUSINESS INITIATIVES

FINICIA Platforms“Eco-systems” for Start-Ups

Co-InvestmentVC Fund

SME

Local NetworK

FSCR RiskSharing

Business Angels Corporate Ventures

ProcurementApproach

ProjectEvaluation

InvestmentForum

BusinessFollow Up

Incubators ResearchInstitutesBusiness

ChambersUniversities Development

Agencies

FINCRESCE ProgrammeFinancing High Growth SME’s

Upgrading on Risk Profile

Promote Market Reputation

Customized Financial

Products and Services

Optimizing companyfinancing conditions

necessary to promotegrowth strategies and

strenghten theircompetitiveness

FINCRESCE ProgrammeImplementation Model

BanksPerspective

Actual Profile / Performance

IAPMEI Perspective

Growth Potential +

-

-

+ExcellentExcellent

SMESME’’ss

InvestingInvestingCompaniesCompanies

LeadingSME’s

Axis II

Risk Profile

Enhancement

Axis I

New Challenges

LeadingSME’s

Portfolio of Leading SME’s

General Profile

2006 (2005) %

Capital structure

Equity/Assets ratio 43% 0,1%

Performance

ROE 12,2% 0,4%

ROI 5,2% 0,2%

Productivity

Sales/Employee 194.000 € _

Profits/Employee 7.900 € _

Portfolio: 2.000 Leading SME’s

Turnover: 15 B€

(10% of the Portuguese GNP)

Employment: Over 120.000 people

Bank Internal Rating Score:

24% AAA / 36% AA, 40% A

Differentiated Financial Products and Services

FINCRESCE ProgrammeAvailable Offer

Communication with the Market

Reinforcement of the Endogenous Potential

• Knowledge and Information• Organization and Management• Production• Access to Markets

• Competitive conditions of financing – Scale effect and Risk Sharing

• Access to the Capital Markets

• Financial community• Innovation and quality• Good practices and strategic ambitions• Globalization of businesses

Benchmarking

Specialized information

Instruments for self-diagnosis

“High intensity” Consulting and a pool of managers and experts

Directories and individualised communication support services

Measures of Communication and Image

Communication Support Services and access to markets

Credit Offer, financial risk management instruments, insurance and corporate finance services, under favourable conditions

Mezzanine finance

Access to operators of private equity and venture capital, institutional investors and introduction to the market of capitals

FINTRANS ProgrammeFinancing Equity Transmission and M&A

Encouragingfounders succession

and/ortransfer of assets

into new valuechains, thusinducing the

economyregeneration

Company ReestructuringMergers and Acquisitions

Management CapacityMBO-MBI

José Furtado

Innovation on Financing

Supply Side Approach

- Risk Sharing Instruments

Demand Side Approach

- Investment Readiness Programs

International Conference

Investing in Innovation

José Furtado, Vice-Chairman IAPMEIGeneve, 10.04.08