Opinion on the Ratio of Grant Funding to Financial Instruments

TO

MR. KIRIL PETKOV
PRIME MINISTER
OF THE REPUBLIC OF BULGARIA

MR. ASEN VASILEV
DEPUTY PRIME MINISTER
AND MINISTER OF FINANCE
OF THE REPUBLIC OF BULGARIA

MS. KORNELIYA NINOVA
DEPUTY PRIME MINISTER
AND MINISTER OF ECONOMY AND INDUSTRY
OF THE REPUBLIC OF BULGARIA

MR. DANIEL LORER
MINISTER OF INNOVATION AND GROWTH
OF THE REPUBLIC OF BULGARIA

SUBJECT: Ratio of grant funding to financial instruments in the National Recovery and Resilience Plan of the Republic of Bulgaria (NRRP) and the Programme “Competitiveness and Innovation in Enterprises 2021–2027” (PCIE)

DEAR MR. PRIME MINISTER,
DEAR MADAMS AND SIRS MINISTERS,

Our organizations and the members we represent—leading small and medium-sized enterprises with significant local and international presence, entrepreneurs, investors, and representatives of the banking sector—highly appreciate the efforts made by both the caretaker and the regular government in drafting the National Recovery and Resilience Plan of the Republic of Bulgaria. We thank you for the opportunity to express our position, alongside other organizations, in a discussion organized by the Ministry of Economy during the caretaker government.

We all stand firmly behind financial instruments as a key resource for supporting and developing small and medium-sized enterprises (SMEs) in Bulgaria, as a proven successful model, and we support a 50/50 ratio between grants and financial instruments within the National Recovery and Resilience Plan.

Furthermore, we insist on being involved in all discussions concerning financial instruments, SME guarantees, equity and venture capital funds, technology transfer, innovative companies with high added value, and fast-growing enterprises. We are concerned that incorrect information regarding the sectors we represent is being publicly disseminated, and we strongly believe that we should have the opportunity to respond and present our views in meetings and working groups alongside other industry organizations.

Based on our extensive experience in financing, the banking sector, and the development of globally successful companies, we express our strong conviction that:

• Support through financial instruments reaches a significantly larger number of small businesses;
• SMEs generally prefer financial instruments over grants due to greater flexibility, transparency, less bureaucracy, and improved competitiveness. Grants often involve additional costs for consultancy, application processes, and administrative burden;
• Unlike grants, financial instruments support companies’ liquidity, as they provide funding for current and future activities and growth, rather than only after obligations have been fulfilled;
• Financial instruments can cover almost all financial needs of SMEs, including those currently relying on grant funding. The key to better coverage lies in the proper use of professional financial intermediaries, whose critical mass is growing and should continue to grow;
• Support through instruments is also linked to effective technical assistance and mentorship from leading private-sector specialists, which is often even more valuable than the funding itself and cannot be provided through grants;
• Financial instruments add value by strengthening ecosystems, creating jobs, and enabling the attraction of additional external capital in the form of investments;
• The financial resources provided through these instruments are offered under better-than-market conditions, which is their main purpose. Numerous examples can be cited: the “Recovery” Programme, without which companies would not have access to unsecured loans at such scale; and the Fund of Funds’ programme for small enterprises with limited history, which significantly reduces interest rates;
• The high liquidity of the banking sector suggests the use of financial instruments in the form of credit enhancements (guarantees, risk-sharing financing, etc.), which is the only way for this liquidity to reach Bulgarian businesses under acceptable conditions;
• The multiplier effect of financial instruments, including the additional private capital mobilized alongside them, is often more significant than the instruments themselves.

These instruments have proven to be effective and vital for the ecosystem, and it is important that they continue as part of a long-term strategy. Examples of success include:

• Within just 3 years of its launch, JEREMIE supported 7,650 companies and 157,941 jobs, including 200 highly innovative startups that created over 3,000 high-paying jobs;
• Overall results for EIF instruments in Bulgaria:
  ○ €451 million in public resources attracted €1.473 billion in additional private capital;
  ○ Recycled resources (>70% from the previous JEREMIE programme) generated over €400 million in new financing for more than 2,000 SMEs;
  ○ Total financing is expected to reach nearly €2.3 billion after recycling, representing over fivefold growth;
• Investors in Bulgaria have successfully attracted significant additional capital from international investors—for example, investments in GTMhub and Payhawk in 2021 alone equal nearly three times the total public capital invested to date;
• Over 11,500 SMEs have been supported through the multiplication and recycling of public resources;
• Financial instruments reach far more companies compared to grants, despite using less public funding;
• A significant portion of beneficiaries are micro-enterprises, demonstrating broad accessibility;
• Financial instruments unlock additional private capital, effectively doubling available resources;
• The ecosystem is now more mature, with expectations that public funding will account for less than 50% in future funds, which are also significantly larger.

Without diminishing the role of grants, we firmly believe that financial instruments must play a central role in the National Recovery and Resilience Plan, as they are an extremely effective mechanism for supporting SMEs in innovation, digitalization, and green transformation—ensuring global competitiveness and contributing to Bulgaria’s development as an innovative economy.

According to the European Investment Fund, €50 million in recycled resources under JEREMIE led to the creation of four new venture and private equity funds in Sofia, which successfully raised an additional €190 million. This strengthens Sofia’s position as a regional hub for venture capital in Southeast Europe and demonstrates strong international investor interest.

Despite progress, Bulgaria remains a modest innovator (European Innovation Scoreboard 2020), last in the EU in digitalization (DESI Index), and near the bottom in venture capital investment relative to GDP. This highlights the need for continued state support and a long-term vision.

In conclusion, as the investment period for current financial instruments ends in 2023, it is essential to build upon achieved results, otherwise Bulgaria risks losing momentum at a critical time when it has the opportunity to become a regional leader.

The Bulgarian entrepreneurial ecosystem has made significant progress. A long-term strategy incorporating successful models is crucial. Successful businesses create jobs, increase competitiveness, and enhance Bulgaria’s global image.

We express our readiness for a meeting to discuss the importance of financial instruments within the National Recovery and Resilience Plan.

Sincerely,

Evgeni Angelov, Chairman of the Bulgarian Private Equity and Venture Capital Association (BVCA)

Dobromir Ivanov, Chairman of the Bulgarian Startup Association (BESCO)

Momchil Vasilev, Executive Director of Endeavor Bulgaria

Iliya Krastev, Chairman of AIBEST

Sasha Bezuhanova, Chair of the Board of MOVE.BG

Kremena Dervenkova, Director of ABLE

Valeri Valchev, Chairman of the Bulgarian Fintech Association