SME Innovation Financing Vehicle Crimson Development Foundation

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SME Innovation Financing Vehicle Crimson Development Foundation SME Innovation Financing Vehicle Crimson Development Foundation FINAL REPORT January 01, 2012 to December 31, 2015 March 10, 2016 This report was produced for review by the United Agency for International Development. It was prepared by Crimson Capital Corp. SME Innovation Financing Vehicle (IFV) Crimson Development Foundation FINAL REPORT January 01, 2012 to December 31, 2015 Prepared by: Megan Falvey, Crimson Capital Corp. Implemented by: Crimson Development Foundation Award No.: Cooperative Agreement # AID-165-A-11-00003 Agreement Officer’s Representative: Margareta Lipkovska Atanasov Managing Director / Chairman: Michael Gold The SME Innovation Financing Vehicle is supported by: DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. Table of Contents I. EXECUTIVE SUMMARY .............................................................................................................................. 1 II. ACTIVITIES AND RESULTS ...................................................................................................................... 3 A. CUMULATIVE ACTIVITES AND RESULTS ..................................................................................... 3 B. YEAR-BY-YEAR ACTIVITIES AND RESULTS .................................................................................. 4 C. CONCULSION .................................................................................................................................... 17 ANNEX 1: Additional Information on Crimson Development Foundation .................................... 18 ANNEX I1: Innovation Financing Vehicle Project Close-out Ceremony ......................................... 20 ANNEX III: Additional Information on IFV Loans .................................................................................. 22 ANNEX IV: Innovation Leads – Year by Year ........................................................................................ 24 ANNEX V: Meetings & Promotional Activities – Year by Year .......................................................... 36 ANNEX VI: Success Stories ........................................................................................................................ 46 I. EXECUTIVE SUMMARY Project Background Business innovation has the potential to help drive the Macedonian economy forward, yet it remains largely unfunded. In order to address this financial bottleneck, in the spring of 2011, the Crimson Development Foundation (CDF) submitted an unsolicited proposal to USAID Macedonia to establish a specialized financing vehicle to directly support business innovation. The Crimson Development Fund (CDF) was established in 2007, following the successful close out of the USAID funded Macedonia SME Commercial Finance Fund cooperative agreement. To date, CDF has made loans totaling $33.3 million to Macedonian SMEs, supporting over $232.7 million in new exports and more than 4,863 new, permanent jobs, including over 2,593 jobs for women and 393 for minorities. Additional background on CDF can be found in Annex I. In December 2011, USAID awarded CDF a $300,000 grant for the SME Innovation Financing Vehicle (Cooperative Agreement AID-165-A-11- 00003), to finance transactions that support ““I tried to find financing from commercial entrepreneurs and innovation. USAID funds were banks to make my idea a reality, but because my company is a start-up, earmarked and used only for loans to Macedonian banks would not lend to me. The IFV SME innovators, with all operating costs and expenses considered the potential value of my covered by CDF, Crimson Capital Corp. (Crimson), patent and my past experience as an and interest and fee income. The grant became inventor. They provided me with key effective January 1, 2012 and the Cooperative financing at the right moment, which will allow me to expand my business Agreement with USAID was successfully closed on exponentially and also to create new December 31, 2015. A close-out ceremony held on jobs.” February 10 2016 (see Annex II for more information on the close-out ceremony). During the four-year Mr. Vele Nelkovski, owner and manager of Vedralit lifetime of the USAID cooperative agreement project, CDF and Crimson Capital provided a cost share contribution in the amount of $133,815, exceeding the cost share requirement in the cooperative agreement by nearly $33,000 (the cost share requirement in the cooperative agreement was $100,899). The Innovation Financing Vehicle (IFV) is structured as a revolving fund and is part of and is managed by the Crimson Development Foundation. IFV funds are lent to eligible borrowers, returned and re-lent. The IFV is fully self-financing and sustainable through interest and fee income, thus providing an on-going legacy of small business growth and innovation, jobs and increased sales and exports. Following successful closeout of the USAID project, USAID permanently granted $300,000 in funding to CDF on November 25 2015, in order to continue program objectives of supporting innovation financing in Macedonia through debt finance and quasi equity. Lending to innovations and startups is by far the riskiest form of finance as these businesses have the highest failure rate. Furthermore, the IFV was launched during a time of economic 1 contraction in Macedonia. 1 Nevertheless, the IFV has been highly successful, approving and disbursing financing through 12 loans totaling $443,655 (thus, fully lending out all of the $300,000 from the original USAID cooperative agreement, and continuing to on-lend from loan repayments). During the life of the project, this financing has supported two start-up companies, one minority-owned business and two women-owned businesses. This support has also resulted in 50 new jobs, including 26 jobs for women and minorities, and facilitated over $2 million in new sales and exports. CDF-IFV exceeded its life of project “value of transactions” target by 118% and its “number of jobs” target by 167%. IFV Accomplishments and Results 1. CDF‐IFV disbursed $443,655 million in financing through 12 loans. Loans ranged in size from $6,800 ‐ $110,000. 2. Crimson Capital and CDF provided co‐financing of over $133,000. 3. Three of the 12 loans were to women‐owned or minority owned companies. 4. Two of the 12 transactions were to start‐ups. 5. CDF‐IFV loans stimulated the creation of 50 new jobs, of which 26 jobs were for women and minorities. 6. CDF‐IFV loans supported over $2 million in sales and exports. 7. CDF‐IFV leveraged USAID funding of $300,000 by over 4.8 times. 8. The IFV is now completely self‐financing from interest and fee income, creating an on‐going legacy of new sales, job creation and economic growth. More detailed information about IFV loans to date in provided in Annex III. 1 Macedonia had negative real GDP growth in 2012, at‐0.4% (IMF World Economic Outlook, November 2014). 2 II. ACTIVITIES AND RESULTS This report covers IFV’s establishment, growth and results for the period of the Cooperative Agreement with USAID: January 1 2012 – December 31 2015. IFV is now fully self-financing and sustainable through interest and fee income, and continues to lend to entrepreneurs and innovators following the successful closeout of the USAID project. As mentioned in the Executive Summary section above, IFV is part of and is managed by the Crimson Development Foundation (CDF). The report first briefly provides an overview of total cumulative program results in narrative and tabular form, and then provides more detailed information on year-by-year activities and results. Annex I provides background information on the Crimson Development Foundation, which operates the IFV. Annex II contains information about the CDF-IFV close-out ceremony. Annex III provides additional detail on financing issued through the IFV during the life of the USAID funded project. Annex IV summarizes innovation leads during the life of the USAID funded project, and Annex V, meetings and outreach activities. Success stories of IFV clients are provided in Annex VI. A. CUMULATIVE ACTIVITES AND RESULTS From January 2012 – December 2015, IFV disbursed $443,655 through 12 loans. Year No. of Loans Loan Volume New Jobs New Sales & Exports Year 1 4 $136,385 28 $936,123 Year 2 3 $106,871 8 $448,164 Year 3 2 $154,237 9 $462,803 Year 4 3 $46,160* 5 $241,254 Total 12 $443,655 50** $2,088,344 *CDF‐IFV achieved full utilization of the original $300,000 USAID‐funded lending pool in Year 3, but was able to keep lending based on repayments from the borrowers. ** Plus seven seasonal jobs. Lending to innovations and startups is by far the riskiest form of finance as these businesses have the highest failure rate. Furthermore, the IFV was launched during a time of economic contraction in Macedonia. Against this background, the IFV achieved outstanding results by selecting target borrowers carefully, ensuring that they have a high probability of financial and commercial viability and a predetermined market and liquidity event, such as a contract for investment, purchase of product or technology. During the four-year period of the USAID-funded Cooperative Agreement (2012-2015), IFV approved and disbursed financing through 12 loans totaling $443,655 (thus, fully lending out all of the $300,000 from the original USAID Cooperative Agreement, and continuing to on-lend from loan repayments). This financing has supported two start-up companies, one minority- owned
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