JEREMIE's financial instruments

Equity Instruments

Equity instruments will be implemented mainly through venture capital (VC) funds targeting early stage companies. Holding Fund Manager may make investments in selected VC funds, generally innovative companies with high growth potential. Priorities regarding stage or sector focus or funds will be set by the Managing Authority. 

Guarantee Instruments
Guarantee products will be structured by the Holding Fund Manager and funded from the Holding Fund. Benefits include

• Flexibility: special features and specific guarantee products can be implemented for particular sectors/type of beneficiaries, such as a higher guarantee rate for start-ups.
• Financial resources are used only when a loss/default occurs and that a part of the guarantee premium should cover the risk.
• Lower collateral requirements of the lenders.
• Guarantees typically have a positive impact on the banks’ capital adequacy ratios.
• High leverage effect of the public money, given that the funding of the loans is provided by the lenders.
• High number of final beneficiaries and resulting high visibility of the public support.
• Lean organisational structure of the guarantee fund, given the possible high level of delegation of certain activities to the lenders.
• The risk sharing agreements with the lenders ensures alignment of interest.
• The guarantee can cover the full or part of the amount of the financing.
• The guarantee could be a loan-by-loan guarantee, or could be extended automatically, provided that certain pre-set eligibility criteria are met.

National/Regional guarantee fund
A national/regional guarantee fund provides guarantees to financial institutions that in turn extend loans to the SMEs. Typically, a guarantee fund would enter into agreements with commercial banks and/or loan funds with various degrees of delegation.

Guarantee of micro-loans portfolio
A micro-guarantee fund provides guarantees to micro-lenders that in turn extend micro-loans to private persons and SMEs. Typically, a micro-guarantee fund would enter into agreements with various micro-finance institutions and/or loan funds with various degrees of delegation.
 
Counter-guarantee scheme
A counter-guarantee scheme provides counter guarantees to the benefit of guarantee institutions. It is an option for markets where various local guarantee schemes exist. A counter-guarantee typically enhances the local guarantee schemes’ activity as it reduces part of the risk borne by these institutions. The main advantage of such a structure is an enhanced guarantee capacity of the whole system with a very high leverage effect.

Equity guarantee fund
An equity guarantee scheme provides guarantees to the benefit of equity investors such as risk capital funds, private/public investment companies, individuals or business angels. An equity guarantee is a means to enhance the supply of “own funds” investments in companies, thus strengthening their financial position. Given the risk reduction provided to the equity investors, the setting up of an equity guarantee fund is a way to attract private risk capital funds to a specific markets or, sectors. Normally, the guarantee payment is linked with either the exit or the bankruptcy of the SME. From a portfolio risk management point of view, an equity guarantee scheme is efficient and reaches a higher portfolio diversification when various investors are guaranteed.

Securitisation
Securitisation operations may be implemented in countries where the necessary legal framework has been introduced. These types of deals are most likely to be arranged at the national level and their feasibility will be analysed on a case by case basis.

Quasi-equity Instruments
Participating loans for pre-seed R&D projects
Participating loans are intended replace grants to research and development (R&D) projects. The loans would carry a cumulative interest (i.e. with no payout to lender). Principal and interests would convert into equity upon the completion of a 'qualified' equity financing round ('qualified' meaning above a minimum size), at the price of that financing round. The debt would be junior to banking debt (subordinated lending) and principal/interests would only become repayable under certain circumstances e.g. after x years of operation without a qualified equity financing.

Mezzanine finance to growing businesses
This provides subordinated lending at market rates, supplemented by an equity instrument with an option feature (e.g. warrants) to increase the return. The objective is to provide lending to established growing businesses, while maintaining its ability to borrow.

Other instruments
Technology Transfer Vehicles
Technology transfer is the process of converting scientific findings from research laboratories into useful products that may be commercially exploited. The value of intellectual property (IP) produced by research organisations or individual inventors is realised via licensing, sale or incorporation (known as ‘spin-out’) into a new company.

Funding of technology transfer through pre-financing of royalty flows allows purchase of a portion of rights to patents by an Intellectual Property Fund that would then be responsible for maximising the financial value of the patents in its portfolio. The fund would be managed by a company possibly jointly owned by Universities/R&D centres and the fund’s management team.

Organisation of support to SMEs in such a business oriented way should ease the difficulty of transition for companies leaving the incubation stage, and enable them to successfully apply for financing from early stage venture capital funds.

Business Angels Matching Fund (BAMF)
JEREMIE can create or develop regional and local business angel networks (BAN), working towards their integration into the European Business Angels Network (EBAN). Once BAN have been established financial instruments can be deployed. BAMF may be managed by one of the BA networks or a selected management company or BAs operating as individuals.

Geographic coverage
The JEREMIE initiative covers all 27 EU Member States and is not restricted to Convergence Objective regions. All regions of both Convergence and Competitiveness Objectives are eligible, provided that Member States or Managing Authorities have identified the potential need for JEREMIE in their respective operational programmes and decide to implement JEREMIE.

Eligible market sectors
There are no specific sectors identified under JEREMIE (with the exception of sectors excluded by the ERDF regulation). The specific objectives and market priorities of JEREMIE will be defined by the Managing Authorities based on evaluations and could target a wide range of sectors such as information and communication technology (ICT) and biotechnology, or traditional economic sectors.