Episode 5: Equity financial instruments help technology-based SMEs grow and thrive

Welcome to the new episode of the fi-compass Jam Sessions podcast. I am Bruno Robino and I will be your host today.

Today I am joined by Yannis Tsakiris, Deputy Minister for Development and Investment in Greece and we are here today to discuss EquiFund, the ERDF fund of funds that is implementing equity financial instruments to provide access to finance for SMEs in Greece. Mister Tsakiris, welcome!

Thank you very much for the invitation!

EquiFund has been launched in 2018. What sort of impact has it had in Greece so far?

Indeed, the first investment by an EquiFund supported fund was recorded in March 2018. Now, after two years and some months, the investment activity continues, reaching EUR123 million, with a total portfolio of around 100 companies. We are expecting to see more investments in the next two years to come, when the investment periods of the funds are ending.

To this end, we have witnessed the effect of the initiative in reversing the problem of brain drain and this was very important for Greece due to the 10 years crisis that we had. So it was not only about employment opportunities that have been created, but there have been plenty of cases of Greek founders from abroad who, by using EquiFund resources, returned to Greece, built and grew their teams considerably.

Moreover, the EquiFund fund managers have achieved three major exits, only in 2020 in which three companies have been successfully sold to larger businesses on terms, which secure additional investments in the companies and retain the base of the business and associated jobs in Greece, something that is also very important. These exits have resulted in returns to the investors, including the Greek state.

It is very important to see globally this acquiring of Greek companies and the retaining of personnel in Greece. For example, in May 2020, there was the exit of Think Silicon, which in Greece was marked as the biggest deep tech start-up exit that ever happened. In August 2020, we had a USD360 million transaction of Instashop, a delivery company that was sold to an international player.

It is really interesting to hear about the success of the financial instruments so far. Getting into some details, I know you have structured the funds into three investment windows. 
What was the reason for this?

The initiative focuses on several aspects of entrepreneurship and we are proud of its unique breadth. It addresses financing needs of companies at all stages of their life cycle, starting from the innovation window - supporting companies at their birth with various stages of financing – then moving into the early stage window - for companies that have produced some results and are expected to grow significantly. And then it moves to the growth window – which is the third window EquiFund, for SMEs and larger companies, that have the potential to grow internationally, and from which we expect significant growth.

This way, the aspect of addressing market needs and achieving our policy objectives is met. Also, please note that there is the side of the fund managers and the investors on top of the Greek state and the European Investment Fund. Different fund managers with different expertise were selected for each window and different investors with different risk profiles were attracted for each window. I would say that it is a full puzzle that comes up as a complete picture of supporting equity investments in Greece.

For our listeners, more information about the design of EquiFund can be found in the fi-compass case study available on the fi-compass website.

And now for the next question: as well as successfully mobilising finance for SMEs, EquiFund has had a wider impact on the VC/PE (Venture Capital and Private Equity) sector in Greece.

How important is this to the long-term competitiveness of the country?

If you see Greece some years ago, it was not on the map of VC/PE. Now it is well established, and actually, based on the 2019 activity, we have moved forward towards the EU average but we still have a long way, and I believe it will be achieved soon as we are planning additional equity initiatives in Greece, which is definitely supporting the long term competitiveness of the country.

There are also other aspects to take into consideration, that for example, more than 150 private investors have been attracted to the EquiFund fund, committing approximately EUR 57 million; the majority of them are Greek investors, but there also and foreign ones, institutional and non-institutional investors. As soon as they are used to this ecosystem, they will continue to invest. 
The vote of confidence is also very important for additional investors to come. 

There have also been cases of supported companies that secured further financing rounds after the initial EquiFund support from very important, international VC funds.

Another benefit is that a lot of investors were stemming from academic or Research institutions, for example the Universities of Thessaloniki, Ioannina and Thessaly, FORTH Institute in Crete, Demokritos Institute in Athens, so on and so forth, where EquiFund really gave an exit to a lot of ideas, an exit from the universities and Research Institutions with the appropriate financing.

The initiative has also provided inspiration to the local market: we have already experienced the broadening and the strengthening of the pipeline. A few years ago, there was nothing in the pipelines of the fund. 

I would say, just to complete your question, that the legacy of EquiFund will be just successful companies, but the development of a new cohort of professional fund managers, that were inexistent in Greece before. In addition, the ecosystem - meaning consultants and legal advisers with the expertise in Venture Capital/Private Equity transactions - has become even more established. 

This being said, we can conclude that it is an overall and significant benefit.

This year has been dominated by the COVID-19 outbreak. This has had a large social and economic impact in the Member States.

How have portfolio-companies of EquiFund venture capital investments’ responded to the challenge?

2020 was indeed a year of great challenge, but as it happens for successful manager, for some of cases it was a year of opportunities. The impact of the crisis on the EquiFund portfolio was diverse: for some companies it happened that their business plans were derailed, while others have excelled and are thriving.

Several EquiFund companies have responded positively to meet needs with these new conditions, in the healthcare and related sectors or to give back to the community in different ways.

The fund managers were there to support the companies’ efforts to ensure financial viability and exit from the crisis as unscratched as possible.

Given the success of EquiFund, what would be your recommendations, your suggestions to other Member States / Managing Authorities?

My recommendation would be to first plan ahead, to engage relevant expertise and to design the instrument with the actual market in mind. Not in theory but in practice.

The equity instruments, by nature, take a lot of time to be implement and this has to be taken into account in the design. The relevant Call for Expression of Interest for the selection of the fund managers is also very important that has to be taken into account. In the case of EquiFund, we have achieved everything in record time; still, the time elapsed between the publication of the Call and the first investment by an EquiFund fund was almost two years. Therefore, time is of essence.

When it comes to the expertise, that I mentioned before, this was already existing in Greece from the previous programming period, as we have done financial instruments through JEREMIE and JESSICA, but this was not enough. To complement the experience we had here in the Ministry of Development, we have opted for the services of EIF (European Investment Fund), which acted as the manager of the EquiFund, that did the whole job of designing the Call for Expression of Interest, selecting the fund managers and is  currently monitoring their performance. All in all, the contribution of EIF was critical to the success of this initiative.

I would also like to add a final word about the link to the market: this is an initiative that addressed a clear and identifiable market gap in equity financing in Greece and it was designed to promote the Venture Capital/Private Equity ecosystem as a whole, regardless of stages, sectors and regions. Given the big market gap, we had a holistic approach to the problem.

When it comes to the Call for Expression of Interest, It was itself characterised by flexibility in providing options to the applicants always within the framework of the EU regulations. Also, there the help of the EIF was critical. The overall investment strategy of the initiative is fully in line with Greek policy objectives. This also applies for the projects financed, which are assessed and selected by the retained fund managers.

Thanks a lot for your time today. I am sure that this interview will be very useful for the managing authorities in all member states.

I also thank you very much for the invitation.

Stay tuned for the next episode of the fi-compass Jam Sessions.

If you have any questions or want to suggest a new podcast topic, send us an email at info@ficompass.eu