Enterprise Finance Index

The EFI website provides information and data on: the SME Access to Finance Index (SMAF Index); financial trends in EU member states; access to finance indicators (loans, guarantees, venture capital and business angels investments); access to finance surveys; and implementation of the financial instruments of the Competitiveness and Innovation Framework Programme (CIP).

The EFI cannot give clear-cut answers on the quality of access to finance in EU Member States because of the lack of internationally agreed indicators and the scarcity of comparable data; however, it does provide the reader with a central collection of relevant facts and figures.²⁾

The EFI and its further developments will augment transparency and reduce the need for new reporting obligations and surveys that both add to bureaucratic burdens on SMEs.

HIGHLIGHTS

The following section presents some of the most relevant highlights in the field of access to finance for SMEs.

European Investment Fund Launches the European Angels Fund

March 2012: The European Investment Fund (EIF) launched the European Angels Fund (EAF). This is a co-investment fund which provides finance to business angels and other ‘non-institutional’ investors for investing in innovative SMEs. Investment is across sectors and development phases of an SME (seed, early or expansion stage). Follow-on investments in existing portfolio companies of the business angels might be possible but only in exceptional cases. Co-investment with business angels is not on a deal-by-deal basis. The EAF enters into a long term contractual agreement with angels by setting up co-investment framework agreements (CFAs). Through these the EAF grants a predefined amount of equity for business angels for future investments. The total investment available under an individual CFA ranges between €250,000 and €5 million. The EAF does not pay a management fee to business angels but shares investment-related costs on a pro-rata basis.

The EAF was initially set-up in Germany in cooperation with Business Angel Netzwerk Deutschland (BAND) and the European Recovery Programme (ERP)-EIFDachfonds. The EAF will be rolled out to other European countries and/or regions to give pan-European coverage.

 

European Parliament Publishes Study on ‘Potential of Venture Capital in the European Union’

February 2012: A Report published by the European Parliament’s Committee on Industry, Research and Energy (ITRE) highlights the potential of VC in the EU. It notes a number of problems faced by Europe including: shortage of both supply and demand for VC; low fundraising from private institutional investors (‘low supply quantity’);’low number of qualified, experienced, and sufficiently large VC funds’ (‘low supply quality’); and ’thin markets’ i.e. difficulty of matching the demand and supply side. It is pointed out that European VC is not attractive to investors due to low returns (as result of both supply and demand issues) and legal, ‘double tax’, administrative issues. Added to this is the fact that the EU VC industry is highly fragmented which results in higher costs, in turn diluting funds’ returns.

The report recognises the existence of ‘heterogeneity’ in the types of investors operating in the European VC industry (e.g. independent, bank-controlled, corporate and public-sector related). It also points to the fact that VC investment in the EU is associated with positive impact on firm’s growth, productivity and innovation performance. However, European VC investment is noted as being particularly limited in the seed phase. The study puts forward a number of suggestions for the development of a European VC ‘ecosystem’ which address the current problems and barriers.

 

OECD Publishes Study on ‘Financing High-Growth Firms, The Role of Angel Investors’

January 2012: A comprehensive Report on seed and early-stage business angel financing for high-growth companies has been published by the OECD. The report reviews angel investment in OECD and non-OECD countries, including definitions, data and processes. It covers developments in these countries and identifies some of the key success factors, challenges, recent trends and policy measures for the promotion of business angel investment. Over 100 people from 32 countries were interviewed as part of the study. The following is of relevance to Europe:

• The angel investment sector is growing and becoming more formalised through the creation of angel groups and networks. However, angel investing tends to be local and no ‘homogenous’ national angel market exists.
• Angel investment is consistently larger than seed and early-stage venture capital.
• Although angel investment is higher than VC, high-technology based firms receive less angel investment compared to VC.
• Accurate data collection on angel investment continues to be a ‘major’ challenge. To address this, EBAN has recently announced a partnership with Bureau van Dijk to enable both organisations to match and supplement each other’s (private and public) data.
• The number of European deals and amount invested by known angel groups/ networks generally increased during the period 2006-2009.
• The most active angel markets in Europe are in the UK and France, followed by other Western European countries. Angel investing is relatively new in Central and Eastern European countries.

 

ECB Provides Low-Interest Loans for Banks

December 2011: The Governing Council of the ECB announced additional enhanced credit support measures to support bank lending and liquidity in the euro area money market. This included conducting two longer-term refinancing operations (LTROs), reducing the reserve ratio from 2% to 1% and increasing collateral availability (ECB news release). The aim of the ECB in introducing these measures is to help address the continuing eurozone debt crisis and improve the liquidity of banks.