New rules make it easier for governments to make equity investments in SMEs

01 Aug 2006 | News | Update from University of Warwick
These updates are republished press releases and communications from members of the Science|Business Network
Technology transfer
The European Commission adopted new rules for investing public money in small private companies that it says will make it easier for start-ups to raise risk capital.
By Nuala Moran


The European Commission adopted new rules for investing public money in small private companies that it says will make it easier for start-ups to raise risk capital.

The changes are part of the Commission’s push to encourage EU members to focus state aid on improving competitiveness and innovation. The most significant changes over existing rules that date from 2001, is a doubling in the amount of public money that can be invested in an individual SME. This goes up by 50 percent to Euros 1.5 million over 12 months. In special cases investments over Euros 1.5 million will be allowed, but member states will have to show that alternative private funding would not be forthcoming.

In any case, all public investments must be matched by the private sector, which must put in 50 percent in non-assisted areas and 30 percent in assisted areas.

Competition commissioner Neelie Kroes said the guidelines would enable member states to boost  SME’s access to risk capital. “This is turn will pave the way towards improved competitiveness and job creation.”

The main aim of the new guidelines is to bridge the equity gap that exists between seed funding and first round investments by venture capitalists. In general VCs are not interested in making investments below Euros 2 million because the administrative costs of doing so are the same as for larger investments.

The European SME employer’s organisation UEAPME, welcomed the new guidelines on state aid, saying they mark a significant improvement over the 2001 rules.

“The Commission’s approach, requesting that at least 50 percent of capital comes from private sources will make sure that investment decisions are profit driven and that risk capital funds will be managed on a commercial basis,” said Gerhard Huemer, UEAPME’s Director for Economic and Fiscal Policy.

He added, “We hope that member states will now make full use of the new guidelines to encourage risk capital investments and close the equity gap currently affecting Europe’s most innovative SMEs.”

UEAPME called also for parallel rules covering state aid for debt finance to complement the new rules on risk capital.

Never miss an update from Science|Business:   Newsletter sign-up