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No 28 (November 2001/Novembre 2001/November 2001)
The European Commission has called for sustained effort to meet the 2003 deadline set by the European Council in Lisbon for completing the Risk Capital Action Plan (RCAP). In a mid-term review of the Action Plan recently adopted, the Commission notes that despite some progress in removing obstacles more needs to be done. In particular, the Commission calls for its proposals to be adopted and implemented rapidly concerning securities markets legislation (including implementation of the recommendations of the Lamfalussy group), removing tax obstacles, promoting innovative projects and agreeing on an affordable single Community Patent system. The report is issued at a difficult moment for the venture capitalist industry. After spectacular growth in the nineties, markets have become sluggish in 2000 setting the stage for a possibly lengthy period of uncertainty. Since the adoption of the Action Plan in 1998, overall venture capital investment in Europe has increased three times over and investment in "early stage" venture capital has increased four times over. In spite of this growth, European risk capital markets remain fragmented and the gap with the US is still widening. The US venture capital industry is not only much bigger but their larger investments have been growing at a faster rate.
The Communication adopted by the Commission, which completes a mid-term review of the RCAP, analyses the evolution of European risk capital markets from different angles. It starts with relevant market developments, continues with progress in the development of a regulatory framework and of entrepreneurship and concludes with a description of important steps taken in the area of risk capital public funding.
The year 2000 has been an uneven period which started with an overheated market and ended in a sluggish fashion. Overall venture capital investment in Europe has shown rapid growth, amounting to over €19.6 billion (0.23 % of GDP). Growth in seed and start-up investments was even more striking amounting to €6.4 billion. In relative terms, since the adoption of the Action Plan in 1998, overall venture capital investment in Europe has increased three times over and investment in "early stage" venture capital has increased four times over. Growth was shared by all Member States even though important differences persist, reflecting the presence of a still fragmented European market. On the funding side, capital raised nearly doubled in 2000 (€20 billion was raised in 2000 for future investments, compared with around €11.5 billion in 1999). On the sources of funds, there has been in 2000 a growing involvement of institutional investors. In particular pension funds more than doubled their contribution. Despite its growth, the European market is still small compared with that of the US and, moreover, the gap seems to be widening. In 1998 investment by the US venture capital industry was approximately twice that of Europe, in 1999 triple, and in 2000 four times bigger. The stock markets for high-growth companies suffered in 2000 a strong market correction which continued in 2001, opening a possibly lengthy period of uncertainty. Most initial public offers (IPOs) were completed in the first half of 2000 and since then exit possibilities for venture capitalist have become much more limited.
The setting-up of an appropriate regulatory framework which fully takes into account the needs of efficient risk capital markets should remain a top political priority. Adequate legal and administrative measures which cover financial, non-financial, as well as tax-related matters should be put in place without delay. The Stockholm European Council reconfirmed its commitment to meet the 2003 deadline for risk capital markets including an integrated securities market. To this end, implementation of the Financial Services
Action Plan is key (see SMN 24). Good progress has been made in 2000/1. The Commission has tabled most of its proposals for achieving the 2003 target. The aim is to facilitate cross-border activity, to make easier and cheaper to raise capital, to strengthen prudential regulation and standards, to improve transparency and provide for faster and more effective financial legislation. As regards the latter, on 6 June 2001 the Commission adopted two decisions to create the European Securities Committee and a Committee of European Securities Regulators in response to the Stockholm European Council Resolution and the Lamfalussy proposals (see SMN 25 & 27 and article page 7). Responsibility for implementation has already shifted from the Commission to the EU's Council of Ministers and the European Parliament. Slow progress in agreeing on a Community Patent and the stalemate on the Commission proposal on supplementary pension funds remain important concerns. In 2000/1 progress has been registered in the adoption of non-financial measures relevant for risk capital. The Commission has recently completed a comprehensive study on "Company Taxation in the Internal Market", on the basis of which a strategy for action has been developed (IP/01/1468). It will shortly launch a study to identify best practices in the use of fiscal incentives to promote investment in research and development and has launched a review of corporate governance practices in Europe in order to identify the best course of action. The Commission plans a more wide-ranging review next year of other aspects of progress at the level of the Member States in relation to the RCAP. The necessary data will be collected in the framework of the Broad Economic Policy Guidelines exercise. This will be particularly important as we approach next year the 2003 deadline for completion of the RCAP.
Venture Capital Investments as % of GDP 2000
The Risk Capital Action Plan is also about entrepreneurship. There are still too few innovative projects in Europe with a profile liable to attract risk capital providers (i.e. the demand side of risk capital is still weak). The Action Plan will not be a success unless Europe becomes much more entrepreneurial with many more innovative fast-growing firms finding their way to the market. The promotion and development of European entrepreneurship has been the object of conferences, workshops, training schemes and exchange of best practices in 2000/2001. In spite of some positive signs, programmes will need to be pursued longer to overcome the long lasting cultural barriers thwarting entrepreneurial drive in Europe. The R&D sector could prove the most cost effective for promoting entrepreneurship by helping and encouraging researchers to market their innovative ideas and applications. The adoption of the New (the 6th) Framework Programme for R&D, proposed by the Commission in February 2001, should be an immediate priority. Business Angels networks have increased to around 130 spread over almost all EU countries. The Commission has supported the setting up of such networks. 20 new networks received support from Community Budget since the Risk Capital Action Plan was launched. Corporate venturing is becoming an increasingly important source of financing for entrepreneurs. It is estimated that about € 1.2 billion is invested each year. However, the level of investment for both categories is still low compared to the US where investment is 4/5 times higher.
In the area of public funding important steps have been taken in the last 12 months to improve the overall efficiency of Community risk capital markets. The Commission has clarified its policy towards state aid through its Communication on "State Aid and Risk Capital", published on 23 May 2001. The EIF has strengthened and fully defined its role as the risk capital arm of the EIB Group. The Innovation 2000 Initiative launched in 2000 by the EIB is well underway. The EIB Group and the Commission have signed a joint memorandum to co-finance R&D activities. Risk capital is becoming more available at the regional level. Some Community instruments have been redirected toward early stage finance.
Conformément à la volonté exprimée par le Conseil européen de Lisbonne, il faut poursuivre les efforts pour appliquer intégralement le Plan d'action sur le capital-investissement (PACI) d'ici à 2003. Dans une évaluation à mi-parcours, la Commission note qu'en dépit des progrès réalisés dans la voie de la suppression des obstacles freinant le création d'un marché du capital-investisement, il reste encore du chemin à parcourir. En particulier, la Commission appelle à l'adoption et à la mise en oeuvre rapide de ses propositions concernant la législation applicable aux marchés des valeurs mobilières (y compris la mise en oeuvre des recommandations du groupe Lamfalussy), la levée des barrières fiscales, la promotion des projets innovants et la création d'un système communautaire de brevet unique financièrement abordable. Ce rapport d'évaluation est publié dans une conjoncture difficile, car après avoir connu une croissance spéctaculaire pendant les années 90, les marchés ont stagné en 2000, ouvrant une période d'incertitude qui pourrait bien durer.
Die Anstrengungen zur vollständigen Umsetzung des Risikokapital-Aktionsplans sind fortzusetzen, um das vom Europäischen Rat von Lissabon gesteckte Zieldatum 2003 zu erreichen. Die Kommission stellt in einem Zwischenbericht fest, dass trotz erzielter Fortschritte bei der Abschaffung von Hemmnissen, welche die Errichtung eines Marktes für Risikokapital behindern, weitere Schritte erforderlich sind. Die Kommission ruft insbesondere dazu auf, ihre Vorschläge betreffend Vorschriften auf dem Gebiet der Wertpapiermärkte (einschliesslich der Empfehlungen der Lamfalussy-Gruppe), den Abbau von Steuerhemmnissen, die Unterstützung innovativer Projekte sowie die Errichtung eines einheitlichen und finanziell tragbaren Gemeinschaftspatentsystems anzunehmen und rasch umzusetzen. Dieser Bericht wird in einer schwierigen Konjunkturlage veröffentlicht ; nach einer bemerkenswerten Wachtumsphase in den 90er Jahren stagnierten die Märkte im Jahr 2000, was zu einer unsicheren Lage geführt hat, die länger andauern könnte