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State aid to promote risk capital investments in SMEs

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State aid to promote risk capital investments in SMEs

These guidelines lay down the conditions under which state aid promoting risk capital investments is compatible with the common market.


Community guidelines of 18 August 2006 on state aid to promote risk capital investments in small and medium-sized enterprises [Official Journal C 194 of 18.8.2006].


The risk capital market suffers from an equity gap which penalises small and medium-sized enterprises (SMEs) and especially those with high growth potential and in the high-tech sector. The provision of equity finance is vital for the development of businesses, especially during the stages following their establishment. This equity gap may therefore, under certain conditions, justify the granting of state aid to facilitate access to risk capital. These guidelines cover aid to risk capital schemes for SMEs. They do not apply to aid to enterprises in shipbuilding or coal and steel industries or to enterprises in difficulty.


Strengthening the economic approach is essential to state aid analysis. A test which balances the potential positive and negative effects will therefore be used. The balancing test is composed of three steps, asking if the aid:

  • is aimed at an objective of common interest, such as environment, growth, employment and cohesion;
  • is designed to deliver an objective of common interest;
  • leads to distortions of competition and trade.

Market failure

There is no general risk capital market failure in Europe. However, there are market gaps at certain stages of enterprises' development which are seen as an equity gap and present challenges to both investor and beneficiary. To remedy this, investors need to analyse the collateral offered and the business strategy, monitor the implementation of this strategy and plan an exit ensuring a return on their investments. The enterprise must share the decision-making with the external investor and understand the benefits and risks associated with this type of investment.

Incentive effect and proportionality of the aid

State aid for risk capital aims to increase investments by private investors. It has an incentive effect if it satisfies the conditions laid down in this document. The need to provide incentives depends on the size of the market failure. The criteria selected are the size of investment tranches per target enterprise, the degree of involvement of private investors, the size of the company and the business stage financed.

State aid is necessary if it aims to create incentives to provide equity to SMEs in their seed, start-up and early stages. It is unnecessary if it goes beyond what is needed to induce risk capital provision.


The Commission determines the presence of state aid by taking account of aid granted to investors, an investment fund, an investment vehicle or its manager and to the enterprises in which the investment is made.

Financing in the form of risk capital which is de minimis aid does not come within the scope of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 87(1) of the Treaty establishing the European Community (TEC)).


Aid to facilitate the development of certain economic activities is compatible with the common market where such aid does not adversely affect trading conditions to an extent contrary to the common interest. This section lays down the criteria for assessing this compatibility.

Form of aid

Each European Union (EU) country chooses the form of state aid to be granted. The Commission assesses this choice by determining whether it encourages investors and whether it is profit-driven. There are four assessment criteria:

  • constitution of investment funds in which the State is a partner, investor or participant;
  • guarantees to investors or venture capital funds covering a proportion of investment losses or in respect of loans;
  • financial instruments in favour of investors to encourage them to provide extra capital;
  • fiscal incentives to investors to undertake investments.

Conditions for compatibility

To be compatible, a risk capital measure must satisfy the following criteria:

  • investment tranches not exceeding EUR 2.5 million per enterprise per year;
  • state aid granted up to the expansion or start-up stage of the SMEs;
  • at least 70 % of the total budget of the risk capital measure to be in the form of equity and quasi-equity instruments for investment in SMEs;
  • at least 50 % of the funding to be provided by private investors (30 % for SMEs located in assisted areas);
  • profit-driven character of investment decisions;
  • commercial management effected on a commercial basis.


Aid measures subject to a detailed assessment

The aid measures subject to a detailed assessment are those providing for:

  • investment tranches exceeding EUR 2.5 million per SME per year;
  • support for the expansion stage for medium-sized enterprises in non-assisted areas;
  • follow-on investments in companies having already received equity;
  • support from private investors below 50 % in non-assisted areas or below 30 % in assisted areas;
  • provision of seed capital to SMEs, with less private participation or predominance of debt investment instruments as opposed to equity;
  • involvement of an investment vehicle;
  • scouting costs linked to the first screening of companies with a view to the conclusion of the investments, up to the due diligence phase.

Positive and negative effects of the aid

The positive effects of the aid include evidence of market failure for investments exceeding EUR 1.5 million per SME per year. The Commission may require additional evidence, such as the presence of an investment committee, the size of the measure or fund, the presence of business angels, or the incentive effect.

Balancing and decision

The analysis in each case is based on an overall assessment of the foreseeable positive and negative impact of the state aid. On this basis, the Commission will determine whether the potential distortions could adversely affect trading conditions to an extent contrary to the common interest.

These guidelines apply until 31 December 2013. The Commission published a communication updating these guidelines in 2010.

Last updated: 25.10.2011