Funding Opportunities

The Bulgarian Mezzanine Fund Dispute Is Finally Resolved, But What Is Next?


The first capital for growth fund in Bulgaria aimed at mature companies is launching with an officially recognized management team. The news comes after Bulgaria’s Supreme Court of Cassation decided to rule in favor of the Bulgarian Mezzanine Partners fund in a lawsuit that had to determine who is going to manage the €38.5M from the Operational Program Innovation and Competitiveness 2014-2020 and the European Regional Development Fund. “Mezzanine funding has proven to be a valuable financing tool all over the world and we believe that many Bulgarian companies will recognize it as beneficial for their development,” shares Evgeny Angelov, partner at PostScriptum Ventures, chairman at BVCA, and one of the representatives of the Bulgarian Mezzanine Partner fund.

Back in June, it was announced that the capital for growth fund (often called Mezzanine fund) is expected to raise additional €14.5M private capital. This means that there will be over €50M for companies, which makes Bulgarian Mezzanine Partners the largest investment fund structured in Bulgaria so far.

What is mezzanine funding?

The new fund is going to provide companies with quasi-equity investments between €2M and €7M. Quasi-equity investments are an alternative to bank loans, a mix of equity and debts based on a company’s future cash flow projections. In a nutshell, an equity risk capital is paid back based on the performance of the company. This type of investment is riskier than an equity investment, which means that it comes with a higher interest rate on the investment made. A big benefit, however, is that current stakeholders do not lose any part of their ownership in the company.

While the majority of financial instruments in the country are aimed at startups, the Mezzanine Fund will provide its financing to more mature companies.

The lengthy story

The disputes over the Mezzanine Fund have been going on ever since the establishment procedure started. The contest for the management position of the fund was disrupted several times due to the bureaucratic nature of the process, as well as the changes in the governing structure of the FMFIB, the COVID-19 crisis, as well as the complaints on behalf of some of the competitors. The Supreme Court of Cassation had to interfere in the case after in March the FMFIB disqualified the winner – the Bulgarian Mezzanine Partners fund – and backed the runner-up in the competition  – Mayfair Partners. 

The management team 

The Bulgarian Mezzanine Partner fund, which will be responsible for choosing the prospective companies and attracting private investors, is a collaboration between several venture capital firms. The team consists of Evgeny Angelov from PostScriptum Ventures, Ivan Hristanov and Diana Aladzhova from Empower Capital, and Lloyd Schultz, who is a board member of Syntaxis Capital, a British private equity fund, which provides growth capital to lower mid-market companies in CEE and Sub Saharan Africa. Angelov and Aladzhova will be responsible for executing the operational activities of the fund. Hristanov and Schultz will provide their expertise as part of the investment committee.

The Funding Strategy

The fund aims to support mature companies with established product lines and strong management teams. As noted by Angelov, the perspective of the company industry and its placing among competitors are going to play a key role in the selection process. Having in mind the investment range, the ideal candidate is a company that already has its own place in the ecosystem and a potential to further expand at a national and international level. “We are planning to create a financial model of the companies and set KPIs that we are going to achieve together,” the partner says.

Apart from financial help, the Bulgarian Mezzanine Partner fund is going to provide companies with networking and expert assistance.

Challenges and opportunities

Angelov outlined several possible challenges that could complicate the funding process. For one, the bureaucracy, when approving the eligible companies, can slow down the process, he warned. The economic crisis caused by the pandemic can also make it difficult to judge whether a company is not performing that well because of the financial crisis or due to poor management strategies. The fact that the fund is first-of-its-kind may also be a challenge as the application procedure requires communication with many institutions whose cadres do not have administrative expertise in the field. “Flexibility and understanding on behalf of the institutions are necessary in order for us to make our way through this new initiative,” Angelov comments. Time does not seem to be in favor of the fund as well – the disputes throughout the last months significantly cut the length of the program, and the management team now only has two years and a half to sort out the best ten candidates and help them scale their businesses. 

What is next?

An investment usually takes between two and six months, depending on the legal due diligence of the company and on what portion of the data required for the application process the company has in the first place. Nevertheless, Angelov is optimistic about the future development of the fund. “Our team is enthusiastic and ready for a new beginning,” he shares. The contract with the FMFIB that is in charge of the EU operational program funding is expected to be finalized in January next year. After that, the Bulgarian Mezzanine Partners fund has six months to start the funding campaign, yet Angelov’s prognosis is that the fund will start accepting applications in the spring.

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