EBAN: response to European Commission’s 2020 strategy

EBAN has published a position paper presenting the perspective of early stage venture capital investors to the European Commission’s Europe 2020 strategy.

“EBAN welcomes the Commission’s Communication “Europe 2020: A strategy for smart, sustainable and inclusive growth” as a clear and concise European strategy to address the current economic, financial, societal and environmental challenges. In particular, it supports one of the flagship initiatives announced as the “Innovation Union” which will seek to improve framework conditions and access to finance for research and innovation.

In the last two years, business angels and early stage venture funds bringing both their financial support and experience/network of contacts to early stage SMEs have been the main source of finance for them, and it is important for European policy makers to support further their involvement in this market.

Nevertheless, EBAN wishes to underline the following caveats and suggest several policy recommendations which, from our early stage venture capital community’s perspective, are essential to deliver value to our high growth SMEs in the future and achieve Europe 2020´s objectives.

The Communication mentions several times the need to find a “global solution”. Whilst we accept that any solution must seek to respond to various objectives, global solutions can also mean adversely affecting parts of the market with measures destined to a specific target group. A case in point is the AIFM (Alternative Investment Fund Managers) proposed directive. While the directive seeks to control systemic risk in the financial markets and improve investor protection, it could also prove highly damageable to the European venture capital industry and therefore be an impediment to funding early stage high growth companies, including across borders. We therefore advocate that through stakeholder consultation, the European authorities should propose flexible solutions that are adaptable to different realities. We have seen in recent years after the financial and economic crisis that business angels are counter-cyclical investors, who have continued to invest during troubled times. It is therefore important for policy makers to propose mechanisms that can be reactive and adapt to fast changing market conditions.

The document mentions, albeit without naming it, the equity gap and issues related to access to finance. It is important to note that European SMEs do not only suffer from a lack of access to finance, but also from skills gap in sales and marketing which should be addressed through strong policies including at a very young age through targeted education programmes. EU research is often rated as world class however our researchers and entrepreneurs are poor at selling what they have to third parties, be it potential customers or financiers.

Moreover, the communication mentions the importance of intellectual protection while attention should be paid to IP commercialization. Related to this important issue, there needs to be a much closer link between the research and finance world. It is important for representatives from the investment community, who are ultimately potential buyers of the new research and innovation, to sit in technology transfer boards, to participate in the selection of projects which will receive Framework Programme funding, etc.

Attention needs to be given to policy focus and definitions. It is not sufficient to create policy for “SMEs” and the “early stage”. There are a number of sub-groups for each definition, which diverts the attention of financial instruments and intermediaries to other activities than those needed to support start-ups. If by early stage one wishes to support the seed/early stage start-up companies that are highly innovative, high risk – but future creators of employment, growth and social value - then there needs to be a clear policy guideline indicating so to the intermediaries. We know that if given the possibility to focus on larger deals with a higher carry and equal due diligence than for smaller projects, intermediaries will not be incentivized to look at the very early stage companies.

Therefore, policy makers should strive to create a better definition of Young Innovative Companies, i.e. small high growth start-ups in the very early stage that need more attention and support for cross border funding and cross border internationalization of their business.”

Read EBAN’s policy recommendations and the complete statement: http://www.eban.org/resource-center/news-archives/174-the-perspective-of-early-stage-investors-on-the-eu-2020-strategy