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The following types of risk capital measures not complying with one or more of the conditions set out in section 10B.4 will be subject to a more detailed assessment given the less obvious evidence of a market failure and the higher potential for crowding out of private investment and/or distortion of competition. (a) Measures providing for investment tranches beyond the safe-harbour threshold of EUR 1,5 million per target SME over each period of 12 months The Authority is aware of the constant fluctuation of the risk capital market and of the equity gap over time, as well as of the different degree by which enterprises are affected by the market failure depending on their size, on their stage of business development, and on their economic sector. Therefore, the Authority is prepared to consider declaring risk capital measures providing for investment tranches exceeding the threshold of EUR 1,5 million per enterprise per year compatible with the functioning the EEA Agreement, provided the necessary evidence of the market failure is submitted. (b) Measures providing finance for the expansion stage for medium-sized enterprises in non-assisted areas The Authority recognises that certain medium-sized enterprises in non-assisted areas may have insufficient access to risk capital even in their expansion stage despite the availability of finance to enterprises having a significant turnover and/or total balance. Therefore, the Authority is prepared to consider declaring measures partly covering the expansion stage of medium-sized enterprises compatible with the functioning of the EEA Agreement in certain cases, provided the necessary evidence is submitted. (c) Measures providing for follow-on investments into target companies that already received aided capital injections to fund subsequent financing rounds even beyond the general safe-harbour thresholds and the companies’ early-growth financing The Authority recognises the importance of follow-on investments into target companies that already received aided capital injections in their early stages to finance financing rounds even beyond the maximum safe-harbour investment tranches and the companies’ early-growth financing up to the exit of the initial investment. This may be necessary to avoid dilution of the public participation in these financing rounds while ensuring continuity of financing for the target enterprises so that both public and private investors can fully benefit from the risky investments. In these circumstances and taking into account the specificities of the targeted sector and enterprises, the Authority is prepared to consider declaring follow-on investment compatible with the functioning of the EEA Agreement provided the amount of this investment is consistent with the initial investment and with the size of the fund. (d) Measures providing for a participation by private investors below 50 % in non-assisted areas or below 30 % in assisted areas Within the EEA the level of development of the private risk capital market varies to a significant extent in the various EEA States. In some cases, it might be difficult to find private investors, and therefore the Authority is prepared to consider declaring measures with a private participation below the thresholds set out in section 10B.4.3.4 compatible with the functioning of the EEA Agreement, if EFTA States submit the necessary evidence. This problem may be even greater for risk capital measures targeting SMEs in assisted areas. In these cases there may be an additional shortage of capital available for them given their remote location from venture capital centres, the lower population density, and the increased risk-aversion of private investors. These SMEs may also be affected by demand-side issues such as the difficulty in drawing up a viable, investment-ready business proposition, a more limited equity culture, and particular reluctance to lose management control as a result of venture capital intervention. (e) Measures providing seed capital to small enterprises which may foresee (i) less or no private participation by private investors, and/or (ii) predominance of debt investment instruments as opposed to equity and quasi-equity The market failures affecting enterprises in their seed stage are more pronounced due to the high degree of risk involved by the potential investment and the need to closely mentor the entrepreneur in this crucial phase. This is also reflected by the reluctance and near absence of private investors to provide seed capital, which implies no or very limited risk of crowding-out. Furthermore, there is reduced potential for distortion of competition due to the significant distance from the market of these small-size enterprises. These reasons may justify a more favourable stance of the Authority towards measures targeting the seed stage, also in light of their potentially crucial importance to generate growth and jobs within the EEA. (f) Measures specifically involving an investment vehicle An investment vehicle may facilitate the matching between investors and target SMEs for which it may therefore improve the access to risk capital. In case of market failures related to the enterprises targeted by the vehicle, the vehicle may not function efficiently without financial incentives. For instance, investors may not find the type of investments targeted by the vehicle attractive compared to investments of higher tranches of investments or investments in more established enterprises or more established market places, despite a clear potential for profitability of the target enterprises. Therefore, the Authority is prepared to consider declaring measures specifically involving an investment vehicle compatible with the functioning of the EEA Agreement, provided the necessary evidence for a clearly defined market failure is submitted. (g) Costs linked to the first screening of companies in view of the conclusion of the investments, up to the due diligence phase (scouting costs) Risk capital funds or their managers may incur “scouting costs” in identifying SMEs, prior to the due diligence phase. Grants covering part of these scouting costs must encourage the funds or their managers to carry out more “scouting” activities than would otherwise be the case. This may also be beneficial for the SMEs concerned, even if the search does not lead to an investment, since it enables those SMEs to acquire more experience with risk capital financing. These reasons may justify a more favourable stance of the Authority towards grants covering part of the scouting costs of risk capital funds or their managers, subject to the following conditions: The eligible costs must be limited to the scouting costs related to SMEs mainly in their seed or start-up stage, where such costs do not lead to investment, and the costs must exclude legal and administrative costs of the funds. In addition, the grant must not exceed 50 % of the eligible costs.