(12)

Article 21 is replaced by the following: ‘Article 21 Risk finance aid 1. Risk finance aid schemes in favour of SMEs shall be compatible with the internal market within the meaning of Article 107(3) of the Treaty and shall be exempted from the notification requirement of Article 108(3) of the Treaty, provided that the conditions laid down in this Article and in Chapter I are fulfilled. 2. Member States, either directly or through an entrusted entity, shall implement the risk finance measure via one or more financial intermediaries. Member States or entrusted entities shall provide a public contribution to financial intermediaries in line with paragraphs 9 to 13 below and financial intermediaries shall make risk finance investments in eligible undertakings. Neither Member States nor entrusted entities shall invest directly into the eligible undertakings without the involvement of a financial intermediary. 3. Eligible undertakings shall be undertakings that at the time of the initial risk finance investment are unlisted SMEs and fulfil at least one of the following conditions: (a) they have not been operating in any market; (b) they have been operating in any market for less than 10 years following their registration and/or, in the case of innovative enterprises, seven years after their first commercial sale. For eligible undertakings that have taken over the activities of another enterprise or were formed through a merger, in which case the eligibility period also encompasses the operations of that enterprise or the merged companies. For eligible undertakings that are not subject to registration, the eligibility period is considered to start from either the moment when the enterprise starts its economic activity or the moment when it becomes liable to tax with regard to its economic activity, whichever is earlier; (c) they require an initial risk finance investment which, based on a business plan prepared in view of a new economic activity, is higher than 50 % of their average annual turnover in the preceding 5 years. Investments aimed at significantly improving the environmental performance of the activity in line with Article 36 (2) and other environmentally sustainable investments as defined in Article 2(1) of Regulation (EU) 2020/852 shall be considered new economic activities if their initial funding requirements are above [30 %] of the average annual turnover in the preceding 5 years. 4. The risk finance investment may also cover follow-on investments made in eligible undertakings, including after the eligibility period mentioned in paragraph 3, point (b), if the following cumulative conditions are fulfilled: (a) the total amount of risk finance referred to in paragraph 8 is not exceeded; (b) the possibility of follow-on investments was provided for in the original business plan; (c) the undertaking receiving the follow-on investments has not become linked, within the meaning of Article 3(3) of Annex I, with another undertaking other than the financial intermediary or the independent private investor providing risk finance under the measure, unless the new entity is an SME. 5. Risk finance investments into eligible undertakings may take the form of equity, quasi-equity investments, loans, guarantees, or a mix thereof. 6. When guarantees are provided, the guarantee shall not exceed 80 % of the underlying loan. 7. For risk finance investments in the form of equity and quasi-equity investments in eligible undertakings, a risk finance measure may cover replacement capital only if the latter is combined with new capital representing at least 50 % of each investment round into the eligible undertakings. 8. The total outstanding amount of risk finance investment referred to in paragraph 5 shall not exceed EUR 15 million per eligible undertaking under any risk finance measure. In order to calculate this maximum risk finance investment amount, the following shall be taken into account: (a) in the case of loans and quasi-equity investments structured as debt, the nominal amount of the instrument; (b) in the case of guarantees, the nominal amount of the underlying loan. 9. The public contribution provided to financial intermediaries may take one of the following forms: (a) equity or quasi-equity, or financial endowment to provide risk finance investment directly or indirectly to eligible undertakings; (b) loans to provide risk finance investment directly or indirectly to eligible undertakings; (c) guarantees to cover losses from risk finance investment directly or indirectly to eligible undertakings. 10. Risk-reward sharing arrangements between the Member State or its entrusted entity and the financial intermediary shall be adequate and shall comply with the following: (a) for risk finance aid in forms other than guarantees, asymmetric profit sharing shall be given preference over downside protection; in the case of asymmetric loss-sharing between public and private investors, the first loss assumed by the public investor shall be capped at 25 % of the risk finance investment. (b) for risk finance aid in the form of guarantees, the guarantee rate shall be limited to 80 % and total losses assumed by a Member State shall be capped at a maximum of 25 % of the underlying guaranteed portfolio. Only guarantees covering expected losses of the underlying guaranteed portfolio may be provided for free. If a guarantee also comprises coverage of unexpected losses, the financial intermediary shall pay, for the part of the guarantee covering unexpected losses, a market-conform guarantee premium. 11. Where the public contribution provided to the financial intermediary takes the form of equity and quasi-equity as referred to in paragraph 9, point (a), no more than 30 % of the financial intermediary’s aggregate capital contributions and uncalled committed capital may be used for liquidity management purposes. 12. For risk finance measures aimed at providing risk finance investments in the form of equity, quasi-equity or loans to eligible undertakings, the public contribution provided to the financial intermediary shall leverage additional finance from independent private investors at the level of the financial intermediaries or the eligible undertakings, so as to achieve an aggregate private participation rate reaching the following minimum thresholds: (a) 10 % of the risk finance investment provided to the eligible undertakings referred to in paragraph 3, point (a); (b) 40 % of the risk finance investment provided to the eligible undertakings referred to in paragraph 3 point (b); (c) 60 % of the risk finance investment provided to eligible undertakings mentioned referred to in paragraph 3, point (c) and for follow-on risk finance investment in eligible undertakings after the eligibility period referred to in paragraph 3, point (b). Finance provided by independent private investors benefitting from risk finance aid in the form of tax incentives under Article 21a shall not be taken into account for the purposes of reaching the aggregate private participation rates set out in the first subparagraph. The private participation rates mentioned in the first subparagraph, points (b) and (c) shall be reduced to 20 % under (b) and 30 % under (c) for investments made in assisted areas designated in an approved regional aid map valid at the time of provision of the risk finance investment in application of Article 107(3), point (a) of the Treaty. 13. Where a risk finance measure is implemented through a financial intermediary targeting eligible undertakings at different development stages as referred to in paragraphs 3 and 4, the financial intermediary shall achieve a private participation rate that represents at least the weighted average based on the volume of the individual investments in the underlying portfolio and resulting from the application of the minimum participation rates to such investments as referred to in paragraph 12, unless the required participation from independent private investors is achieved at the level of the eligible undertakings. 14. Financial intermediaries and fund managers shall be selected through an open, transparent and non-discriminatory procedure in accordance with applicable Union and national laws. The procedure shall be based on objective criteria linked to experience, expertise and operational and financial capacity, and shall comply with the following conditions: (a) it shall ensure that eligible financial intermediaries and fund managers are established in accordance with the applicable laws; (b) it shall not discriminate between financial intermediaries and fund managers on the basis of their place of establishment or incorporation in any Member State; (c) it may require that eligible financial intermediaries and fund managers fulfil predefined criteria objectively justified by the nature of the investments; (d) it shall aim at establishing adequate risk-reward sharing arrangements as described in paragraph 10. 15. Risk finance measures shall ensure that the financial intermediaries receiving the public contribution take profit-driven decisions when providing eligible undertakings with risk finance investment. This obligation is met where all of the following conditions are fulfilled: (a) the Member State, or the entity entrusted with the implementation of the measure, shall provide for a due diligence process in order to ensure a commercially sound investment strategy for the purpose of implementing the risk finance measure, including an appropriate risk diversification policy aimed at achieving economic viability and efficient scale in terms of size and territorial scope of the relevant portfolio of investments; (b) risk finance investment provided to the eligible undertakings shall be based on a viable business plan, containing details of product, sales and profitability development, establishing ex ante financial viability; (c) a clear and realistic exit strategy shall exist for each equity and quasi-equity investment. 16. Financial intermediaries shall be managed on a commercial basis. This requirement is met where the financial intermediary and, depending on the type of risk finance measure, the fund manager, fulfil the following conditions: (a) they shall be obliged by law or contract to act in accordance with best practices and with the diligence of a professional manager acting in good faith and avoiding conflicts of interest; regulatory supervision shall apply; (b) their remuneration shall conform to market practices. This requirement is presumed to be met as long as they are selected through an open, transparent and non-discriminatory selection procedure in accordance with in paragraph 14; (c) they shall receive a remuneration linked to performance, or shall share part of the investment risks by co-investing their own resources so as to ensure that their interests are permanently aligned with the interests of the Member State or its entrusted entity; (d) they shall set out an investment strategy, criteria and the proposed timing of investments; (e) investors shall be allowed to be represented in the governance bodies of the investment fund, such as the supervisory board or the advisory committee. 17. In a risk finance measure where risk finance investment is provided to eligible undertakings in the form of guarantees, loans or quasi-equity investments structured as debt, the financial intermediary shall undertake risk finance investments into eligible undertakings that would not have been carried out or would have been carried out in a restricted or different manner without the aid. The financial intermediary shall be able to demonstrate that it operates a mechanism that ensures that all the advantages are passed on to the largest extent to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates. 18. Risk finance measures providing risk finance investments for SMEs that do not fulfil the conditions laid down in paragraph 3 shall be compatible with the internal market within the meaning of Article 107(3) of the Treaty and shall be exempted from the notification requirement of Article 108(3) of the Treaty, provided that all the following conditions are met: (a) at the level of the SMEs, the aid fulfils the conditions laid down in Commission Regulation (EU) No 1407/2013 (*27), Commission Regulation (EU) No 1408/2013 (*28) or Commission Regulation (EU) No 717/2014 (*29), whichever is applicable; (b) all the conditions laid down in this Article, with the exception of those set out in paragraphs 3, 4, 8, 12 and 13 are fulfilled; (c) for risk finance measures providing risk finance investments to eligible undertakings in the form of equity, quasi-equity or loans, the measure shall leverage additional financing from independent private investors at the level of the financial intermediaries or the SMEs, so as to achieve an aggregate private participation rate reaching at least 60 % of the risk finance provided to the SMEs. (*27) Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, p. 1)." (*28) Commission Regulation (EU) No 1408/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the agriculture sector (OJ L 352, 24.12.2013 p. 9)." (*29) Commission Regulation (EU) No 717/2014 of 27 June 2014 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the fishery and aquaculture sector (OJ L 190, 28.6.2014, p. 45).’;"