Technology start-ups should find it easier to gain access to risk finance from January 2014, as the Commission opens up €2.7 billion in new loan and venture capital instruments. Science|Business looks at what’s on offer in the “Access to Risk Finance” work programme, which intends to leverage further private investment to bridge between research and commercialisation.
This programme will operate through two main financial instruments - loan services and equity facilities - which will see the European Investment Bank (EIB) and European Investment Fund (EIF) linking up with banks across Europe to ease access to credit. There will be €300 million available for this programme in 2014.
“These instruments will leverage more investment from private funds”, said Marie-Cécile Rouillon, Policy Officer, Financial Engineering, DG Research and Innovation. She said this represents, “an important element missing in the plan to spend three per cent of Europe’s GDP on research and innovation by 2020.”
While firms of all size will be able to get advice on how to make themselves more attractive to banks and investors, one third of the budget has been earmarked for research-driven SMEs and companies with 250 - 499 employees. “That’s a big effort along with all that is already done in Horizon 2020 to support SMEs,” Rouillon said.
Innovative companies with more than 500 employees will also receive more attention, said Nick Jennett, Director, New Products and Special Transactions Department, EIB. This follows a market research survey which found that the most pressing need for company financing lay in this sector. “We are piloting a new risk-sharing initiative with partner banks, and a direct growth financing programme designed for these companies, which is already showing some very exciting results,” Jennett said.
These investments are likely to be warmly received by industry groups, but Patrick de Boer, partner at ttopstart, a consultancy representing clients in the life sciences and medical technology sectors, would like to see the money, “Become available to venture capital funds and to dedicated government loan facilities. We do not see a key role for banks in this process,” he said.
Sharing the risk
In a continuation of the successful Risk-Sharing Finance Facility (RSFF) and Risk-Sharing Instrument (RSI) for SMEs from Framework Programme 7, the Horizon 2020 loan facility will see the EIB and EIF providing banks across Europe with a guarantee against a proportion of their potential losses when they provide loans. This should allow projects to get financing that would otherwise be too high-risk for individual banks.
Loans of between €7.5 million and €25 million will be available for companies with 500-3,000 employees, while larger firms will be eligible for loans of up to €300 million.
This facility will have a budget of up to €200.2 million in 2014 and 2015, but “the EU contribution is not lent to the company,” said Rouillon. “It serves as a guarantee in case of default by the company.”
“If the company is successful, the money will be repaid and used for supporting other companies,” she said.
A separate instrument, implemented by the EIF, will cover loans of between €25,000 and €7.5 million for small firms, with a budget of €160.45 million in the first two years.
While the loan facility is a demand-driven instrument, with no prior allocations between sectors or countries, the Commission will incentivise the EIF to make a particular effort to ensure that a significant proportion of loans go to SMEs and small-midcaps developing eco-friendly products.
Investing in risk capital
Horizon 2020 and COSME, the Programme for the Competitiveness of Enterprises and SMEs, will together run an equity facility to provide risk capital through financial intermediaries to innovative enterprises, primarily in the form of venture capital. “Horizon 2020 will support the very early stage of companies,” said Rouillon, “because that is where the technology transfer really happens,” whereas COSME funds will be directed at businesses in their growth and expansion phase.
Individual measures
The Commission has also proposed a €30 million investment in 2015 in a new pilot for co-investments by business angels in innovative ICT firms. Photonics, microelectronics, microsystems and robotics and the ICT-related creative industries are eligible.
There are also two new calls related to technology transfer, with a 2.5 million call in 2014 to encourage and incentivise the more experienced players to share their expertise and best practices in order to boost Europe’s ability to turn research into new products and services.
A €60 million technology transfer financing facility pilot in 2015 call will co-finance investments made by existing tech transfer funds and vehicles and will focus on the creation of new companies and the licensing of IP.
In addition to putting a special emphasis on providing access to finance for SMEs developing green technologies, the Commission has also proposed a 2015 call for demonstration projects to show the technical and commercial viability of new generations of low carbon technologies.
€2.5 million in funding will also be available for a study and analysis of the major investment-readiness schemes in Europe, including training and pitching events, and the development of strategies involving a wide range of early stage investors.
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