Slides from Connect Estonia seminar CONNECT WITH THE SMART MONEY, on August 29, 2006.

1. Public support is needed and
reasonable
Andrus Treier
CEO
KredEx
17 August 2006

2. Biggest fears and worries
• Too big risks to start business
- low entrepreneurship, 65% prefer not to be entrepreneurs
• Hard to find seed capital and other financing
- start-ups, small companies, loss bearing companies
• Fear to share knowledge
• Fear to loose control over business
- only 27% of SMEs are willing to take in other investors
• Loan is expensive (and you sell your sole)
- 60% of enterprises utilise retained profits for investments
- Companies utilising loans grow 50% faster
• Estonia is a small country

3. Start and growth need money
Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999

4. Investment Flows
E
Government Angel Institutional
Investors Investors Investors
E E/D E
Business Venture & Private
Angel Equity Funds
Networks
E E/D E/D
E/D D
Entrepreneur Enterprise Banks
E/D E/D
E = Equity Investment FFF
Banks
D = Debt
Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999

5. Financing sources
• Seed capital
• Loans
• Mezzanine financing, quasi equity
• Venture capital
• Own cash flow
• Business partners
• Grants, subsidies, incubators etc

6. Bank loans
• Strong and steady historical cash flow,
easily projected in the future
• Sufficient collaterals (1.5x market value)
• Good relations with bank
• Loan < 3x operating cash flow (EBITDA)
• Clear and positive future expectations
Used:
Usually for expansion, occasionally for buy
out

7. Mezzanine Financing
(Quasi Equity, Subordinated Loan)
• Strong and steady cash flow
• Positive future expectations
• No collaterals, bank not willing to grant loans
• Loan < 5x operating cash flow (EBITDA)
• No intervention in ownership
• Not more than 50% of the owners equity
• Not possible, if growth prospects are modest
Used:
Usually for buying out and enlargement of the
business

8. Owners Equity
• Current cash flow insufficient
• Future vision must be clearly positive,
even if uncertainty is big
• No collaterals
• Strong intervention in management
• Highest price!
Used:
Starting, buying out or expanding the
company

9. Impact to cash flow and P/L
• Bank loan: low price, principal payments
and interest to be paid
• Mezzanine financing: medium price,
interests to be paid, can be related to
success, principal payments flexible
• Owners equity: high price, no direct impact
to P/L, no principal payments

10. Combining instruments makes big
projects work
• EBITDA= 1 million
Financing
• Bank loan 3 millions
• Subordinated loan 2 millions
• Owners equity 2 millions
• Total 7 millions

11. Different state organisations do exist
Debtors (Export Credit Agencies)
• Short term export guarantees (up to 90% for commercial risks)
• Long term export guarantees (up to 100%, capital goods)
Bank Loans (Guarantee organisations)
• Additional guarantee replacing or in addition to collaterals
(up to 75%)
Mezzanine Financing
• Different products provided by the state organisations, additional to
private financing
Equity Financing
• State owned/participated Venture Capital Funds
Grants
• Knowledge based, high tech projects, infrastructure, incubators, training,
consulting etc

12. State organisations in Estonia
• Enterprise Estonia
» Grants and awareness programs
» Incubators
• KredEx
» Export guarantees
» SME loan guarantees
» Equity financing
» Housing loan guarantees
• Estonian Development Fund (?)
» Public VC fund for seed capital investments

13. Start and growth need money
Development Fund Equity Loan
Loan and Leasing Guarantees
Start-Up Loan Export Guarantees
Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999

14. What is KredEx?
• A self-sustaining guarantee fund that offers:
» Export guarantees 50 MEUR guaranteed in 2005
» SME guarantees 27 MEUR outstanding in 2005
» Equity financing 3 MEUR estimated 2006
» Housing loan guarantees 44 MEUR outstanding in 2005
• Our aim:
» Export guarantees
» To raise competitiveness of Estonian companies by improving
financing possibilities and mitigating credit risks
» To enhance living conditions in Estonia by widening financing
possibilities and promoting energy efficient behaviour
• Established:
» 2001
• Owner:
» Ministry of Economic Affairs and Communications

15. Loan guarantees help to get loan
and mitigate risk
• Up to 75% of principal amount
• Max amount EEK 15 million
• Working capital and investment loans,
bank guarantees
• Guarantee »fee 0.4-3.0% pa
Export guarantees
• Conclusion fee 1%
• Start-Up loan
30% of personal surety, no other collaterals
Up to EEK 500 thousand

16. Equity loan helps companies to grow
• Loan amount EEK 1-16 million
• Maturity 5-10 years
• Owners equity less or equal
• No intervention to management,
convertability option
• No collaterals needed
• Long grace period, flexible chedule
• Subordinated loan
• Interest rate about 20% pa

17. Why state should interviene?
• Low or no profitability
• Creation of market with “normal” conditions
• Reducing fears and changing understanding
• Mitigating risks in economic downturn

18. Contact
Credit and Export Guarantee
Fund KredEx
Pärnu mnt 67b Tel: +372 6 819 950
10134 Tallinn, Estonia Fax: +372 6 819 951
E-mail: kredex@kredex.ee
www.kredex.ee