The European Commission has unveiled a set of measures designed to spark growth in Europe's small-and medium-sized enterprises (SME) sector by easing access to early stage financing.
The Commission stated on Friday that its initiative includes measures to generate more risk capital investments, to develop bank finance for innovation and to make existing financing systems more SME friendly.
The Commission has set the objective to work towards tripling annual early-stage investment in the EU from EUR2 billion to EUR6 billion by 2013. The initiative foresees an increased EU financial contribution to early-stage investments in innovative firms, the promotion of an internal market for venture capital and the encouragement of traditional bank funding for innovation.
The lack of an equity investment culture, informational problems and market fragmentation are among the main reasons that the market is not satisfactorily playing its role in the EU.
Commission Vice-President Günter Verheugen noted that Europe's entrepreneurs experience "persistent difficulties" in accessing start-up capital from banks or equity financing.
“With today’s initiative we want to tackle a persistent problem which puts a brake on small enterprises to grow," he stated.
The proposals were also welcomed by Niklas Zennstrom, CEO of Skype, the internet communications company which has received EU support.
“One of the key challenges facing the European entrepreneur is how to stimulate and manage fast growth in a new company," he observed.
"I am encouraged by the Commission’s efforts to begin to address the dual problems of local access to capital and the regulatory rigidities present in many national markets in Europe. The reduction of regulatory red tape, in particular, will help stimulate innovation and success in Europe’s SME sector," Zennstrom added.
Under a new Competitiveness and Innovation Framework Programme (CIP), EUR1 billion will be provided through financial instruments from 2007 to 2013. These are expected to leverage EUR30 billion of finance for SMEs.
Managed by the European Investment Fund and other international financial institutions some 400,000 SMEs are expected to benefit from EU investment support.
The Commission said that it will actively work together with the member states towards removing obstacles for EU wide presence of venture capital funds, enhancing investors’ interest in seed investment. The Commission is also reviewing state aid rules for risk capital funds in particular in favour of young innovative companies.
However, the EC believes that it is mainly the responsibility of member states to ensure that the regulatory and fiscal environment encourages entrepreneurs to launch new companies, and it has urged them to consider more neutral taxation of the different forms of enterprise financing.
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