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Nine venture capital fund managers have agreed to devote more than ECU 180 million in the next three years to investments in technologically innovative small and medium-sized enterprises. This was announced today by Mrs Edith Cresson, European Commissioner for research, innovation, education and youth. speaking at a conference in Paris on Innovation and the Creation of New Businesses and Jobs. In return, the European Commission will help the fund managers to develop expertise in this type of investment. At present, lack of expertise is holding back the investment of European venture capital in the technology sector, particularly when young companies are involved.
The Amsterdam European Council in June this year called for measures to encourage the financing of technologically innovative small and medium-sized enterprises (SMEs). Responding to this call, a pilot scheme, known as I-TEC (Innovation and Technology Equity Capital), was launched in July by the European Commission on the initiative of Mrs Edith Cresson, to be implemented by the Commission's Innovation Programme in collaboration with the European Investment Fund.
I-TEC will boost venture capital investment in the early stages of technologically innovative firms by helping to build, within venture capital fund managements, a lasting capability to appraise and manage this kind of investment. The Commission's support is conditional on each fund making an effort to bring in new capital, and to dedicate at least 25% of it to early stage investment in technologically innovative SMEs.
Altogether, the nine venture capital fund managers selected in this first stage of the I-TEC project have agreed to devote more than ECU 180 million to early stage investment in technologically innovative SMEs over the next three years. More venture capital operators are expected to join I-TEC in the next few months.
To qualify as technologically innovative, projects receiving investment have to comply with at least one of two criteria: they should have the potential to lead to a market application of R&D work undertaken through a European Union or national research programme, or they should show a high degree of innovative technology in a product, service or process.
Surveys show that SMEs which benefit from venture capital record a much larger annual growth rate in jobs than do Europe's big companies. Venture capital is one of the main factors that help a new company to grow rapidly. Although the amount of venture capital available for investment in the European Union is similar to that raised in the United States, venture capital in Europe is much less likely to be invested in the technology sector, or to support the early stages of the growth of new businesses. Some recent statistics show about 24% of European venture capital going to technology sectors, compared to 70% in the United States, and only 5.7% in Europe going to the early stages of new business start-ups, compared with 26% in the United States.
I-TEC: a pilot project in co-operation with the European Investment Fund
The detailed operation of the pilot project has been established in a co-operation agreement between the Commission and the European Investment Fund.
The EIF acts as an adviser to the Commission, identifying capable venture capital fund managers specialising in early stage and technology investment and assessing the commercial viability of their funds. Whenever possible, the EIF will also invest directly in I-TEC supported funds.
The European Investment Fund
The European Investment Fund is a financial institution of the European Union established in 1994 as a public-private partnership bringing together the European Commission, the European Investment Bank and 77 financial institutions. Its essential business is to provide guarantees to banks and financial institutions funding investments in TEN (trans-European networks) projects and SMEs.
Alongside its mainstream guarantee activities, the EIF is also an investor in venture capital funds. Over the next two years, it will invest up to ECU 75 million from its own resources in such funds.
In addition, the EIF will run the ECU 125 million European Technology Facility, funded by the European Investment Bank under its Amsterdam Special Action Programme.
List of Venture Capital Funds selected
- Sofinnova Capital II - Paris, France
- Horizonte Austria Technology Fund - Vienna, Austria
- Alta-Berkeley V - London, U.K.
- Technostart II - Stuttgart, Germany
- Prelude Trust - Cambridge, U.K.
- Strategic European Technologies - Munich, Germany
- MTI 3 - Watford, United Kingdom
- Phoenix Venture Fonds - Munich, Germany
- Capricorn Venture Fund - Leuven, Belgium
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PRESS RELEASES | PRESS RELEASES OF 1997 | 07.02.2000