Brussels, 20 October 2005
The European Commission has approved under EC Treaty state aid rules a €35.3 million risk capital fund that supports newly created innovative micro and small-sized enterprises in the UK. The adoption of this decision is in line with the Commission Communication on State Aid and Risk Capital and underscores the commitment of the Commission to facilitate innovation by easing access of these enterprises to seed and early stage capital.
Competition Commissioner Neelie Kroes said: “By approving this measure, we have shown that state aid control can play an active role in supporting innovation. A strong European economy needs a dynamic business environment where new and innovative firms can grow and prosper. Young companies have fresh ideas and create knowledge, growth and jobs.”
The UK NESTA (National Endowment for Science, Technology and the Arts) Invention and Innovation Programme sets up a risk capital fund that provides equity and quasi-equity capital to newly created innovative micro and small-sized enterprises (MSEs) to help them overcome a lack of funding opportunities. This equity gap arises because MSEs are often only at their proof of concept stage and private investors are reluctant to invest.
The fund follows a two-step approach when making investments. The scheme foresees the option to make first-stage initial investments of up to €217,000 without private involvement, but on a strictly profit driven basis. All second-stage follow-up investments will be made alongside private investors and subject to exactly the same conditions. This structure will make MSEs attractive to business angels and other early stage capital providers and increase their ability to obtain follow-on funding from private sources, thereby minimising public sector assistance.
In its assessment, the Commission concluded that the measure was compatible with EC Treaty state aid rules (Article 87(3)(c)) because it helps to overcome a specific equity gap for MSEs in their seed and other early stages. The potential adverse effects on trade and competition are very limited and are proportionate and necessary to achieve the objectives of the scheme.