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European Commission to Further Support Startups and Incentivise Private Investments

Posted 5 months ago

European Commission to Further Support Startups and Incentivise Private Investments
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The European Commission has announced the adoption of a third amendment to its Temporary Framework to further support startups as they struggle during the coronavirus outbreak

The news comes as NextFin recently launched its ‘Free Our Startups’ campaign, which calls on the Treasury to increase the tax relief and investment allowance available under the Seed and Enterprise Investment Schemes to give startups the freedom to raise their own equity investment, rather than accept further debt through the government’s business loan schemes

In an open letter to Chancellor Rishi Sunak, CEO Sacha Bright had originally suggested the Government could invoke the General Blockage Exemption Rule, a mechanism relevant in the realm of enacting measures to save the startup sector. 

The main purpose of the Temporary Framework is to provide targeted support to otherwise viable companies that have entered into financial difficulty as a result of the coronavirus outbreak, and was first amended on April 3 2020 to increase the possibilities for public support to research, test and produce products relevant in the fight against the coronavirus outbreak. 

The Commission has also adapted the conditions for recapitalisation measures under the Temporary Framework for those cases where private investors contribute to the capital increase of companies together with the State.

These changes will encourage capital injections with significant private participation in companies, limiting the need for State aid and the risk of competition distortions. In particular, if the State decides to grant recapitalisation aid, but private investors contribute to the capital increase in a significant manner (in principle at least 30% of the new equity injected) at the same conditions as the state, the acquisition ban and the cap on the remuneration of the management are limited to three years.

This will increase incentives for companies to seek private as well as State contributions to their capital needs, whilst maintaining safeguards to preserve effective competition in the Single Market.

Executive Vice President, Margrethe Vestager, in charge of competition policy, said: “Micro, small and start-up companies are crucial for the economic recovery of the Union. They have been particularly affected by the liquidity shortage caused by the coronavirus outbreak, and face greater difficulties to access financing.

“Today, we have extended the Temporary Framework to enable Member States to support these companies further. We have also introduced conditions that provide incentives for private investors to participate alongside the State in recapitalisations, thus reducing the need for State aid and the risk of distortions to competition. 

“Finally, we recall that State aid shall not be granted on the condition of the relocation of production or of another activity of the beneficiary from elsewhere in our Union – because the Single Market is our greatest asset. We continue to work closely with Member States to help European businesses weather this crisis and bounce back strongly, whilst maintaining a level playing field to the benefit of all European consumers and businesses

CEO of Nextfin, Sacha Bright, said: “The spirit of this amendment clearly indicates that the European Union is keen to support startups by allowing for private investment, and recognises that this sector contributes a considerable amount of jobs and wealth to the economy. 

“It is disappointing that Rishi Sunak did not reflect the same sentiments in his Summer Statement, where he specifically said “no-one will be left without hope” and that the government will protect jobs. His statement could not be further from the truth. Without support for startups, specifically through allowing them to seek the private investment they need to get through the pandemic, then we risk losing tens of thousands of jobs."

Authors: Oliver Murphy & Sacha Bright


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

Tagged: coronavirus SMEs alternative finance news equity

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