Commission gives green light to UK State aid measures supporting innovation
The European Commission has approved the UK's NESTA Invention and Innovation Programme, a 35.3 million euro risk capital fund that supports newly created innovative micro and small-sized enterprises in the UK. The decision is in line with the Commission communication on State aid and risk capital, which addresses measures designed to promote the growth of risk capital markets. This approval can be seen as evidence of the Commission's commitment to facilitating innovation by easing access by 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 compatibility of the measure with EC Treaty State aid rules is based on the fact that the measure helps to overcome a specific equity gap for small and medium sized enterprises (SMEs) in their seed and other early stages. Moreover, the potential adverse effects of this measure on trade and competition are very limited, and proportionate and necessary to achieve the objectives of the scheme, concluded the Commission in its assessment. The UK NESTA (National Endowment for Science, Technology and the Arts) Invention and Innovation Programme was set up by Act of Parliament in 1998 to help maximise the country's creative and innovative potential. NESTA 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 for investments, with an option to make first-stage initial investments of up to 217,000 euro without private involvement, but on a strictly profit driven basis. All second-stage follow-up investments will need counter partner private investors and are subject to exactly the same conditions. This structure aims at making SMEs attractive to business angels and other early stage capital providers, and increasing their ability to obtain follow-on funding from private sources, thereby minimising public sector assistance. In late September, the European Commission launched a consultation document on measures to boost innovation in SMEs. The communication sets out the Commission's concrete ideas on ways to reinforce innovation and research within SMEs through State aid rules - a key objective for meeting the targets of the re-launched Lisbon Strategy. The proposals are designed to encourage the creation and development of innovative start-ups and to increase the availability of risk capital in Europe through subsidies and fiscal exemptions.