Project Finance (Angel Investment, Bank Finance & Competitive Funds)
Start-ups and Small- and Medium- Sized Enterprises (SMEs) make for the economic motor of the preponderance of the world and project finance makes for their fuel. SMEs make up a large part of Europe’s economy and industry. The EU’s 23 million SMEs, for instance, account for an overwhelming 99% of all businesses and contribute to up to 80% of employment in some industrial sectors.
The main factors determining whether a company is an SME are the number of employees and either the turnover or the balance sheet total. According to the European Commission classification, an SME can qualify as a micro-enterprise if it employs less than 10 people, and has a turnover or a balance sheet total that is EUR 2 million or lower. If the firm employs less than 50 people and has a turnover or a balance sheet total that is EUR 10 million or lower, and does not qualify for classification as a microenterprise, it would qualify as small. If the firm employs less than 250 people and has a turnover that is equal to or lower than EUR 50 million per annum or a balance sheet total that is less than or equal to EUR 43 million, and does not qualify for classification either as a microenterprise or a small firm, it would qualify as medium-sized. Anything above that qualifies for classification as large.
SMEs are a powerful source of growth, employment, entrepreneurial skills, ideas, innovation, economic firepower and social mobility. Nevertheless, SMEs, particularly those on the lower end of the size scale, are also the most vulnerable type of business as having great ideas without the capital to develop them and commercialise them does not abet their survival in the long-run.
Start-ups and growing SMEs usually share one common trait – they require equity investment together with, or in lieu of, bank finance that might be harder to access without the necessary seed capital or risky personal guarantees issued by the entrepreneurs. Moreover, when firms are in the process of commercialising new prototypes or services, and when they do not have a history of past successes to use as leverage, banks tend to be reluctant to provide access to finance that would translate into taking on the operational risks that such activities would entail for commercial banks’ balance sheets.
This is where Angel Investment Finance comes in. Given the difficulties for start-ups and SMEs to obtain financing through banking facilities, equity financing, together with publicly-available funds, angel investment becomes one of the few vehicles available for such firms and their projects to make it to the market.
Access to equity finance, especially in Europe, Latin America and Africa, remains a substantial challenge, as most business angels or investors have no structures through which to interact with holders of good ideas. This is where we can help. Equinox Advisory Ltd. can act as facilitators for your SME or your project if we believe that your project is outstanding and has the potential to generate good returns on investment in relation to the risk profile it entails. We are in touch with a number of private-sector investors and crowd-sourcing agents who might be interested in your project and with whom we can put you in touch if your project makes good business sense. We can also assist you to provide the financial statements, projections, business plans and applications for financing applications that you might require in order to be able to approach investors or to go for crowd-funding.
Bank finance is critical in putting together project finance and can generally take various forms, but usually requires some form of a collateral or guarantee. Bank finance is traditionally a commercial banking function where a commercial bank lends money directly to a legal or natural person in return for an interest payment. The loaned principal remains the bank’s and the bank may technically ask for that principal to be returned at any time, even though commercial banks do not usually practice this privilege. In order for banks to provide project or business finance, they would normally ask for a part of the expense (usually in the 20% range) to be forked out by the project promoter or the entrepreneur(s) and for a collateral that the bank can turn to in order to safeguard the value of the loaned amount. Bank finance can be in the form of loans or cashflow financing through instruments like overdraft facilities.
Publicly-Available Competitive Funds are funds that are made available to the public or specific sections of the public. Such funds usually specify a set of criteria that applicants need to meet in order to be eligible for partaking in such funds. Typically (but not invariably) such funds specify the application process and the evaluation criteria of the fund itself. Given that such funds are usually limited, the process for securing them is also competitive, meaning that only a specific percentage of the total applications made will be chosen. The allocation of the funds is either on the basis of the best submission(s) as adjudicated against a set of predefined criteria or on a first-come, first-served basis until the funds are exhausted. Such funds are usually notified to their addressable audience through calls, and both the calls and their conditions tend to change from time to time. For more details about our services in the area of publicly-available competitive EU funds, please visit our section on EU funding.
It is within the context of the difficulty of SMEs that Equinox Advisory Ltd. can bring the combined benefits of different forms of project financing to its clients, in addition to advising them on how to structure their tiers of finance all the way from equity, to bank finance, to available grants. Equinox Advisory has, in the past, sought to put together low-risk, high-return projects both for itself, and also for its clients. Our approach is bespoke, depends highly on the area of the project that needs to be realistically promising, and is usually very stringent in the criteria we use to gauge the viability of the project.
Clients are asked to understand that we get hundreds of requests for assistance on a yearly basis and that we are only able to entertain the most promising of these proposals. While rejection does not mean that your project(s) will not succeed, our model is one where we try to pick the potential winners and subsequently put all our resources behind it to try to ensure success. We are proud to be one of the very few companies that can advise in relation to project finance holistically, starting from the securing of the necessary seed capital, crowd funding and bank finance, all the way to national, international and EU funding. We have a preference for projects that are targeted towards the private sector, but will also consider projects targeted towards the public sector, although the latter usually involve a higher level of risk due to the national politics of the jurisdiction concerned.
In assisting our clients with project financing, we offer several options for getting paid for our services. Depending on the nature of the project, we can offer to use the hourly rate model, the fixed fee model, the profit-sharing model, the success fee model, the direct participation model where we are involved in the project itself as equity-holders, or some combination of the foregoing options.
Over the past 5 years, we have been commissioned to conduct feasibility studies for 8 domestic projects requiring a combination of angel finance for use as seed capital, bank finance as an additional tier of financing on top of that and EU and national funding. Some of the projects sought to use FP7, Eco-Innovation, Life+ and national Research and Innovation funding to develop the technology prior to commercialisation phase, and for others we have partnered with the project promoters or have identified the opportunity to begin with and required angel investors willing to take the risk of exploring the project ourselves.
Some projects we have worked on include:
- A EUR 2.2 million project for developing an innovative photocatalytic system for water decontamination that uses treated metal sheets rather than titanium-dioxide for the decontamination process. The project was developed in terms of technology development and commercialisation at the studies stage and was intended to obtain a patent following the development of technology subsequent to which it should have obtained angel financing;
- A EUR 4 million project to determine the financial feasibility of entering in a specific market in Malta and the proposal of a structure of partnerships to be able to finance the operation. Market opening was secured together with partners to finance and to participate in the operation, which should be kicking off in Q2 of 2016;
- A EUR 4 million project for a private-sector roof-top photovoltaic project to supply a meat-processing plant;
- A EUR 4 million photovoltaic roof-top photovoltaic investment project intended to sell electricity to the owner of the roof-top at a rate lower than the grid tariff;
- A EUR 22 million photovoltaic farm project to determine the financial feasibility of such an installation, which also had an innovative commercial aspect to recover all capital outlay within 3 years. The angel investment required for this project was quite low (to the tune of 10% of the total project seed capital) and there were no problems in securing it. However, the project has had to be put on hold due to permitting issues;
- A EUR 25 thousand project for the installation of photovoltaic cleaning equipment for which we secured angel financing, but on which business angels pulled the plug due to difficulties encountered in the pilot project arising from the supplier of the equipment;
- A EUR 2.3 million project to develop a concept to produce energy from roads. The project did not ultimately materialise as business angels were not interested in taking on the risk to develop and optimise the technology as it was deemed to be high risk;
- A project that has secured an agreement with Kinetik GMBH to sell, manage and install proprietary constant electricity-generating devices, for which we have completed all studies and which we are currently in the process of taking to the market. Each 5 MW module will cost EUR 12 million to install and EUR 200,000 per annum to maintain and we are installing these units for free in return for a 15-year guarantee that the Client will buy electricity at a price lower than that at which s/he would buy it from the national grid;
- A EUR 25 million project to replace street lights in Malta with LED luminaires;
- A EUR 3 million project to set up a wedding venue in Malta.
Equinox Advisory Ltd. strives to bridge the ever-growing gap between the need for start-ups and SMEs that are aiming to grow or take their new technology / service to market and the equity financing they require to reach their aim.
The Equinox Team is able to offer you a comprehensive service for your project or venture. We are in a position to be able to undertaken any necessary study that you will need to approach potential investors with and through our links with networks of local and foreign business angels who invest in new technologies or business ideas that have a high potential of flourishing and growing into viable business opportunities, we can also give you the right platform to pitch your project or your venture. From time to time, the Equinox team also organises pitching events for Start-ups and SMEs to pitch their business idea or prototype to such investors and business angels.