Report from the Commission to the European Parliament and the Council Growth and Employment - Initiative measures on financial assistance for innovative and job creating  Small- and Medium Sized Enterprises (SMEs) (SEC(2001)1139)
Date: 2001-07-16
Institutions: European Commission
Subjects: employment aid, financial aid, industrial development, report, small and medium-sized enterprises

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 16.07.2001
COM(2001) 399 final

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1.

2.

2.1.

2.2.

2.3.

General introduction..................................................................................................... 7

ETF Start-up Facility.................................................................................................... 9

Introduction .................................................................................................................. 9

Description of the Facility.......................................................................................... 10

Budgetary situation..................................................................................................... 10

2.3.1. Overview .................................................................................................................... 10

2.3.2. Geographic distribution.............................................................................................. 11

2.3.3. Commitments ............................................................................................................. 12

2.3.4. Disbursements ............................................................................................................ 14

2.3.5. Repayments by the venture capital funds................................................................... 16

2.3.6. Accounts ..................................................................................................................... 16

2.4.

2.5.

2.6.

3.

3.1.

3.2.

3.3.

3.4.

Financial Intermediaries ............................................................................................. 17

Beneficiary SMEs....................................................................................................... 18

Employment ............................................................................................................... 21

Joint European Venture (JEV) ................................................................................... 22

Introduction ................................................................................................................ 22

Description of the programme.................................................................................... 23

Development of JEV .................................................................................................. 23

Budgetary situation..................................................................................................... 24

3.4.1. Overview .................................................................................................................... 24

3.4.2. Geographic distribution.............................................................................................. 24

3.4.3. Commitments ............................................................................................................. 25

3.4.4. Disbursements ............................................................................................................ 25

3.4.5. Accounts ..................................................................................................................... 25

3.5.

3.6.

3.7.

4.

Financial Intermediaries ............................................................................................. 26

Review of the projects ................................................................................................ 27

Employment ............................................................................................................... 31

SME Guarantee Facility ............................................................................................. 32

4.1.

Introduction ................................................................................................................ 32

3

4.2.

4.3.

Description of the Facility.......................................................................................... 32

Budgetary situation..................................................................................................... 33

4.3.1. Overview .................................................................................................................... 33

4.3.2. Geographic distribution.............................................................................................. 33

4.3.3. Commitments ............................................................................................................. 34

4.3.4.

Loss payments ............................................................................................................ 35

4.3.5. Accounts ..................................................................................................................... 36

4.4.

4.5.

4.6.

5.

5.1.

5.2.

Financial Intermediaries ............................................................................................. 36

Beneficiary SMEs....................................................................................................... 39

Employment ............................................................................................................... 41

Conclusions ................................................................................................................ 42

Growth and Employment Initiative............................................................................ 42

Multi Annual Programme........................................................................................... 42

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2.1.

2.2.

2.3.

2.4.

2.5.

2.6.

4.1.

4.2.

4.3.

4.4.

4.5.

Breakdown by country of the Venture Capital (VC) funds........................................ 11

Quarterly approvals of investments in the VC funds ................................................. 12

Cumulative evolution of operations ........................................................................... 13

Disbursements to the VC funds.................................................................................. 14

Investments by the VC funds in beneficiary SMEs ................................................... 15

Repayments by the VC funds ..................................................................................... 16

Breakdown by country of the financial intermediaries .............................................. 33

Quarterly EIF commitments to financial intermediaries ............................................ 34

Cumulative evolution of operations ........................................................................... 34

Loans granted to SMEs and corresponding investments............................................ 35

Utilisation by financial intermediaries ....................................................................... 36

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2.1.

2.2.

2.3.

2.4.

2.5.

2.6.

2.7.

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

4.1.

4.2.

4.3.

Breakdown by country of beneficiary SMEs ............................................................. 18

Realised investments .................................................................................................. 18

Employment in beneficiary SMEs of realised investments........................................ 19

Sector of activity of beneficiary SMEs of realised investments ................................ 19

Employment in beneficiary SMEs in portfolios......................................................... 20

Sector of activity of beneficiary SMEs in portfolios.................................................. 20

Impact on employment in beneficiary SMEs ............................................................. 21

Breakdown of financial intermediaries by country .................................................... 26

Projects status ............................................................................................................. 27

Breakdown by country of the planned joint ventures................................................. 28

Breakdown by country of joint ventures’ partners ..................................................... 29

Sector of activity of planned joint ventures................................................................ 30

Employment in partner SMEs .................................................................................... 31

Breakdown by country of beneficiary SMEs ............................................................. 39

Employment in beneficiary SMEs ............................................................................. 40

Breakdown of beneficiary SMEs by year of establishment ....................................... 40

6

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The 2000 annual report on the Growth and Employment Initiative is drawn up in accordance
with  Article  7(1)  of  the  Council  Decision  (Decision  98/347/CE)  adopted  on  19 May 1998.
This Decision requires the Commission to submit an annual report to the European Parliament
and Council  on the  progress  achieved  on  the  implementation  of  three  financial  instruments,
ETF Start-up Facility, JEV and SME Guarantee Facility. This is the second report of this type,
which reviews the developments that have occurred since 1999 and outlines future prospects
of the Initiative.

The report is broken down into three sections, one for each of the financial instruments. It is
complemented by  annexes, referring  particularly  to statistics on SMEs that are beneficiaries
of either the ETF Start-up Facility or the SME Guarantee Facility. These statistics are based
on questionnaires and data, concerning the year 1999, that were submitted to the Commission
at the end of 2000. These data available now for the first time, were not annexed to the first
report.  Finally,  the  conclusion  describes  further  developments  of  the  Initiative  within  the
context of the multiannual programme for enterprise and entrepreneurship (2001-2005).

The European Parliament’s “Committee on Employment and Social Affairs” has submitted a
report (A5-0335/00) responding  to  the  Commission’s  first  annual  report  on  the  Growth  and
Employment Initiative in November 2000.

The  Presidency  conclusions  of  the  Lisbon  European  Council  of  23-24  March  2000  call  for
new strategic goals for the Union: to become the most dynamic and competitive knowledge-
based  economy  in  the  world,  to  be  capable  of  sustainable  economic  growth  with  more  and
better jobs and to have greater social cohesion. The Lisbon conclusions consider SMEs to be
strategic tools for the development of a dynamic and competitive knowledge-based economy.
Measures  to  foster  their  development  focus  on  improving  Community  financial  instruments
for SMEs and on creating a friendlier environment for starting up and developing businesses.

In response to a request by the Lisbon European Council, the Commission prepared a review
paper in October 2000 on specific Community financial instruments for  SMEs,  setting  up  a
framework  for  future  Community  action  which  should  continue  to  be  offered  through  four
windows  (loans,  equity,  guarantees  and  grants).  The  Ecofin  Council  welcomed  the  review
paper on 7 November 2000.  It also agreed  to  the  Commission’s proposal  to regroup similar
Commission  financial  instruments  under  one  budget  line  and  one  legal  basis.  As  a
consequence, several Community SME programmes have been included under the framework
of the multiannual programme for enterprises and entrepreneurship 2001-2005 (MAP), which
was approved by the Council on 20 December 2000 (2000/819/EC). The new MAP proposes
modifications  and  extensions  of  the  ETF  Start-up  Facility  and  the  SME  Guarantee  Facility,
and  it  foresees  a  simplification  of  the  JEV  programme  and  an  adaptation  of  its  eligibility
criteria  in  order  to  respond  more  effectively  to  the  needs  of  SMEs.  Furthermore,  the  Seed
Capital action (formerly CREA), constitutes an integral part of the financial instruments of the
MAP.

7

Two of the instruments of the Growth and Employment Initiative are managed on a trust basis
by the European Investment Fund (EIF). In this context it is worth mentioning that the June
2000  reform  of  the  EIF  has  turned  it  into  the  EIB  Group’s  specialist  risk  capital  arm  and
strengthened its role as a guarantor to ensure continued efficient support for SMEs. The aim is
to  achieve  the  Community  objectives  in  these  key  areas  for  growth  and  employment  in  the
Member States of the Union and, for the first time, also in the Accession countries.

8

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Technology-based  and  innovative  SMEs,  as  well  as  start-ups,  often  experience  difficulty  in
accessing  traditional  finance  due  to  problems  such  as  the  relatively  high  proportion  of
intangible assets and the lack of stable cash flows. They are often regarded to be higher risk
than  SMEs  in  the  traditional  sectors.  Hence  the  need  for  venture  capital,  which  becomes  a
crucial source of financing for these SMEs. Increasing the need for venture capital is the fact
that  many  innovative  SMEs  are  growing  or  are  expected  to  grow  at  a  high  rate,  making
equity-based finance the most appropriate for their needs.

There has been a significant increase in the availability of European venture capital over the
past few years. The European Venture Capital Association (EVCA) 2000 Yearbook indicates
that venture capital investment in 1999 has increased by 70% from the previous year, to about
EUR 12 billion (0.14% of the gross domestic product - GDP).

Despite  the  rapid  growth  of  the  EU  venture  capital  market  over  the  past  5  years,  it  still
remains significantly behind that of the US. Furthermore, the EU private equity market tends
to focus on more profitable later-stage investments rather than the early-stage investments of
technology-based and innovative SMEs.

However,  in  recent  years  there  has  been  a  shift  towards  early  stage  and  high  technology
investments. EVCA figures show that early-stage investments in 1999 had doubled to EUR 3
billion relative to 1998, and were ten times higher than in 1995. An analysis of the expected
allocation  of  funds  raised  in  1999  confirms  this  trend,  with  about  EUR  5.5  billion  (22%  of
total funds raised) earmarked for future early-stage investments.

According to the EVCA 2000 mid-year survey, during the first six months of 2000, 44% of
European  investee  companies  were  in  the  seed  or  start-up  phase,  while  19%  of  the  total
investments  were  allocated  to  these  companies.  The  average  amount  invested  was  EUR  1
million  in  seed  companies  and  EUR  1.4  million  in  start-up  companies.  High  technology
companies make up almost 50% of the total investee companies and have received 33% of the
total  amount  invested.  However,  the  recent  downturn  in  technology  stocks  may  alter  these
figures substantially.

The ETF Start-up Facility is operated by the EIF that contributes to the pursuit of Community
objectives;  in  particular  it  is  committed  to  the  development  of  a  knowledge-based  society,
centred  on  innovation,  growth  and  employment,  the  promotion  of  entrepreneurial  spirit,  the
regional development and the cohesion of the Union.

The EIF acts independently and commercially under market conditions. According to Art. 24
of its statutes, it targets appropriate returns for its shareholders.

The  following  chapters  on  the  ETF  Start-up  Facility  have  been  drafted  on  the  basis  of  the
annual reports provided by the venture capital funds participating in the ETF Start-up Facility
to the EIF. This information relates to 31 December 2000.

The report is complemented by a specific SME annex (annex 2) based on a survey carried out
in  mid-2000  on  the  beneficiary  SMEs,  which  were  invested  in  by  venture  capital  funds

9

participating in the ETF Start-up Facility. It is important to stress that this information refers
to the year 1999.

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The  objective  of  the  ETF  Start-up  Facility  is  to  increase  the  availability  of  risk  capital  to
innovative SMEs during their establishment and their early stage development.

The  EIF  invests  in  specialised  venture  capital  funds  (hereunder  referred  to  as  VC  funds)
established specifically to provide equity or other  forms of  risk capital  to  SMEs.  The  funds
considered  under  this  Facility  are  smaller  or  newly  established  ones,  in  particular  those
operating at a regional level, those focusing on specific industries or technologies  and those
which finance the exploitation of R&D results.

Investments are made on equal terms with other equity investors and must represent between
10% and 25% of the total capital of the VC fund, up to a maximum of EUR 10 million.

In order to offer the EIF some flexibility in its selection of funds and not to exclude otherwise
strong candidates, the Investment Policy of the Facility allows VC funds to make available a
small  percentage  of  their  capital  to  investments  outside  the  EU.  In  this  case  the  EIF’s
participation in the venture capital funds is reduced by the corresponding percentage.

The EIF examines the fund proposals based on criteria such as size, level of involvement from
the private sector, investment strategy, target market, deal flow, proposed terms, expected rate
of return, management team working on the project and lastly on the extent to which the EIF
investment in the VC fund is expected to have a catalytic effect in raising funds. Attention is
also  given  to  ensuring  that  the  programme  as  a  whole  maintains  a  balanced  geographical
representation across the European Union.

Following  eligibility  approval  of  the  VC  fund  proposals  by  the  Commission,  the  EIF  signs
contractual  agreements  with  the  fund  managers  and  the  other  equity  investors  in  the  fund.
Thereafter  the  EIF  progressively  disburses  the  amounts  committed  to  the  VC  funds  for
investment in SMEs.

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As  on  31  December  2000,  the  total  budgetary  appropriations  of  the  ETF  Start-up  Facility
amounted to EUR 168 million, including EUR 59 million allocated in 2000.

10

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As on the end of 2000, investment proposals into 17 VC funds were in principle approved by
the EIF and the Commission services, corresponding to a total amount of EUR 110 million.
Ten  contracts  have  been  signed  with  the  EIF  and  two  are  still  under  process.  For  the
remaining  five,  negotiations  were  unsuccessful.  These  twelve  VC  funds  account  for  an
amount  of  EUR  80.7  million,  which  represents  48%  of  the  total  ETF  Start-up  budget
allocation. The global maximum funding to be raised by these VC funds amounts to EUR 440
million.

The breakdown of  the  amounts  corresponding  to  the  twelve  VC  funds  by  country  is  shown
below:

Sweden
7%

United Kingdom
10%

Belgium
6%

Denmark
5%

Luxembourg
12%

France
32%

Germany
26%

Finland
2%

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The ten VC funds with which the EIF has signed contracts cover six member states for a total
of EUR 71.7 million. Out of this amount, EUR 12.8 million are  conditional  on  further  fund
raising  by  the  VC  funds.  A  short  description  of  the  VC  funds,  which  have  contractual
agreements with the EIF, is annexed (annex 1).

Concerning the two funds, which are still under process, the EIF expects to conclude within
the coming few months.

The main reason for which negotiations were unsuccessful for the five above-mentioned VC
funds is that the final investment terms, proposed by the VC fund managers, did not comply
with the eligibility criteria of the ETF Start-up Facility (for example other investors received
preferential terms, management fees were not calculated in  accordance with market practice
or over-subscription of the fund).

11

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The graph below shows the quarterly approvals of investments in VC funds. It can be noticed
that the low level of activity in the  year  2000 corresponds  to  the restructuring  period  of  the
EIF.

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The graph below shows the cumulative evolution of the amounts approved in principle for 17
VC  funds  (EUR  110  million  -  end  2000)  compared  to  the  available  committed  budgetary
resources (EUR 168 million - end 2000).

It  also  shows  the  evolution  of  the  total  amount  of  the  on  going  operations  (i.e.  contracts
signed  plus  those,  which  are  still  under  process,  corresponding  to  EUR  81  million  -  end
2000).

Finally  it  indicates  the  amounts  signed  by  the  EIF  with  VC  funds  (EUR  72  million  -  end
2000).

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Amounts approved in principle

Contracts signed + under process

Contracts signed

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As on 31 December 2000, the total disbursements to VC funds amounted to EUR 32 million
compared to EUR 12 million at year-end 1999. The overall disbursement rate is now 45% of
the amounts committed.

It is worth noting that the first ETF Start-up VC funds that have signed a contract with the EIF
(in the first two quarters of 1999) present an average disbursement rate of 63%. Considering
that the average investment period of these VC funds is 4-5 years, the disbursement rate can
be considered quite satisfactory.

The following  graph shows the progress of the disbursements  of  budgetary  commitments to
the VC funds by 31 December 2000 in comparison with the amounts of the contracts signed.
The disbursements of the EIF are made in parallel with all the other investors in the VC funds,
pro rata of their investment  commitments.  The disbursements  are used by  the  VC  funds for
their investment in SMEs.

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EIF Disbursements to VC funds

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14

 
The  graph  hereunder  shows  the  investments  made  by  the  VC  funds  in  beneficiary  SMEs
compared  to  the  EIF  disbursements  to  the  VC  funds.  End  2000  the  ratio  of  the  Facility
contribution with the investment of VC funds was 1/4.

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Some ETF Start-up VC funds have started repaying the EIF, following the sale of their equity
participation in some successful SMEs.

In the year 2000 a total amount of EUR 9.6 million has been repaid by the VC funds to the
EIF, which compares with an amount of EUR 0.7 million in 1999.

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Repayments from VC funds

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According to the EIF, the performance stated above is quite encouraging considering that the
first  ETF  Start-up  contract  with  a  VC  fund  was  signed  in  January  1999.  Nevertheless,  the
deterioration  of  market  conditions  at  the  end  of  2000  could  have  an  impact  on  the  pace  of
profit realisation and on the further development of some firms. Indeed, the technology stock
downturn has signified a decrease in the valuation of some investee companies, while others
had to postpone their quotation on the stock markets.

More information on the companies concerned by these repayments is given in paragraph 2.5
hereunder.

The  Council  Decision  foresees  that  proceeds  from  realised  investments  may  be  reinvested
during  the  first  four  years  of  operations  of  the  Facility.  The  reinvestment  period  can  be
extended by up to three years, subjects to a satisfactory evaluation of the Facility 48 months
after its adoption.

(cid:21)(cid:17)(cid:22)(cid:17)(cid:25)(cid:17)(cid:3) $FFRXQWV

The financial statements of the Facility are enclosed in annex 7.

16

 
(cid:21)(cid:17)(cid:23)(cid:17)(cid:3)

)LQDQFLDO(cid:3),QWHUPHGLDULHV

Most of the VC funds, which have contractual agreements with the EIF, have a national, if not
regional, focus, although some of them are allowed to invest on a pan-European basis. They
are  mainly  oriented  towards  early  stage  investments  in  high  technology  areas,  such  as
information and communication technologies, Internet, healthcare and life sciences. This is in
line with the structure and the eligibility criteria of ETF Start-up.

A  short  description  of  the  VC  funds,  which  have  contractual  agreements  with  the  EIF,  is
annexed (annex 1).

In  terms  of  country  representation,  there  are  still  seven  EU  countries,  which  have  not  been
covered by ETF Start-up, i.e. Austria, Greece, Ireland, Italy, Netherlands, Portugal and Spain.
Apart  from  the  Netherlands,  these  are  the  countries  where  the  venture  capital  market,
particularly concerning  the  seed  and  start-up  phases,  is  the  less  developed.  However,  in  the
last months a growing number of proposals coming  from  these countries  are  being  assessed
and  special  operational  efforts  have  been  undertaken  in  respect  of  the  development  of
transactions in countries where the ETF start-up Facility so far has not been used.

As far as Austria is concerned, one operation has been submitted to EIF’s Board in April.

In Greece, the market conditions are such that it is difficult to identify potential investments
under any of EIF’s mandates.

In  Ireland  preliminary  contacts  have  been  established  for  an  operation  to  be  placed  in  the
pipeline for later in the year.

In Italy, preliminary contacts have been established for an operation to be decided in 20001.
The related request for approval by the Commission services will be sent in due course.

In  the  Netherlands,  a  number  of  opportunities  are  envisaged  under  the  enlarged  investment
policy for ETF Start-up (Incubators, seed funds).

In Portugal  a team for a  potential investment  has been identified but substantial  further  due
diligence is required before presenting this operation.

In  Spain,  one  opportunity  identified  end  of  last  year  has  been  recently  abandoned  due  to
difficult  fund  raising  conditions.  For  the  moment,  it  is  difficult  to  identify  potential  funds
focusing on early stage investments in high technology sectors.

With these potential investments, substantial progress should be made both in the utilisation
of ETF start-up funds as well as in the extension of its geographic reach.

17

(cid:21)(cid:17)(cid:24)(cid:17)(cid:3)

%HQHILFLDU\(cid:3)60(V

As  on  31  December  2000,  the  VC  funds  have  invested  in  141  SMEs.  The  total  amount
invested  is  EUR  128.5  million,  which  corresponds  to  an  average  investment  of  EUR  0.9
million per company.

The breakdown by country is as follows:

7DEOH(cid:3)(cid:21)(cid:17)(cid:20)(cid:17)(cid:3)%UHDNGRZQ(cid:3)E\(cid:3)FRXQWU\(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V

&RXQWU\

1XPEHU(cid:3)RI
EHQHILFLDU\(cid:3)60(V

$PRXQWV(cid:3)LQYHVWHG
(EUR million)

$YHUDJH(cid:3)LQYHVWPHQW
(EUR million)

Finland

France

Germany

Luxembourg

Sweden

United Kingdom

Non-EU (*)

7RWDO

(*) US, Israel and Switzerland

10

76

34

2

8

7

4

4.1

66.9

34.0

2.3

12.9

4.2

4.2

(cid:20)(cid:23)(cid:20)

(cid:20)(cid:21)(cid:27)(cid:17)(cid:24)

0.4

0.9

1.0

1.2

1.6

0.6

1.1

(cid:19)(cid:17)(cid:28)

Out of the 141 companies, 128 are still in the portfolios of the VC funds and 13 investments
are realised. Out of these 13, 12 have been sold and one has been written off.

The table below gives more details about these 13 investments:

7DEOH(cid:3)(cid:21)(cid:17)(cid:21)(cid:17)(cid:3)5HDOLVHG(cid:3)LQYHVWPHQWV

,QYHVWPHQWV

&RVW
(EUR million)

)LQDO(cid:3)YDOXH
(EUR million)

*DLQ(cid:18)/RVV
(EUR million)

*DLQ(cid:18)/RVV
(%)

Written off

Sold

7RWDO

1

12

(cid:20)(cid:22)

0.5

9.1

(cid:28)(cid:17)(cid:25)

0

16.9

(cid:20)(cid:25)(cid:17)(cid:28)

-0.5

8.8

(cid:27)(cid:17)(cid:22)

-100

86

(cid:26)(cid:25)

18

The breakdown of the 12 companies by number of employees at the  time  of the  investment
realisation (exit) is as follows:

7DEOH(cid:3)(cid:21)(cid:17)(cid:22)(cid:17)(cid:3)(PSOR\PHQW(cid:3)LQ(cid:3)EHQHILFLDU\(cid:3)60(V(cid:3)RI(cid:3)UHDOLVHG(cid:3)LQYHVWPHQWV

1XPEHU(cid:3)RI
HPSOR\HHV

%HQHILFLDU\(cid:3)60(V

1XPEHU

(cid:8)

(cid:148)(cid:3)(cid:24)

6-10

11-50

>50

7RWDO

2

0

7

3

(cid:20)(cid:21)

17

0

58

25

(cid:20)(cid:19)(cid:19)

The classification of the 13 SMEs by sector of activity is as follows:

7DEOH(cid:3)(cid:21)(cid:17)(cid:23)(cid:17)(cid:3)6HFWRU(cid:3)RI(cid:3)DFWLYLW\(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V(cid:3)RI(cid:3)UHDOLVHG(cid:3)LQYHVWPHQWV

6HFWRU(cid:3)RI(cid:3)DFWLYLW\

6ROG

:ULWWHQ(cid:3)RII

7RWDO

Information Technology

Biotechnology/Life Sciences

Communication/Media

Electronics

Medical/Health related

Other high technology activities

Other (non high technology)

Not allocated

6

-

3

-

3

-

-

-

7RWDO

(cid:20)(cid:21)

1

-

0

-

0

-

-

-

(cid:20)

7

-

3

-

3

-

-

-

(cid:20)(cid:22)

19

The breakdown of the 128 SMEs, which are currently part of the portfolios of the VC funds,
by the number of employees at the end of 2000, is as follows(cid:29)

7DEOH(cid:3)(cid:21)(cid:17)(cid:24)(cid:17)(cid:3)(PSOR\PHQW(cid:3)LQ(cid:3)EHQHILFLDU\(cid:3)60(V(cid:3)LQ(cid:3)SRUWIROLRV

1XPEHU(cid:3)RI
HPSOR\HHV

%HQHILFLDU\(cid:3)60(V

1XPEHU

(cid:8)

(cid:148)(cid:3)(cid:24)

6-10

11-50

>50

7RWDO

22

10

71

25

(cid:20)(cid:21)(cid:27)

17

8

55

20

(cid:20)(cid:19)(cid:19)

The classification of the 128 SMEs by sector of activity is as follows:

7DEOH(cid:3)(cid:21)(cid:17)(cid:25)(cid:17)(cid:3)6HFWRU(cid:3)RI(cid:3)DFWLYLW\(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V(cid:3)LQ(cid:3)SRUWIROLRV

6HFWRU(cid:3)RI(cid:3)DFWLYLW\

1XPEHU(cid:3)RI
EHQHILFLDU\(cid:3)60(V

Information Technology

Biotechnology/Life Sciences

Communication/Media

Electronics

Medical/Health related

Other high technology activities

Other (non high technology)

Not allocated

7RWDO

65

16

11

2

17

3

11

3

(cid:20)(cid:21)(cid:27)

SMEs in the high technology area make up 89% of the total number of SMEs currently in the
portfolio  of  the  VC  funds,  with  companies  active  in  information  technology  accounting  for
more than 50%.

20

(cid:21)(cid:17)(cid:25)(cid:17)(cid:3)

(PSOR\PHQW

The VC funds reported a total number of 4,796 employees at  year-end 2000 in 133 investee
companies  (excluding  non-EU  companies,  written-off  companies  and  four  realised
investments). 71 of these companies (the ones that received an investment before the end of
1999  or  early  2000)  reported  an  increase  in  employees  from  1,901  (as  on  31/12/1999)  to
2,686 (as on 31/12/2000). This represents an annual increase of 41%.

Following the results of the annual survey carried out in mid-2000, the expectation of the 69
concerned SMEs in terms of employment creation can be summarised as follows:

7DEOH(cid:3)(cid:21)(cid:17)(cid:26)(cid:17)(cid:3),PSDFW(cid:3)RQ(cid:3)HPSOR\PHQW(cid:3)LQ(cid:3)EHQHILFLDU\(cid:3)60(V

1XPEHU(cid:3)RI
HPSOR\HHV

$YHUDJH(cid:3)SHU
60(

$QQXDO
LQFUHDVH(cid:3)LQ(cid:3)(cid:8)

Current

Expected in one year

Expected in two years (*)

Expected in five years (*)

1,897

3,317

4,081

5,290

27

48

59

77

-

75

23

30

(*)  Around  40%  of  the  surveyed  companies  were  unable  to  provide  these  data.  For  these
companies an increase of 0% has been assumed.

More detailed information is included in annex 2.

21

(cid:22)(cid:17)(cid:3)

-2,17(cid:3)(8523($1(cid:3)9(1785((cid:3)(cid:11)-(9(cid:12)

(cid:22)(cid:17)(cid:20)(cid:17)(cid:3)

,QWURGXFWLRQ

The  development  of  new  commercial  outlets  in  other  Member  States  -  either  through
exporting  products  or  investing  directly  by  producing  on-site  -  offers  SMEs  a  strategic  and
proactive  choice,  which  allows  them  to  benefit  from  the  considerable  advantages  of  the
internal market. However, the fact is that the Europeanisation and internationalisation of trade
involves large companies more than SMEs, even in the smaller Member States where, in the
absence  of  a  large  internal  domestic  market,  SMEs  have  turned  towards  other  markets  to  a
greater extent than those in the large Member States. This also applies to direct transnational
investment  (the  most  highly  developed  aspect  of  internationalisation),  where  the  share  of
SMEs is even lower than for exports.

The European Observatory for SMEs1 confirms the relative weakness of Europe’s 17 million
SMEs in terms of internationalisation. It notes that the proportion of exporting undertakings in
Italy,  the  Netherlands,  Portugal  and  Spain  rises  with  the  size  of  the  undertaking.  In  the
absence of reliable statistics, the Observatory does not give any figures for the share of SMEs
in  direct  investment,  but  it  points  out  that  direct  investment  in  the  form  of  transnational
investment is dominated by the 30,000 large companies, and that there is a close link between
exporting and direct investment. A high level of direct investment goes hand in hand with a
high  level  of  exports.  Each  aspect  of  internationalisation  meets  a  need  on  the  part  of
undertakings  and  has  shown  its  worth.  Obviously,  SMEs  must  make  only  those  moves
necessary to achieve their aims in terms of internationalisation. However, besides their limited
human  and  financial  resources,  they  must  face  up  to  the  problems  involved  in  accessing  a
foreign  market.  Cultures,  traditions  and  regulatory  and  financial  framework  are  often  quite
different  and  SMEs  rarely  have  a  good  knowledge  of  foreign  languages  at  the  start  of  the
internationalisation  phase.  Against  this  background,  co-operation  with  a  partner  offers
considerable  advantages  for  achieving  the  intended  objectives,  through  careful  management
of  the  limited  resources  and  exploiting  the  reciprocal  advantages  for  the  benefit  of  each
partner. It is up to the future partners to select the aspect  which best  meets their  aspirations
and means. There can be no doubt that strategic alliances between SMEs, when well prepared,
have a high success rate.

The  realisation  of  the  internal  market  created  a  favourable  context  for  the  creation  of  Joint
Ventures. But this FRQGLWLRQ(cid:3)VLQH(cid:3)TXD(cid:3)QRQ does not seem to be sufficient to enable SMEs to set
up joint ventures. Effectively, whereas a lot of SMEs wish to set up joint ventures2, only a few
actually  do  so.  Indeed,  obstacles  to  the  internationalisation  of  SMEs  include  the  absence  of
adequate  financial  resources,  followed  by  lack  of  time  and  management  resources,  limited
knowledge of foreign languages and ignorance of the legislation governing foreign markets.

The  Commission  already  has  several  instruments  to  facilitate  the  search  for  information  on
other  markets  in  the  European  Union  and  on  potential  partners  from  other  Member  States.
However, implementation of a partnership and, even more so, the setting-up of a joint venture
are  an  expensive  and  complex  affair.  The  real  challenges  of  internationalisation  only  start
with  the  identification  of  the  potential  partners.  The  limited  financial  and  human  resources,
which  are  traditionally  characteristics  of  SMEs,  as  well  as  the  general  absence  of  support

1 4th report of the European Observatory on SMEs, 1996, EIM Small Business, Research and Consultancy
2 81% following a study realised by KPMG, -RLQW(cid:3)9HQWXUHV(cid:15)(cid:3)$(cid:3)7ULXPSK(cid:3)RI(cid:3)+RSH(cid:3)RYHU(cid:3)5HDOLW\?, KPMG, 1998

22

                                                
from  financial  institutions  because  of  what  they  consider  a  high  risk,  mean  that  many
transnational  co-operation  projects  are  not  implemented.  This  situation  is  particularly
regrettable in the case of good projects, which could have introduced new economic activities
and created jobs.

A lot of SME organisations regretted the absence of an instrument helping SMEs to overcome
the obstacles, especially since programmes aiming at setting up joint ventures with countries
outside the EU existed. The JEV programme was therefore set up. By fostering transnational
investments  of  SMEs  and  entrusting  the  marketing  of  the  Scheme  and  the  contacts  with
companies to financial institutions, JEV fulfils the principle of subsidiarity.

(cid:22)(cid:17)(cid:21)(cid:17)(cid:3)

’HVFULSWLRQ(cid:3)RI(cid:3)WKH(cid:3)SURJUDPPH

The  JEV  programme  aims  to  encourage  joint  ventures  between  European  SMEs  in  the
European Economic Area, thereby helping them to benefit from the opportunities offered by
the single market.

The contribution is intended to cover some of the expenses related to the setting up of a joint
venture. The amount (max. EUR 100,000 per project) and the terms of this contribution are as
follows:

•  The  first  part  of  the  contribution  covers  up  to  50  %  of  the  eligible  expenses  with  a

maximum ceiling of EUR 50,000.

Eligible expenses are those related to the conception and setting up of a transnational joint
venture created by European SMEs. These include the expenses of the market survey, the
preparation of the legal framework and the business plan, the analysis of the environmental
impact, and any other expenses that are essential for the setting up of the joint venture.

•  The second part of the contribution covers up to 10 % of the total amount of the investment

made.

In  addition,  JEV  supports  actions  promoting  the  Programme  from  conception  through
development  and  distribution  of  promotional  material  through  any  form;  and/or-  events
intended to stimulate co-operation in view of the creation of new transnational joint ventures
within the European Union.

The  maximum  amount  of  a  contribution  for  Promotion  Facility  is  EUR  10.000  for
promotional action material and EUR 20.000 for events intended to stimulate co-operation. It
shall consist of 50% of all eligible expenses and shall be in the form of a grant.

Entities  which  are  eligible  to  apply  for  a  JEV  Promotion  Facility  contribution  are  financial
intermediaries, European, national or regional associations of SMEs, Chambers of Commerce,
Euro-Info-Centres, the Business & Innovation Centres, and all other non-profit entities from
European Union, such as trade  and industry associations, public agencies and  other  entities,
promoting investments eligible for the JEV Programme.

(cid:22)(cid:17)(cid:22)(cid:17)(cid:3)

’HYHORSPHQW(cid:3)RI(cid:3)-(9

The  overall  administrative  environment  of  the  year  2000  was  quite  difficult  for  the
development of the JEV programme. At the beginning of the year, the Commission decided to
close down the Community programmes for joint ventures with SMEs in Central and Eastern
Europe and the New Independent States (JOP) and for joint ventures for the countries of Latin

23

America,  Asia,  the  Mediterranean  region  and  South  Africa  (ECIP).  As  the  JOP  and  ECIP
programmes  had  existed  since  the  beginning  of  the  ‘90s,  while  the  JEV  programme  was
launched  in  1998,  most  of  the  Financial  Intermediaries  of  the  JEV  network  came  from  the
JOP  and  ECIP  networks.  The  closure  of  the  two  joint  venture  programmes  with  third
countries induced banks to reduce their staff involved in this business.

The development  of  the  JEV  programme  in  2000  was  somewhat  limited.  The  main  reasons
for this were the closure of similar programmes, initial uncertainty about  the  future  of  JEV,
the bureaucratic procedures  involved  and  eligibility  criteria that were not always  adapted to
the market needs of the SMEs.

Indeed,  when  the  draft  proposal  for  a  new  Multiannual  Programme  for  Enterprise  and
Entrepreneurship, and in particular for SMEs (2001-2005) was presented by the Commission
in April 2000, JEV was not proposed for renewal. However, the other two instruments of the
Growth  and  Employment  Initiative,  ETF  Start-up  and  the  Guarantee  Facility,  were  fully
integrated into the Commission Proposal. This gave a certain confusion on the future of JEV
beyond the end of the year 2000, and hence a considerable number of financial intermediaries
no longer promoted JEV. Only in late autumn, at the request of the European Parliament, did
the  Commission  add  the  JEV  programme  to  its  proposal.  The  Council  then  approved  the
inclusion  of  JEV  in  its  decision  of  20  December  2000  on  the  Multiannual  Programme  for
Enterprise and Entrepreneurship, and in particular for SMEs, (2001-2005).

Moreover, the business environment for JEV was not favourable and SMEs had to wait longer
than  expected  for  payment  and  approval,  as  the  Commission  had  to  apply  very  strict,  time
consuming  and  burdensome  control  mechanisms  in  order  to  protect  the  interests  of  the
European budget.

This explains why the number of new proposals submitted by SMEs was below forecasts.

However, the prospects for the future are positive, for various reasons. Based on the mandate
given  by  the  Council,  the  new  JEV  programme  will  be  simplified.  This  will  enable  SMEs'
requests  for  financial  contributions  to  be  dealt  with  more  rapidly,  both  by  the  financial
intermediaries and by the Commission services, and to ensure that Community resources are
used correctly. Furthermore, the eligibility criteria of JEV will be adapted and the programme
opened to candidate countries.

(cid:22)(cid:17)(cid:23)(cid:17)(cid:3)

%XGJHWDU\(cid:3)VLWXDWLRQ

(cid:22)(cid:17)(cid:23)(cid:17)(cid:20)(cid:17)(cid:3) 2YHUYLHZ

The initial amount of the budgetary allocations foreseen for the JEV programme totalled EUR
89 million,  including EUR 5 million allocated in  1997  for  the  JEV  pilot  action.  Out  of  this
total amount, EUR 57 million was committed and made available for projects. The remaining
part was transferred to the SME Guarantee Facility.

(cid:22)(cid:17)(cid:23)(cid:17)(cid:21)(cid:17)(cid:3) *HRJUDSKLF(cid:3)GLVWULEXWLRQ

For JEV, as the projects are by definition transnational, geographic distribution of budgetary
allocations by Member States is not relevant. Hence, the geographic distribution is analysed
in the context of the review of the projects under point 3.5. hereunder.

24

(cid:22)(cid:17)(cid:23)(cid:17)(cid:22)(cid:17)(cid:3) &RPPLWPHQWV

At  the  end  of  2000,  Commission  services  had  committed  EUR  8.8  million  of  the  available
budgetary resources to final beneficiary SMEs.

(cid:22)(cid:17)(cid:23)(cid:17)(cid:23)(cid:17)(cid:3) ’LVEXUVHPHQWV

As on 31 December 2000, the total disbursements to beneficiary SMEs amounted to EUR 1.1
million.  This  apparently  low  level  of  disbursements  is  due  to  the  time  needed  for  the
preparatory phases of the joint ventures and for the eventual realisation of the investments.

(cid:22)(cid:17)(cid:23)(cid:17)(cid:24)(cid:17)(cid:3) $FFRXQWV

The financial statements of the programme are enclosed in annex 7.

25

(cid:22)(cid:17)(cid:24)(cid:17)(cid:3)

)LQDQFLDO(cid:3),QWHUPHGLDULHV

The  JEV  programme  is  implemented  through  a  network  of  financial  institutions.  This
network,  composed  following  a  call  for  expressions  of  interest  (official  Journal  S  42  of  28
February  1998)  comprises  85  financial  intermediaries.  A  complete  list  of  these  financial
intermediaries is attached (annex 3).

The table below gives an overview of the financial intermediaries by country:

7DEOH(cid:3)(cid:22)(cid:17)(cid:20)(cid:17)(cid:3)%UHDNGRZQ(cid:3)RI(cid:3)ILQDQFLDO(cid:3)LQWHUPHGLDULHV(cid:3)E\(cid:3)FRXQWU\

&RXQWU\

1XPEHU(cid:3)RI(cid:3)ILQDQFLDO
LQWHUPHGLDULHV

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

UK

7RWDO

7

6

2

1

10

10

2

1

23

3

1

1

2

13

1

2

(cid:27)(cid:24)

An  SME  that  wishes  to  submit  an  application  under  this  scheme  must  contact  one  of  the
financial  intermediaries  in  the  network.  This  intermediary  is  entrusted  with  evaluating  the
application  and  passing  it  on  to  the  Commission  services.  The  latter  will  then  verify  the
eligibility of the application and the possible impact on employment.

Out  of  these  85  financial  intermediaries,  only  some  are  active,  while  the  others  are  rather
“sleeping”  partners.  The  10  most  active  financial  intermediaries  account  for  90%  of  the
projects.

26

(cid:22)(cid:17)(cid:25)(cid:17)(cid:3)

5HYLHZ(cid:3)RI(cid:3)WKH(cid:3)SURMHFWV

From  the  start  in  1998  until  31  December  2000,  after  an  in-depth  assessment  of  potential
projects by the financial intermediaries, finally 186 projects have been received and 129 have
been approved by the Commission services. Among them, 46 were promotion projects and 83
were preparatory work and investment projects. The table below summarises the evolution of
projects:

7DEOH(cid:3)(cid:22)(cid:17)(cid:21)(cid:17)(cid:3)3URMHFWV(cid:3)VWDWXV

3URMHFWV

(Cumulative figures)

3URMHFWV(cid:3)UHFHLYHG

Joint Venture Projects

Promotion Facility

7RWDO

3URMHFWV(cid:3)DSSURYHG

Joint Venture Projects

Promotion Facility

7RWDO

3URMHFWV(cid:3)UHMHFWHG

3URMHFWV(cid:3)ZLWKGUDZQ

3URMHFWV(cid:3)XQGHU(cid:3)UHYLHZ

(cid:22)(cid:20)(cid:17)(cid:20)(cid:21)(cid:17)(cid:20)(cid:28)(cid:28)(cid:27)

(cid:22)(cid:20)(cid:17)(cid:20)(cid:21)(cid:17)(cid:20)(cid:28)(cid:28)(cid:28)

(cid:22)(cid:20)(cid:17)(cid:20)(cid:21)(cid:17)(cid:21)(cid:19)(cid:19)(cid:19)

23

-

23

11

-

11

2

2

8

79

25

104

53

12

65

5

9

25

127

59

186

83

46

129

17

23

18

The first  year of the JEV programme  (1998) was used by the Commission  services to  build
the network  of  financial  intermediaries and to implement the scheme.  In the second  year of
the programme 81 projects were received, which is four times more than in 1998. In 2000 the
number  of  projects  received  remained  at  the  same  level  as  the  year  before.  This  was  lower
than expected.

During the three years, almost one out of four projects was refused or was withdrawn by the
financial intermediaries. Most of the withdrawals are due to the  administrative requirements
for the processing of the files. Concerning refusals, most were due to an insufficient effect on
employment, non-compliance with the SME criteria or an unbalanced partnership.

A brief description of some of the projects approved is attached (annex 4)

27

The table below shows the location of the planned joint ventures:

7DEOH(cid:3)(cid:22)(cid:17)(cid:22)(cid:17)(cid:3)%UHDNGRZQ(cid:3)E\(cid:3)FRXQWU\(cid:3)RI(cid:3)WKH(cid:3)SODQQHG(cid:3)MRLQW(cid:3)YHQWXUHV

3ODQQHG(cid:3)MRLQW(cid:3)YHQWXUHV

(cid:20)(cid:28)(cid:28)(cid:27)(cid:16)(cid:20)(cid:28)(cid:28)(cid:28)

(cid:21)(cid:19)(cid:19)(cid:19)

7RWDO

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

United Kingdom

To be defined

0

7

3

1

10

3

0

1

7

1

3

0

5

9

1

2

0

1

1

3

0

1

4

1

0

3

0

1

0

3

7

2

2

1

7RWDO

(cid:24)(cid:22)

(cid:22)(cid:19)

1

8

6

1

11

7

1

1

10

1

4

0

8

16

3

4

1

(cid:27)(cid:22)

It  can  be  seen  that  almost  all  EU  countries  are  involved  with  some  having  proportionally  a
very  large  share  of  the  projects.  This  coincides  with  the  countries  where  the  financial
intermediaries are more active.

28

Nationalities of partners involved in projects are as follows:

7DEOH(cid:3)(cid:22)(cid:17)(cid:23)(cid:17)(cid:3)%UHDNGRZQ(cid:3)E\(cid:3)FRXQWU\(cid:3)RI(cid:3)MRLQW(cid:3)YHQWXUHV¶(cid:3)SDUWQHUV

3DUWQHUV

(cid:20)(cid:28)(cid:28)(cid:27)(cid:16)(cid:20)(cid:28)(cid:28)(cid:28)

(cid:21)(cid:19)(cid:19)(cid:19)

7RWDO

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

United Kingdom

Other

7RWDO

1

14

7

1

22

11

0

1

11

1

6

0

8

13

3

16

0

(cid:20)(cid:20)(cid:24)

3

5

5

0

5

6

1

2

7

0

7

0

3

11

3

5

3

(cid:25)(cid:25)

4

19

12

1

27

17

1

3

18

1

13

0

11

24

6

21

3

(cid:20)(cid:27)(cid:20)

29

The number of planned joint ventures by sector of activity is as follows:

7DEOH(cid:3)(cid:22)(cid:17)(cid:24)(cid:17)(cid:3)6HFWRU(cid:3)RI(cid:3)DFWLYLW\(cid:3)RI(cid:3)SODQQHG(cid:3)MRLQW(cid:3)YHQWXUHV

3ODQQHG(cid:3)MRLQW(cid:3)YHQWXUHV

(cid:20)(cid:28)(cid:28)(cid:27)(cid:16)(cid:20)(cid:28)(cid:28)(cid:28)

(cid:21)(cid:19)(cid:19)(cid:19)

7RWDO

Multimedia, software, audio-visual

Marketing and commercialisation

Manufacturing

Waste management

Biotechnology

Transports, logistics

Information technology

Energy

Construction

Industry

Telecommunications 
processing

and 

data-

Other services

7RWDO

2

7

3

2

1

7

15

2

4

5

2

3

(cid:24)(cid:22)

0

6

11

0

1

1

5

2

0

0

0

4

(cid:22)(cid:19)

2

13

14

2

2

8

20

4

4

5

2

7

(cid:27)(cid:22)

30

It  is  also  worth  noting  that  out  of  the  181  SMEs  selected,  54  %  concerned  SMEs  that  had
fewer than 10 employees, another 31 % concerned SME with between 10 and 49 employees.
This shows that JEV meets the needs of small enterprises.

The  size  of  the  SMEs,  involved  in  the  approved  joint  venture  projects  (until  31  December
2000) is as follows:

7DEOH(cid:3)(cid:22)(cid:17)(cid:25)(cid:17)(cid:3)(PSOR\PHQW(cid:3)LQ(cid:3)SDUWQHU(cid:3)60(V

1XPEHU(cid:3)RI(cid:3)HPSOR\HHV

< 10

10-49

50-249

7RWDO

(cid:22)(cid:17)(cid:26)(cid:17)(cid:3)

(PSOR\PHQW

1XPEHU(cid:3)RI(cid:3)60(V
(cumulative figures)

(cid:22)(cid:20)(cid:17)(cid:20)(cid:21)(cid:17)(cid:20)(cid:28)(cid:28)(cid:28)

(cid:22)(cid:20)(cid:17)(cid:20)(cid:21)(cid:17)(cid:21)(cid:19)(cid:19)(cid:19)

48

46

21

(cid:20)(cid:20)(cid:24)

97

56

28

(cid:20)(cid:27)(cid:20)

By  the  end  of  2000,  about  10  new  joint  ventures  had  been  created;  this  is  in  line  with
expectations.  In  fact,  the  average  duration  between  the  preparatory  phase  and  the  effective
creation of the joint venture is between 18 months and two years. Since the JEV programme
took off at the end of 1998, it is only now that the first joint ventures are being set up.

Although it is too early to measure the effect on employment, first indications seem positive.
Based  on  the  information  received  from  applicants,  the  foreseen  impact  on  job  creation  is
approximately 14 jobs per project on average.

31

(cid:23)(cid:17)(cid:3)

60((cid:3)*8$5$17(((cid:3))$&,/,7<

(cid:23)(cid:17)(cid:20)(cid:17)(cid:3)

,QWURGXFWLRQ

According  to  the  sixth  annual  report  of  the  European  Observatory  for  SMEs3,  SMEs
encounter specific problems in their attempts to access finance. Bank credit is common and is
the only external source of financing for many enterprises. The main reason for the difficulty
to access appears to be the lack of collateral.

While  the  situation  has  improved  in  recent  years,  access  to  finance  remains  difficult  for
certain  companies,  such  as  micro-enterprises,  start-ups  and  innovative,  fast  growing  SMEs.
These  enterprises  present  strong  job-creation  potential.  According  to  the  latest  figures
available4, very small enterprises with 1 to 9 employees recorded the biggest increase in terms
of job-creation  in  the  European  Union.  Small  enterprises  have  a  higher  rate  of  employment
expansion and they also employ more women and young workers.

Satisfactory development of the SME Guarantee Facility reflects the market gap and explains
the subsequent acceptance by market players of this type of Community involvement. Under
the SME Guarantee Facility, small enterprises with 1 to 9 employees represent over 90% of
the SMEs that benefited from the Facility.

The following chapters on the SME Guarantee Facility have been drafted using two types of
information:

– 

– 

Aggregate figures like global commitments and guarantee volumes. This information
relates to 31 December 2000;

Detailed  information  concerning  the  operations  of  the  financial  intermediaries  in
favour  of  SMEs.  This  available 
the  financial
intermediaries relates to 30 September 2000.

information  as  reported  by 

This report is complemented by a specific SME annex (annex 6) illustrating aggregate data on
the beneficiary SMEs from late 1998 until the end of 1999. The data is based on information
contained in a specific report to be submitted by the EIF to the Commission services annually
in September. It is important to stress that the information received in September 2000 refers
to the year 1999.

(cid:23)(cid:17)(cid:21)(cid:17)(cid:3)

’HVFULSWLRQ(cid:3)RI(cid:3)WKH(cid:3))DFLOLW\

The  objective  of  the  SME  Guarantee  Facility  is  to  stimulate  job-creation  by  supporting  the
investment activities of  SMEs  within  the  European  Union,  through  increased  availability  of
loan finance.  This  is achieved by increasing  the  capacity  of  guarantee schemes operating  in
the  Member  States  and  relates  to  both  new  and  existing  portfolios.  This  Facility  provides
higher  volumes  of  guarantees  for  the  existing  guarantee  products  of  the  financial
intermediaries, access to financing for a larger number of small companies for a wider variety
of investments and guarantees for riskier loans. The Facility covers part of the losses incurred
under the guarantees up to a pre-determined amount.The Facility is operated by the European
Investment  Fund  (EIF)  on  a  trust  basis.  It  manages  the  contacts  with  financial  institutions

3 The European Observatory for SMEs - Sixth Annual Report, Luxembourg
4 Eurostat, Statistics in focus, Industry, Trade and services, Theme 4, 11/2000.

32

                                                
interested  in  joining  the  Facility,  evaluates  and  submits  the  selected  proposals  to  the
Commission services for eligibility approval. Appropriate co-operation with Member States is
ensured by contacts between the EIF and the relevant national authorities.

The SME Guarantee Facility gives priority to companies with up to 100 employees. Particular
attention is given to financing of the intangible assets of SMEs. The financial intermediaries
may  have  stricter  SME  eligibility  criteria  depending  on  their  specific  guarantee  or  loan
products. In any case, the approval process, with regard to the final SME beneficiaries, is the
full responsibility of the selected financial intermediaries.

(cid:23)(cid:17)(cid:22)(cid:17)(cid:3)

%XGJHWDU\(cid:3)VLWXDWLRQ

(cid:23)(cid:17)(cid:22)(cid:17)(cid:20)(cid:17)(cid:3) 2YHUYLHZ

The  initial  amount  of  the  budgetary  allocations  foreseen  for  the  SME  Guarantee  Facility
totalled EUR 168 million for three years, including EUR 59 million allocated in 2000. Due to
the  rapid  development  of  the  Facility,  further  budgetary  funds  amounting  to  EUR  30.56
million  were  transferred  from  the  JEV  programme  to  the  Facility  in  December  2000,
increasing its total resources to EUR 198.56 million.

(cid:23)(cid:17)(cid:22)(cid:17)(cid:21)(cid:17)(cid:3) *HRJUDSKLF(cid:3)GLVWULEXWLRQ

At  the  end  of  2000,  the  EIF  had  committed  EUR  130  million  of  the  available  budgetary
resources. The geographic distribution of these commitments is shown below:

Spain
13%

Denmark
3%

Finland
3%

Austria
2%

Portugal
1%

United Kingdom
5%

France
27%

Sweden
4%

Italy
11%

Germany
23%

Belgium
3%

Netherlands
5%

)LJXUH(cid:3)(cid:23)(cid:17)(cid:20)(cid:17) Breakdown by country of the financial intermediaries

33

(cid:23)(cid:17)(cid:22)(cid:17)(cid:22)(cid:17)(cid:3) &RPPLWPHQWV

Quarterly EIF commitments to financial intermediaries are shown in the graph below:

n
o
i
l
l
i

m
R
U
E

30

25

20

15

10

5

0

28

27

25

22

8

11

7

1

0

1

Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00

)LJXUH(cid:3)(cid:23)(cid:17)(cid:21)(cid:17)(cid:3)4XDUWHUO\(cid:3)(,)(cid:3)FRPPLWPHQWV(cid:3)WR(cid:3)ILQDQFLDO(cid:3)LQWHUPHGLDULHV

The graph below shows the evolution of the EIF commitments (EUR 130 million end 2000)
compared to the available committed budgetary resources (EUR 198.56 million end 2000). In
addition,  it  indicates  the  actual  utilisation  of  the  budgetary  resources  by  the  financial
intermediaries.

250

200

150

100

50

n
o
i
l
l
i

m
R
U
E

0
Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00

Available committed budgetary resources
EIF commitment
Actual utilisation by the financial intermediaries

)LJXUH(cid:3)(cid:23)(cid:17)(cid:22)(cid:17)(cid:3)&XPXODWLYH(cid:3)HYROXWLRQ(cid:3)RI(cid:3)RSHUDWLRQV

34

 
 
Guarantee  schemes  in  general  have  a  high  leverage  effect.  As  on  31  December  2000,  the
aggregate amount of loans granted to SMEs under the Facility totalled EUR 3.4 billion. At the
same  time,  the  actual  utilisation  of  the  budgetary  resources  by  the  financial  intermediaries
amounted to EUR 62 million, achieving a leverage effect of 54. According to the forecasts by
the  financial  intermediaries,  it  is  estimated  that  more  than  EUR  6.6  billion  of  loans  will  be
granted on the basis of the commitments of EUR 130 million.

The  following  graph  shows  the  development  of  the  loans  to  SMEs  and  the  corresponding
amounts that the beneficiary SMEs have invested so far:

6000

5000

4000

3000

2000

1000

n
o
i
l
l
i

m
R
U
E

0
Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00

Aggregate SME loan volume
Aggregate SME investment amounts

)LJXUH(cid:3)(cid:23)(cid:17)(cid:23)(cid:17)(cid:3)/RDQV(cid:3)JUDQWHG(cid:3)WR(cid:3)60(V(cid:3)DQG(cid:3)FRUUHVSRQGLQJ(cid:3)LQYHVWPHQWV

It is worth mentioning that the first financial intermediaries that have signed a contract with
the EIF (either in the last quarter of 1998 or in the first quarter of 1999) have already used on
average 77% of their total guarantee portfolio by 31 December 2000. This is in line with the
original forecasts and states a satisfactory development of the Facility. In  fact, at the end of
1999 and in 2000 the EIF has already negotiated with some of the financial intermediaries to
increase the relevant portfolio volumes.

(cid:23)(cid:17)(cid:22)(cid:17)(cid:23)(cid:17)(cid:3) /RVV(cid:3)SD\PHQWV

The first guarantee calls were made by the financial intermediaries in the third quarter 2000.
The amount of the EIF’s portion in regard to the defaulted loans totals EUR 446,028 so far.
This result is in line with the nature of the guarantee or loan products covered by the Facility.
It also reflects the time lag between the signing of the guarantee agreements between the EIF
and  the  financial  intermediaries  and  the  occurrence  of  defaults  in  the  underlying  portfolios.
All four financial intermediaries concerned (Bürges in Austria, Finnvera in Finland, Deutsche
Ausgleichsbank in Germany and Almi in Sweden) signed an agreement with the EIF either at
the end 1998 or in 1999.

35

 
(cid:23)(cid:17)(cid:22)(cid:17)(cid:24)(cid:17)(cid:3) $FFRXQWV

The balance sheet and the profit & loss accounts of the facility are enclosed in annex 7.

(cid:23)(cid:17)(cid:23)(cid:17)(cid:3)

)LQDQFLDO(cid:3),QWHUPHGLDULHV

The EIF has succeeded in signing contracts with 21 financial intermediaries in 12 countries.
As  anticipated,  in  some  countries,  where  guarantee  schemes  do  not  exist  and/or  where  the
public interest in the Facility was low, the implementation by the EIF turned out to be rather
difficult. This is in particular the case for Greece, Ireland and Luxembourg.

A  list  of  the  financial  intermediaries  and  a  short  description  of  the  financing  products
guaranteed under the SME Guarantee Facility is annexed (annex 5).

The  following  graph  shows  the  utilisation  of  the  EIF  commitments  by  country  as  on  30
September  2000.  The  utilisation  is  calculated  as  the  ratio  between  aggregate  amount  of  the
guarantees  included  in  the  relevant  SME  Guarantee  Facility  portfolio  of  each  intermediary
divided  by  the  maximum  guarantee  portfolio  volume  contractually  agreed  for  the
intermediary.

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

Sweden

United Kingdom

0%

20%

40%

60%

80%

100%

)LJXUH(cid:3)(cid:23)(cid:17)(cid:24)(cid:17)(cid:3)8WLOLVDWLRQ(cid:3)E\(cid:3)ILQDQFLDO(cid:3)LQWHUPHGLDULHV

36

Some comments on the development of the Facility in each country are given below:

Austria

Bürges  has  developed  its  operations  under  the  Facility  very  well  and  it  will  request  an
extension  of  the  contract  and  an  increase  of  the  relevant  portfolio  volumes  in  2001.  The
preliminary year-end information shows an utilisation rate of 96%.

Belgium

The utilisation was delayed. At first, Fonds de Participation – Participatie Fonds introduced,
in  the  beginning  of  1999,  a  new  loan  guarantee  product  in  support  of  SMEs  with  up  to  50
employees and with a business activity of less than 5 years. However, as the utilisation of this
new instrument by the commercial banks turned out to be unsatisfactory, EIF entered into a
new contract in the summer 2000 to cover subordinated loans to start-ups. This immediately
led to an increase in utilisation.

Denmark

The utilisation of the Facility has been highly satisfactory. The Growth Fund (Vækstfonden)
signed a contract with the EIF in June 2000. With the support of the Facility it launched a new
loan guarantee scheme that began its operations in August 2000. According to the preliminary
information, as on 31 December 2000 the utilisation rate of the new scheme is 25% in terms
of loan disbursements. However, in terms of loan granted already 90% have been committed.
Therefore, an increase of the relevant portfolio volumes will be requested later on in 2001.

Finland

Finnvera requested to include its small enterprise guarantee scheme into the SME Guarantee
Facility portfolio at the end of the  year. A special window was designed for companies that
are  owned  by  young  people.  According  to  the  preliminary  information,  as  of  31  December
2000 the utilisation rate is 28%.

France

The  selected  portfolio  consists  of  three  programmes:  start-up,  business  transfer  and
investment  by  micro-enterprises  (up  to  10  employees).  The  EIF  has  increased  the  relevant
portfolio  volumes  of  Sofaris  to  enable  the  institution  to  continue  its  operations.  More  than
13,000 loans have been granted so far.

Germany

Due to an extremely positive utilisation of the loan product of Deutsche Ausgleichsbank, the
amounts of the relevant portfolio volumes were increased in August 2000. In addition, the EIF
signed a contract with Kreditanstalt für Wiederaufbau in December 2000.

Greece

The relevant law that will allow such a guarantee scheme to be established has not  yet been
approved.

37

Ireland

The  consultations  concerning  possible  financial  intermediaries  are  still  taking  place  at  the
level of the national authorities.

Italy

The EIF has signed contracts with 9 guarantee schemes that operate at a regional level. The
utilisation of the Facility is satisfactory and the leverage effect of the budgetary resources is
very high. Relevant guarantee volumes of two intermediaries have already been increased to
enable  the  institutions  to  continue  their  good  performance.  Further  increases  will  be
considered in 2001.

Luxembourg

Only one potential institution has shown interest so far. If  a suitable product can be defined
under the Facility, the intermediary may join the network later in 2001.

The Netherlands

The development of the Facility by BBMKB (Besluit Borgstelling MKB kredieten) has been
more  than  satisfactory.  Therefore,  an  increase  of  the  relevant  portfolio  volumes  will  be
requested in 2001.

Portugal

The  EIF  signed  a  contract  with  the  Portuguese  SPMG  (Sociedade  de  Investimento)  in  June
2000. SPMG manages a newly established national guarantee scheme. The Facility supports
the intermediary in its effort to establish a mutual guarantee system in the country. The take-
up rate is quite low at the moment as the implementation process of the new system is still on
going.

Spain

The  utilisation  rate  of  26%  by  CERSA  (Compañía  Española  de  Reafianzamiento)  is  in  line
with the expectations. The scheme provides coverage  to  national  mutual  guarantee  schemes
nation-wide.  Thanks  to  the  support  of  the  Facility,  CERSA  changed  its  product  from  a
guarantee with capped liability into a guarantee with unlimited liability.

Sweden

The  Facility  enabled  Almi  Företagspartner  to  increase  its  activities  in  the  framework  of
growth  financing,  start-up  loans  and  loans  to  female  entrepreneurs.  According  to  the
preliminary information, as on 31 December 2000, the utilisation rate was 38%.

The United Kingdom

The Prince’s Trust signed a contract with the EIF only in December 2000 and therefore has
not yet carried out any operations that could be included in this report.

38

(cid:23)(cid:17)(cid:24)(cid:17)(cid:3)

%HQHILFLDU\(cid:3)60(V

As  on  30  September  2000,  the  total  number  of  SMEs  benefiting  from  the  SME  Guarantee
Facility is 40,778 compared with 7,223 last year. The following table shows  the  breakdown
by country and the corresponding aggregate loan amounts:

7DEOH(cid:3)(cid:23)(cid:17)(cid:20)(cid:17)(cid:3)%UHDNGRZQ(cid:3)E\(cid:3)FRXQWU\(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V

1XPEHU(cid:3)RI(cid:3)EHQHILFLDU\
60(V

/RDQ(cid:3)DPRXQWV
(EUR million)

$YHUDJH(cid:3)ORDQ(cid:3)DPRXQW
(EUR 000)

2,218

166

11

356

13,463

8,950

9,836

1,645

8

2,182

1,943

(cid:23)(cid:19)(cid:15)(cid:26)(cid:26)(cid:27)

218

5

2

81

1,070

300

604

272

10

264

62

(cid:21)(cid:15)(cid:27)(cid:27)(cid:26)

98

30

181

228

79

34

61

165

1,250

121

32

(cid:26)(cid:20)

&RXQWU\

Austria

Belgium

Denmark

Finland

France

Germany

Italy

Netherlands

Portugal *)

Spain

Sweden

7RWDO

*) SPMG is in the process of establishing a mutual guarantee system in Portugal. As the mutual guarantee funds
are not yet operational, SPMG has issued guarantees under its normal activities to SMEs.

In  accordance  with  the  preliminary  information  submitted  by  the  financial  intermediaries,
more than 50,000 SMEs will have benefited from the Facility at the end of 2000.

Final beneficiaries with up to 10 employees made up 91% of the total number of SMEs. It is
interesting to compare the distribution of SMEs by size under the Facility with that of the EU
in general. According to the European Observatory for SMEs, sixth report, 93% of SMEs are
micro  enterprises,  6%  are  small  enterprises  and  1%  are  medium  sized  enterprises.
Consequently,  the  population  of  the  beneficiary  SMEs  of  the  SME  Guarantee  Facility  is
similar to the global EU SME distribution.

39

The classification in terms of the number of employees is as follows(cid:29)

7DEOH(cid:3)(cid:23)(cid:17)(cid:21)(cid:17)(cid:3)(PSOR\PHQW(cid:3)LQ(cid:3)EHQHILFLDU\(cid:3)60(V

1XPEHU(cid:3)RI

HPSOR\HHV

(cid:19)(cid:16)(cid:24)

(cid:25)(cid:16)(cid:20)(cid:19)

(cid:20)(cid:20)(cid:16)(cid:21)(cid:19)

(cid:21)(cid:20)(cid:16)(cid:24)(cid:19)

(cid:24)(cid:20)(cid:16)(cid:20)(cid:19)(cid:19)

1RW(cid:3)DYDLODEOH

7RWDO

%HQHILFLDU\(cid:3)60(V

1XPEHU

33,657

4,286

1,593

948

286

8

(cid:23)(cid:19)(cid:15)(cid:26)(cid:26)(cid:27)

(cid:8)

83

10

4

2

1

0

100

The classification of the SMEs, in terms of their year of establishment, is as follows:

7DEOH(cid:3)(cid:23)(cid:17)(cid:22)(cid:17)(cid:3)%UHDNGRZQ(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V(cid:3)E\(cid:3)\HDU(cid:3)RI(cid:3)HVWDEOLVKPHQW

<HDU(cid:3)RI(cid:3)HVWDEOLVKPHQW

1XPEHU(cid:3)RI(cid:3)EHQHILFLDU\(cid:3)60(V

(cid:31)(cid:20)(cid:28)(cid:28)(cid:27)

(cid:20)(cid:28)(cid:28)(cid:27)

(cid:20)(cid:28)(cid:28)(cid:28)

(cid:21)(cid:19)(cid:19)(cid:19)

(cid:21)(cid:19)(cid:19)(cid:20)(cid:13)(cid:12)

1RW(cid:3)DYDLODEOH(cid:13)(cid:13)(cid:12)

7RWDO

16,463

1,749

6,048

8,455

2

8,025

(cid:23)(cid:19)(cid:15)(cid:26)(cid:26)(cid:27)

*) The loans were granted as a pre-start financing before the companies were established.

**) This data mainly concerns Sofaris. It is estimated that, approximately 30% of Sofaris’s guarantee portfolio
relate to its start-up programme. Therefore, out of the 10,178 SMEs for which data on the year of establishment
is  not  available,  some  3,000  are  start-ups.  Of  these,  it  is  estimated  that  approximately  1,200  companies  were
created in 2000.

40

(cid:23)(cid:17)(cid:25)(cid:17)(cid:3)

(PSOR\PHQW

The 40,778 SMEs benefiting from the SME Guarantee Facility have so far declared that they
have  175,174  employees.They  have  also  indicated  that  they  expect  an  increase  of  19,084
employees within one year and a further increase of 33,934 within a second year. Hence it is
estimated  that  the  SMEs  that  have  benefited  from  the  Facility  will  create  a  total  of  around
52,018 new jobs within two years or an average of 1.3 new jobs per SME. This is substantial,
if one remembers that more than 80% of the beneficiary SMEs are very small companies with
up to 5 employees.

41

(cid:24)(cid:17)(cid:3)

&21&/86,216

(cid:24)(cid:17)(cid:20)(cid:17)(cid:3)

*URZWK(cid:3)DQG(cid:3)(PSOR\PHQW(cid:3),QLWLDWLYH

SMEs  are  not  homogeneous,  which  is  why  under  the  Growth  and  Employment  Initiative
different  kinds  of  support  measures  have  been  developed  for  different  categories  of
enterprises. The three financial instruments - ETF Start-up Facility, JEV and SME Guarantee
Facility  -  contribute  in  varying  degrees  to  the  development  of  SMEs.  They  support  the
creation and the growth of businesses as well as co-operation between businesses.

The degree of development of these three instruments varies considerably. The ETF Start-up
Facility  is  still  at  an  early  stage  of  its  investment  phase.  Considering  the  complexities
involved  (establishment  of  new  VC  funds  often  with  new  management  teams),  the  results
achieved so far may be considered to be satisfactory. The EIF expects that the total remaining
budgetary  allocation  will  be  committed  by  the  beginning  of  2002,  taking  into  account
commitments  to  further  VC  funds  already  under  negotiation  or  in  advanced  stages  of
appraisal  as  well  as  the  steady  flow  of  new  proposals  from  potential  fund  managers  and
sponsors.

As  regards  to  JEV,  the  take-up  of  the  programme  is  slower  than  expected  due  to  multiple
reasons.  It  is  considered  that  the  processing  time  of  the  SME  submissions  is  too  long.  In
addition, the current eligibility criteria do not respond to SMEs’ needs with regard to cross-
border  investments.  For  some  SMEs  the  co-operation  with  a  foreign  partner,  including  the
sharing of management responsibilities may be considered to be a burden. Therefore, the new
MAP foresees  a  simplification of the procedures  and an  extension of the relevant eligibility
criteria.

Finally, the global take-up of the SME Guarantee Facility has been satisfactory and reflects an
acceptance  by  market  players  as  well  as  the  necessity  for  this  type  of  Community
involvement.

Taking  account  of  the  absorption  of  the  three  instruments,  the  Commission  has  adapted  the
allocation  between  the  schemes  by  reallocating  EUR  30.56  million  from  JEV  to  SME
Guarantee Facility.

On  20  December  2000  the  Council  decided  to  extend  the  three  financial  instruments  of  the
Growth and Employment Initiative under  a new legal basis,  the multiannual  programme  for
enterprises  and  entrepreneurship  (MAP),  and  in  particular  for  small  and  medium-sized
enterprises (2001-2005). Furthermore, the Seed Capital action (the former CREA)  continues
to be an integral part of the MAP and will be managed by the EIF.

(cid:24)(cid:17)(cid:21)(cid:17)(cid:3) 0XOWL(cid:3)$QQXDO(cid:3)3URJUDPPH

The credits proposed for financial instruments under the new MAP (EUR 317 million for the
period 2001-2005) are allocated to the SME Guarantee Facility, the ETF Start-up Facility and
the Seed Capital action.

In  order  to  provide  the  accession  candidates  with  the  opportunity  to  become  familiar  with
community policies and instruments, the MAP has been opened up to the potential accession
countries.  Furthermore,  the  agreement  on  the  European  Economic  Area  (EEA)  concluded
with the ETFA/EEA countries as well as the Association Agreements concluded with Cyprus,

42

Malta and Turkey, provide for a possibility of a participation of those countries in Community
programmes.

Within the new MAP, the ETF Start-up Facility has been adapted to support the establishment
and  financing  of  SMEs  in  their  start-up  phase,  by  investing  in  specialised  VC  funds  and
incubators.

Concerning the SME Guarantee Facility three new sub-windows have been added in order to
enlarge the range of available instruments to guarantee:

– 

– 

– 

micro  credits;  furthermore  additional  aid  to  financial  intermediaries  can  be
envisaged in  order  to partially offset the high  administrative costs  inherent in
such activities,

equity investments and

loans to cover IT equipment, software and training in the area of internet and e-
commerce.

The  Seed  Capital  Action  plan  is  intended  to  support  seed  funds,  incubators  or  similar
organisations in which the EIF participates.

Finally, the JEV programme will be simplified and eligibility criteria adapted. It will focus on
transnational partnerships. The method of  calculating the amount of the  contribution will be
simplified through the use of a lump sum to cover part of the preparatory works. Furthermore,
the contribution will be linked both to the investment realised and the number of jobs created.

This  simplification  will  have  the  effect  of  reducing  the  administrative  burden  and  enabling
financial intermediaries and the Commission services to deal quickly with the projects. It will
also  allow  the  Commission  services  to  manage  the  scheme  without  the  aid  of  a  technical
assistance unit.

___________________________

43