Professor Rudy Aernoudt is als chief economist betrokken bij een initiatief van de Europese Commissie om via een specifieke garantieregeling extra kapitaal te voorzien voor een specifieke niche van onderneming: het groeibedrijf dat een groot bedrag nodig heeft en moeite heeft om dat geld in Europa te vinden. Het historisch voorbeeld is Skype dat aanvankelijk Europees geld kreeg voor de opstart, maar daarna geen 100 miljoen euro kon vinden en daarom in handen kwam van Microsoft. Het nieuwe vehikel Escalar moet Europese groeibedrijven de kans geven om hier te blijven en door te groeien.

1. ESCALAR
European Scale-Up Action for Risk Capital
FD – Conference
22 March 2018
Rudy Aernoudt
raernoudt@gmail.com

2. Financial Instruments included in for
2014-2020 MFF
Research,
Development
Innovation
Growth, Jobs
and Social
Cohesion
Infrastructure
Horizon 2020
Equity and Risk Sharing Instruments
EUR 3.5bn Instruments under
Structural and Cohesion
Funds
EU level
Off-the shelf instruments
Tailor made instruments
Significant higher amounts
than currently
Competitiveness &
SME (COSME)
Equity & guarantees
EUR 1.4 bn
Connecting Europe Facility (CEF)
Risk sharing (e.g. project bonds) and equity
instruments
EUR 33 bn (total)
Social Change
& Innovation
Micro-finance EUR 0.2 bn
Creative Europe
Guarantee Facility
EUR 0.2bn
Erasmus for all
Guarantee Facility
EUR 0.8 bn
Shared ManagementCentrally managed by COM

3. rudy.aernoudt@ec.europa.eu 3

4. Market failure: the scale-up gap
• Facts & figures
• - 44% of EU-financed
scale-ups left EU
• - VC Later stage US
exceeds 24 times EU
• - Average VC fund US:
135 M$ -EU: 65 M$
• - Public co-investment
from 9 to 39% in ten
years (EU VC = public)
• Surveys
• - For 65% of scale-ups,
financing is biggest
obstacle for growth (EC- PC
on scale-up, 2016)
• - 90% of EU cies struggle
to raise financing for
growth (Roland Berger)
• - Hard to find 15 to 25 M€
• - Closing scale-up gap
would create 1 mio EU-jobs

5. Facts & figures: stage of investment
In Meuro US EU Comments
(2015)
Seed stage 924 117 8x
Early stage 18377 2010 9x
Later stage 35095 1678 21 x
Total annual
VC-investments
55393 3805 14 x
rudy.aernoudt@ec.europa.eu 5

6. Facts & figures: averages
In Meuro US EU Comments
Average deal 6,3 1,3 5x
VC Funds larger
than 250 M$
28% 10% 3x
Average size of
the vc Fund
135 60 2,5 x (2015)
Later stage/VC-
investments
65% 45%
rudy.aernoudt@ec.europa.eu 6

7. Facts & figures: US/EU return on VC s
rudy.aernoudt@ec.europa.eu

8. Average sales growth (VC-backed Cies)
0
10000
20000
30000
40000
50000
60000
1 2 3 4 5 6 7 8 9 10
AverageSales(thousand)
Years after VC investment
US firms
EU firms
rudy.aernoudt@ec.europa.eu

9. Valley of death
9

10. Valley of death:
how much goes into that gap?
rudy.aernoudt@ec.europa.eu 10

11. Structure
• 1. The US SBIC
• 2. ESCALAR
• 3. Implementation issues
• 4. Complementarity with FoF
• 5. Blending of financial instruments
• 6. Stakeholders
• 7. Conclusion
• rudy.aernoudt@ec.europa.eu

12. 1. The US answer: SBIC: facts & figures
• - exists since 1958
• - 302 licensed funds
• - raising $ 80 billion (2/3 private money)
• - 172 800 companies financed
• - at zero budget cost!!
• - average leverage: 2,1
• - managed in-house by SBA: staff 72 FTE.
rudy.aernoudt@ec.europa.eu

13. 1. Functioning of the SBIC
rudy.aernoudt@ec.europa.eu

14. FINANCING OF SBIC is private
SBIC 1
SBIC 2
SBIC 3
SBA
Gar. PUBLIC
OFFERINGS
Risk-averting
Investor 1
Risk-averting
Investor 2
Risk-averting
Investor 3

15. 1. Standard SBIC balance (in 000$)
Equity
participations 80
Quasi-equity
participations 90
Debt financing 30
(max 15%)
Total: 200
Assets
Equity 50
SBA gar. debts
150
Total: 200
Liabilities
rudy.aernoudt@ec.europa.eu

16. 1.Eligibility conditions
• - Experienced team of fund managers
• - A realized track record of investment return
• - Evidence of strong deal flow in the proposed
investment area;
• - Limited management fee (1% to 2,5% max)
• - Managerial, operational and/or technical
experience
• - A demonstrated ability to manage cash flows in
order to assure that the SBA will be repaid.
rudy.aernoudt@ec.europa.eu

17. 1. Unleveraged versus leveraged IRR (in %)
-15
-10
-5
0
5
10
15
20
25
30
0 2,5 5 7,5 10 12,5 15
Leveraged IRR
Unleveraged IRR
rudy.aernoudt@ec.europa.eu

18. 2. ESCALAR: European Scale-up
Action for Risk Capital
• 1. Scale-up & equity gap
• 2. Banking sector fragilized (post crisis)
• 3. Very liquid market – patient investors
looking for AAA investments (Basle III)
• 4. Pan-European FoF operational
• 5. Already very public market (40% of EU
VC is public); crowding-out danger
rudy.aernoudt@ec.europa.eu

19. 3. IMPLEMENTING ESCALAR
(GROW/ECFIN)
ESCALAR 1
ESCALAR 2
ESCALAR 3
EIF
(due
diligence)
EFSI
guarantee
EIB
Bond issuing
Risk-averting
Investor 1
Risk-averting
Investor 2
Risk-averting
Investor 3

20. SBIC versus ESCALAR
rudy.aernoudt@ec.europa.eu 20

21. 4. FoF approach
EIF-FoF
VC1 VC4.VC3VC2
Capital participation – co-investment
SME (according to the European definition)
EIF member of the different boards
Investments in SMEs
rudy.aernoudt@ec.europa.eu

22. 4. Complementarity of FoF to SBIC
FoF ESCALAR
Senior position towards
private investors
No: pari passu Yes, senior
(reverse pari
passu)
Involvement of officials
in management of funds
Yes, investor
positions
No intrusive
governance
Cost of program Depends on exits ‘zero cost’
Costs for VC funds No, free lunch Yes, high fees
Advantage for private
investors
Co-investment,
No leverage on
return; Hard to
attract int. inv.
Leverage on
return
rudy.aernoudt@ec.europa.eu

23. 5. Stakeholders
The five Winners are
• Taxpayer (zero)
• Scale-ups
• Employment
• Patient investors
• (alternative invest)
• Equity investors
(equity kicker)
The losers
none
rudy.aernoudt@ec.europa.eu

24. Conclusion:ESCALAR is missing link
Low risk
BUSINESS
ANGEL NETWORK
50.000- 100.000
Euro
FoF
ESCALAR
High Risk
Crowdfunding
< 50.000 Euro
PRE-SEED SEED START-UP EXPANSIONEARLY-STAGE
MARKET
SCALE-UP
GAP
START-UP
&EARLYSTAGE
rudy.aernoudt@ec.europa.eu

25. Why wasn’t it done before?
25