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JEREMIE Bulgaria: Clarification of Call for Expression of Interest to select Financial Intermediaries

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    Date: 29 August 2011 - 12 October 2011

 

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Call for Expression of Interest No. JER-009/5 to select Financial Intermediaries that will receive resources from the JEREMIE Holding Fund for Bulgaria to implement the following Financial Instrument: Entrepreneurship Acceleration and Seed Financing Instrument

Reference number: Call for EoI No. JER-009/5

The aforementioned Call stipulated that: “Requests for clarifications from Applicants shall not receive individual replies. Instead, answers to all requests for clarifications received within the relevant deadline will be published together in a clarification document to be posted on the website www.eif.org, at latest on 28/09/2011”. 

In accordance with this provision, we hereby present such a clarification document complemented with frequently asked questions. 

Capitalised expressions utilised below shall have the meaning attributed to them in the above mentioned Call for Expression of Interest, unless otherwise defined below or the context requires otherwise. Questions may appear as they have been received without any editing from EIF; they also appear in a random order. 

Question 1

According to the template of the Project Description, provided as Appendix 2 to ANNEX 1 (available here) the Applicant should include “Financial Instrument size, indicative breakdown of funds allocation between Acceleration stage and Seed stage and justification (in this context being also the justification for, and intended use of, the contribution from the OP Competitiveness)”. We would like to ask some clarification regarding the last part of this requirement: what exactly a “justification for, and intended use of, the contribution from the OP Competitiveness” should include?

EIF Answer

The justification mentioned above refers to the size of the financial instrument and the indicative breakdown between the two stages and more specifically, a description of the investment strategy including number of investments and value development strategy. Other complementary elements of the projects description submitted by Applicants will also be taken under consideration.

Question 2

Please confirm, or alternatively correct, our understanding that par. (g) “IT Sector Restrictions” of the Excluded sectors and activities section, as described in ANNEX 2 to the Call for Expression of Interest No JER-009/5 Financial Instrument: Description and Selection Criteria (available on the link above), refers to the activities, described in par. (h):

“Research, development or technical applications relating to electronic data programs or solutions, which

(i) aim specifically at:

(a) supporting any activity included in the EIF Restricted Sectors referred to under e to h above;

(b) internet gambling and online casinos; or

(c) pornography, or which

(ii) are intended to enable to illegally

(a) enter into electronic data networks; or

(b) download electronic data.”

EIF Answer

That is correct, the mentioned paragraph relates to (g) IT Sector Restrictions.

Question 3

As per Appendix 3 to Annex 1. Expression of Interest (available here) the list of documents to be submitted by the Applicant must include

among others:

  • Declaration on absence of conflict of interest as per template provided in Appendix 4, duly signed; 
  • Statement regarding situations of exclusion as per template provided in Appendix 5, duly signed;
  • Statement regarding situations of exclusion - 2 as per template provided in Appendix 6: Declaration of compliance with Community and National  rules and policies, duly signed.

Please confirm, or alternatively correct, our understanding that those documents are to be signed ONLY by the person(s) duly authorized to represent the Applicant, meaning that no signature by all the persons that compose the consortium, i.e. shareholders of the new company to be created, members of the investment committee, members of the advisory board, mentors, is needed.

EIF Answer

Please refer to Q6.

Question 4

According to the submission requirements the Expression of Interest shall be submitted on or before the Deadline both by (i) e-mail and (ii) registered mail or professional courier service. Our question is: is there any limitation regarding the size of the file to be submitted electronically by e-mail? In case of such limitation and if the Applicant’s file exceed that limitation, is there an alternative way to submit the Expression of Interest, for example by uploading it on an FTP server and sending a link to the EIF by e-mail?

EIF Answer

Please note that the expressions of Interest sent by registered mail or professional courier service shall consist of a closed single package, and shall contain the Expression of Interest, together with its attachments, in paper form and in removable electronic storage medium (e.g. CD-ROM).

Immediately upon receipt of each application an e-mail acknowledging its receipt will be sent to each Applicant.

If the contents of the email exceed 10megabytes it is advised that they be split into several emails each with size below the mentioned threshold. FTP server links are not acceptable.

Question 5

In case the Applicant is a consortium, composed by various professionals from Bulgaria and an already existing non-Bulgarian company, whose professionals will be part of the consortium, what type of document is needed as proof of the consortium between those professionals? Is this document (for example, a Consortium agreement) to be signed in front of a Notary?

EIF Answer

The Expression of Interest does not need to prove formally the agreement of the consortium. However, when the panel decides to perform a due diligence on such consortium, all documentary evidence that the consortium leader is authorised to act on behalf of the consortium needs to be available.

Question 6

Please confirm whether the applicant should be a legal entity or the applicant can be a group of physical and legal persons that undertake to register the SPV of the Applicant to act as Investment Intermediary /Fund Manager?

EIF Answer

In case of where the Fund Manager has not been set up, the group of professionals applying shall be treated as consortium, with one legal entity or person acting as a coordinating entity. Mention should be made that a new legal entity is intended to be established. Only the coordinating entity shall fill in the Expression of Interest, while the listed in the Call for Expression of Interest declarations and statements shall be filled in by all participating entities or persons.

Question 7

In the table Summary of the Transaction Terms we read that the Financial Intermediary will be expected to establish a structure from which relevant industry experts could be recruited on as needed basis by the investee companies. Please confirm our reading that at least part of the investment in the companies at the Acceleration stage can be designated for payment of mentors / industry experts from such a structure.

EIF Answer

The incentivisation scheme of the investees’ advisers / pool of mentors' structure remains at the full discretion of the Financial Intermediary.

Question 8

With respect to eligible investees in the Seed stage – there is a requirement that eligible investees are companies that may have been in business but not sold their product commercially. Please clarify whether existing companies who are launching a new product or service may be eligible candidates for seed financing provided the seed financing is entirely targeted to the new product or service and the money invested is properly ring-fenced from the rest of the business.

EIF Answer

All companies respecting the requirements for types of investments in the Acceleration and Seed stage as well as the other eligibility requirements as per the respective call should be deemed eligible. (see also Q 9)

Question 9

The limitation for the Seed fund to invest in companies that have not had any commercial sales is very restrictive and may be perceived as punishing really early stage companies for being somewhat more pro-active. Furthermore, access to funds for such early stage companies is very limited to non-existent in Bulgaria. Is it possible for EIF to consider to remove that requirement?

EIF Answer

Changing the set requirements of the published Call is not possible.

Question 10

Could you please specify what the contractual obligations of the intermediary are? Is it possible to publish the contractual agreement in the web site?

EIF Answer

Contractual obligations are a specific matter discussed at an advanced stage of the negotiation process with the Fund Manager(s) and as such cannot be published on the web site. The markets standards with regards to fund management documentation will be applied.

Question 11

What happens if the funds shall not be used until the end of the investment period?

EIF Answer

According to Structural Funds rules, expenditure has to occur before 31.12.2015 in order to be deemed eligible. There will be contractual provisions to deal with this case.

Question 12

What is the envisaged mechanism by the EIF if the intermediary does not fulfill the exit strategy? Who is supposed to carry the risk of failure in this case – is it only the fund manager?

EIF Answer

The scheme will not diverge from best market practice. Specific details will be finalized at a later stage. JHF will be the sole investor in the scheme besides the management team’s own commitment. The Fund Manager will have the same duties and responsibilities as in a normal investment fund, to be further stipulated in the contractual documentation.

Question 13

Please clarify what types of investment are allowed to be done in the instrument during two phases - Acceleration stage and seed stage?

EIF Answer

  • Acceleration stage: Financing provided to research, assess and develop an initial concept.
  • Seed stage: Financing provided to undertakings that may have been in business for a short time, but have not sold their product commercially.

Question 14

Does the Seed Financing Instrument provide the possibility for reinvestments?

EIF Answer

The re-investment of proceeds is not allowed.

Question 15

What is the max allowed participation percentage the of the fund manger in the SMSs?

EIF Answer

The equity participation of the Fund Manager in an SME should be part of the Applicant’s investment strategy.

Question 16

Item g. from the Excluded sectors and activities section of the

Summary of Transaction Terms references IT Sector Restrictions, however

nowhere in the documents does it list what are the IT Sector Restrictions.

As this is an area where we intend to invest in could you please specify

what are the IT Sector Restrictions?

EIF Answer

Please refer to Q1.

Question 17

What kind of credentials of efficient management for the whole of the life-span of the fund are expected to be provided (Appendix 2 to Annex 1, Section „Management“, bullet point 7).

EIF Answer

The proposed team members have to prove that they have the relevant experience and expertise for managing Entrepreneurship Acceleration and Seed Financing funds / programmes.

Question 18

Is it envisaged as a possibility for the Investee companies (both from Acceleration Stage and Seed Stage) to use part of the proceeds to purchase additional services (i.e. advisory services not part of the basic support functions provided) from either the Financial Intermediary (through its employees) and / or third parties (e.g. mentors or advisers who are not Financial Intermediary employees, but are part of the Pool of Mentors and Advisers)?

EIF Answer

There are no restrictions on the utilisation by the recipient SMEs of the equity invested into them, other than the ones stipulated in the Call for expression of interest. In the management of the Fund, the Financial Intermediary shall apply best practices and perform controls applicable to the public nature of JHF investment, inter alia considering guidelines developed by EVCA. A clear mechanism on dealing with potential conflicts of interest has to be set by the Applicant in case services are purchased from the Financial Intermediary. Conflicts of interest are to be regularly addressed through the fund’s Advisory Committee.

Question 19

How will the management fees be paid out to the Fund Manager during the investment period? How will the management fees be paid out after the investment period? Will they be paid separately on a yearly basis or they will be deducted as needed from the investment funds provided?

EIF Answer

The contractual details shall be negotiated at a later stage, but it is expected that normal market practice shall be followed.

Question 20

How will JEREMIE funds related to JER-009/5 be provided to the Fund Manager to execute the investments approved?

EIF Answer

In accordance with market practice, the capital is committed by the investor(s) to the Fund Manager upon closing(s), whereas disbursements are based on calls for capital draw downs.

Question 21

Is it considered a conflict of interest if the pool of experts and mentors also includes people in Fund Manager-related companies? Besides the overall investment strategy and good record, one of the biggest advantages of a Fund Manager might be the wide industry-related expertise.

EIF Answer

Please refer to Q 18.

Question 22

What would happen with investee companies, which are not exited or written off by the end of the period (end of 2021)? Will there be any kind of involvement or commitment expected from the Fund Manager after end of 2021? Where will shares into investee companies be transferred?

EIF Answer

As it is normal market practice, the fund(s) are set up for a limited duration. Should there be any assets left in the portfolio upon the ending of the lifetime of the fund(s), the Investors shall be required to decide on the best method to deal with the remaining portfolio. It is expected, though, that the close monitoring of the Investors will prevent in a timely manner such a situation through measures which may include, if necessary, the removal of the Fund Manager.

Question 23

Are there any limitations and what would they be if Fund Manager-related companies would like to further invest into investee’s companies who already received maximum investment by JER-009/5 funding?

EIF Answer

Follow-on financing from other investors is not restricted. A clear mechanism on dealing with potential conflicts of interest has to be set by the Applicant in case follow-on financing is provided by Fund Manager-related companies. Such cases are to be addressed by the fund’s Advisory Committee to be put in place.

Question 24

Would it be considered a conflict of interest if Fund Manager-related company would provide an exit to an investee which received funding related to JER-009/5?

EIF Answer

Exits through a Fund Manager-related company are not restricted. However such cases should equally follow the arm’s length principle (the same terms are applied to all parties involved) and have to be consulted with the fund’s Advisory Committee to be put in place.

Question 25

When Fund Managers applications are being approved, will they only be approved to the full committed fund size according to their application and strategy, or EIF might provide a conditional approval to an application for a smaller fund size according to their consideration (for example in order to approve also another Fund Manager focused on another industry sector and get both within the limitation of E20M of the financial instrument)?

EIF Answer

According to the Call for expression of interest by EIF’s discretion one or more Fund Managers (Financial Intermediaries) could be selected as a result of the Call and subsequent selection process.

Question 25

Is it possible to include in the Fund Management Board a JEREMIE representative, and respectively is it a conflict of interest to pay remuneration to such person?

EIF Answer

EIF will not require a seat in the Fund Management Board nor in any Investment Committee to be formed, nor will it assume any executive duty in relation to the management of the fund(s); however, EIF will be represented in the Advisory Board.

Question 26

What are the limitations to investing into Eligible SMEs related to the Fund Manager company (considered that such company would fulfill all requirements and apply for funding like all of the rest fund-raising applicants)?

EIF Answer

Investments in Fund Manager-related companies are not restricted. A clear mechanism on dealing with potential conflicts of interest has to be set by the Applicant in case investing in Fund Manager-related companies. Such cases are to be addressed by the fund’s Advisory Committee to be put in place.

Question 27

Following the EIF call for expression of interest, we have been in contact with a Financial Intermediary which has applied as a Fund Manager under one of the other calls for expression of interest launched in Bulgaria. In that matter I would like to ask whether EIF sees any problem in applying jointly with the mentioned Financial Intermediary.

EIF Answer

There are not set restrictions limiting Financial Intermediaries which have already applied as Fund Managers for other JEREMIE instruments from applying solely or in a consortium. The eligibility and the respective time commitment dedicated to the implementation of the Financial Instrument of each consortium member submitting such an application will be thoroughly analyzed during the selection process along with all other qualitative assessment criteria.  

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