Brussels, 6 December 2021
The European Commission has adopted revised Guidelines on State aid to promote risk finance investments (the ‘Risk Finance Guidelines’). The revised Guidelines will apply from 1 January 2022. They clarify and simplify the rules under which Member States can support and facilitate access to finance by European start-ups, small and medium-sized enterprises (‘SMEs’) and companies with a medium capitalization (‘mid-caps’), while ensuring a level playing field in the Single Market.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said:
“Start-ups and small and medium-sized enterprises are at the heart of Europe’s economic recovery. Ensuring that these companies have access to finance is essential to make the most of their growth potential and the green and digital transitions. That is why, following an extensive consultation process, we have made targeted changes and further simplified our existing State aid rules. This will enable Member States to give financial incentives for European start-ups and small and medium-sized enterprises to attract investments when the market does not deliver on its own.”
Risk finance aid is an important instrument that Member States can use to support, in particular, innovative and growth-oriented start-ups, SMEs and certain types of mid-caps in the early stages of their development. These companies may face difficulties in gaining access to finance, despite their business potential. To tackle such market failures, the Risk Finance Guidelines enable Member States, subject to certain conditions, to address this funding gap by attracting, through the provision of State aid, additional private investments into the eligible start-ups, SMEs and mid-caps, through well-designed financial instruments and fiscal measures.
The Commission adopted the revised Risk Finance Guidelines following an evaluation of the current rules conducted in 2019 as part of the State aid Fitness Check and after an extensive consultation of all interested parties on the proposed revised text of the Guidelines. This included Member States, regional and local authorities, business associations and interest groups.
The evaluation and the consultation confirmed that the Risk Finance Guidelines are fit for purpose, but they also revealed that some targeted adjustments, including clarifications of some concepts and further streamlining, were needed to further simplify the existing rules and clarify their application.
Therefore, the revised Risk Finance Guidelines, in particular:
- Limit the requirement to provide a funding gap analysis to the largest risk finance schemes and further clarify the evidence needed to justify the aid. In this respect, the evaluation showed and the consultation confirmed that Member States experience difficulties in quantifying the funding gap. To address this point, the revised Guidelines only require a funding gap analysis for the largest risk finance aid measures, namely those that allow for investment amounts above €15 million per individual beneficiary. Prior experience suggests that this simplification will apply to the large majority of new measures. Furthermore, the revised Guidelines clarify what evidence is needed to demonstrate the existence of a specific market failure or other relevant obstacles in accessing finance, in line with the existing case practice.
- Introduce simplified requirements for the assessment of schemes targeting exclusively start-ups and SMEs that have not yet made their first commercial sale. This will concern in particular the amount of evidence that Member States have to provide, as part of the ex ante assessment that they have to submit to demonstrate why the aid is necessary, appropriate and proportionate. Given the more severe market failures that such companies are usually facing, the Commission may consider a more limited amount of evidence as sufficient to demonstrate the existence of market failures that justify the granting of aid to these companies.
- Align certain definitions included in the Guidelines with those included in the General Block Exemption Regulation (‘GBER’) to ensure consistency. Notably, the definition of ‘innovative mid-caps’ under the Guidelines is aligned with the definition of ‘innovative enterprises’ under the GBER to remove the current inconsistencies on what companies are considered ‘innovative’ under the two sets of rules. In addition, the definition was expanded to also include mid-caps that have participated in or received an investment from selected EU initiatives, namely the CASSINI Space Entrepreneurship Initiative and the European Innovation Council and its Fund.
Background
The Risk Finance Guidelines set out the conditions under which State aid granted by Member States to promote risk finance investments may be considered compatible with the Single Market.
The Guidelines apply to all risk finance aid measures that do not fall within the scope of the GBER, which in turn, enable Member States to directly implement risk finance State aid measures directly without prior notification to the Commission, subject to certain conditions (e.g. only for start-ups and SMEs and for amounts up to €15 million per beneficiary).
The GBER provisions on risk finance aid are also being revised to achieve further simplification also for block-exempted schemes and to ensure the provisions remain consistent with the revised Risk Finance Guidelines. The Commission has launched a public consultation on the proposed changes to these GBER provisions.