Although the technology and startup sector cannot experience the current COVI-19 crisis to be as difficult as other sectors, it is Certainly a challenge for businesses at an early stage This needs more time to validate its product, which operate in more affected sectors, or are still in their R&D phase and have been collected at the pandemic. VCs and acceleration funds can declare that they are completely open to business, but they also have difficulties – due to the fact that most local venture capital companies operate with public funds, they have strict requirements for private co -investors – both on the fund and at the level of the agreement. And private investors are concerned. This means – for funds about to launch operations, it is difficult to collect the required private capital (generally between 10% and 30%) and for investment vehicles already in operation – it may be difficult to conclude transactions.
It was the main reason for The open letter And the economic report that startups and venture capital associations have sent to the government. Do not ask for subsidies, but to request a temporary change in requirements so that capital can move to businesses with scalability potential. In most cases, there is a request for financing the bridges that would help already existing companies that employ people to maintain by the crisis if they are affected. “From an economic point of view, it is crucial that we are currently ensuring funding for growing businesses that have proven viability, so that they do not go bankrupt and do not reduce jobs. Engineer of the very first VC fund in Bulgaria in 2012.
False ideas vs reality
For the founders of startups such as the 60/40 widely commented, the government promise to cover 60% of employee wages under several conditions is not too relevant. Associations require easier access to capital which is already set aside for venture capital investments. At the same time, VCS began to send advice that the founders of Startup should also consider EU help programs. With all the overload of information, it is a fairly difficult task, and with enough media lost in translation and without understanding for the question, it could become even more difficult. We have gathered a few pieces of the puzzle and hope it will be useful:
The problem with the private co-investments in funds and solutions
As mentioned, VCs whose main LPs are public funds are in a difficult situation. Some private investors are now withdrawing commitments, which makes it more difficult to launch the fund. Examples: recently chosen fund managers Vitosha Venture Partners, Morningsoide Hill and Innovation Accelerator, which have all been selected to deploy capital in companies at different stages of development and funded by the Government Fund for Funds.
On request, we have received an official declaration from the fund funds, promising that they are currently working actively on more flexible rules that would allow these funds to invest with less private co-investment. The new rules, each time ready, will comply with the requirements of the European Commission and only applicable until the end of 2020. The registration process for Vitosha Venture Partners has been shortened and the innovation accelerator should also conclude the first agreements soon, the press release said.
There is another potential solution for funds that need private co-investment, tells us that Evgeni Angelov-EIF and the European Bank for Research and Development could structure instruments that would allow them to penetrate as private co-investors in venture capital funds. Wouldn’t that falter the market when VC will become almost 100% supported by public money? “There is no market right now. These are measures that will only be applied for the time of crises. In addition, EIF and the CBD also have different pockets and operate commercial capital, “he explains. According to our sources, EIF is currently working on such an instrument of 100 million euros.
Bonuse plans and loans guarantee funds
The Government Fund for Funds, which operates and channels the finances of the European Commission program within the framework of the Junker Plan, recently announced its mobilization around 205 million euros to support SMEs, innovative companies and self -employed workers. The fund fund has designed a brand new guarantee product to provide liquidity support to small and medium -sized enterprises operating in various sectors, including those most affected by the crisis, such as tourism, transport, wholesale and retail trade, etc. In practice: there are 87 million euros for banking guarantees for long -term long -term loans that will provide labor capital to SMEs. The wait is that by providing the guarantee that banks can grant loans up to 435 million euros in total. “The possibility that loans have offered without interest to companies that keep their endowment levels before the crisis crisis,” said the official announcement. It is still unclear which banks are provided to which these subsidies will be provided.
In addition, there is another 12 million euros which will be deployed in loans of up to € 25,000 and below market interest rates. It is intended for “self-employed workers and small start-ups with very short commercial history, if necessary, including those set up by vulnerable groups (disabled people, young people aged 29 or under, unemployed people for more than 6 months).” Microlans, in fact on the market since last year, are provided by selected intermediaries – First Investment Bank, MicroFund AD and SIS CREDIT AD. The measure also applies to startups at a stadium that would otherwise be banking.
The EU mobilized 1.2 billion euros for startups due to COVID-19. NO.
We have come across this news in recent days. Here is what is: a new instrument called Squash This was initially announced in 2018 which is piloting now. Its pilot size for 2020 is 300 million euros and it is targeted on a scale, investment capital funds and equity from Europe. Fund managers can request funding of 50% to 70% ESCALAR and launch a side vehicle to support their existing portfolio companies, for which they are not authorized to charge for management fees, or to start a new fund. According to Barry McGrath and Stefan Tzalov of the European Investment Fund (EIF), which are directly involved in the structuring of the fund, there are approximately 30 funds in the EU which can benefit from the instrument. McGrath expects up to 8 funds can benefit from the program, while the maximum participation of Escalar is 100 million euros. By design, the fund has a greater risk for private investors, which means that fund managers must really have the history and be able to convince private LPs to penetrate. In a word, it is a financial instrument, which does not target startups and is not really linked to the situation of the coronavirus, also the € 1.2 is a fair forecast.
THE € €1B for SMEs and startups unlocked by the CE and what it means in Bulgaria
In early April, the European Commission unlocked 1 billion euros to allow its EIF to support loans for small and medium -sized enterprises, which makes it easier to borrow it from banks. The measure has been popular with startups and should result in 8 billion euros more in funding available for small and medium -sized enterprises (SMEs), the Commission expects the Commission. This means that financial intermediaries with existing EIF agreements within the framework of these COSME and Innovfin programs will be able to access the new guarantees immediately at their request. Other financial intermediaries can access the guarantees following a quick request process. Here is a List of relevant intermediaries in Bulgaria which grant loans to startups and businesses at an early stage as part of the mentioned agreements.
The 60/40 diagram
In addition, the Commission has adopted a temporary framework to allow the member states to use the full flexibility under State aid rules to support the economy in the context of the coronavirus epidemic. The framework provides funding for the following types of assistance, which can be granted by Member States: direct subsidies, capital injections, selective tax advantages and payments in advance, up to the nominal value of € 800,000 by company’s zero interest loans or guarantees on loans covering 100% of the risk. For Bulgaria, this means a scheme for aid to salary subsidies of 770 million euros which would allow the Bulgarian authorities to finance 60% of wage costs.