Communication from the Commission to the Council and the European Parliament on implementation of the risk Capital Action Plan (RCAP)
Date: 2001-10-25
Institutions: European Commission
Subjects: capital market, economic development, employment policy, investment, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 25.10.2001
COM(2001) 605 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

ON IMPLEMENTATION OF THE RISK CAPITAL ACTION PLAN (RCAP)

EXECUTIVE SUMMARY

This communication reports on progress in the implementation of the RCAP for the year 2000
and  for  early  2001.  It  is  the  third  of  this  type  since  the  adoption  of  the  RCAP  in  1998  and
comes at the midpoint of the RCAP which is due to be completed by 2003.

The performance of the risk capital markets in Europe in 2000 was spectacular, and more so
in  the  seed  and  start-up  phases  which  have,  traditionally,  been  the  weakest  links  of  the
financing  cycle.  The  European  industry  has  become  not  only  bigger  but  also  more
sophisticated  and  better  organised.  Growth  was  shared  by  all  Member  States  even  though
important  differences  persist,  reflecting  the  presence  of  a  fairly  fragmented  pan-European
market.  In  spite  of  the  strong  development,  when  compared  with  the  US,  the  size  of  the
European  market  is  still  small  implying  that  Europe  has  still  a  long  way  to  go.  The  fall  in
stock  markets,  which  started  in  2000  and  accelerated  in  2001,  the  downturn  in  economic
growth  and  the  surrounding  climate  of  uncertainty  exacerbated  by  the  events  of  11  of
September  2001  in  the  USA,  will  impact  negatively  on  the  growth  path  of  the  risk  capital
industry.  This  may  affect  disproportionately  investment  in  the  seed  and  start-up  segments.
The  current  market  difficulties  together  with  the  wide  gap  with  the  US  should  represent
additional stimuli to reinforce efforts to complete the RCAP.

Progress  in  the  setting-up  of  a  proper  regulatory  framework  for  the  development  of  risk
capital has continued, particularly in relation to financial measures where the centre of gravity
of  decision  taking  has  shifted  from  the  Commission  towards  Member  States  and  European
Parliament.  Many  difficulties  still  subsist  in  important  areas  such  as  the  absence  of  an
affordable single patent or the whole array of fiscal barriers, often of a discriminatory nature,
with the potential to delay even further the establishment of a true single risk capital market.
The introduction in the near future of Euro-notes and coins will add supplementary pressure
to eliminate remaining cross-border barriers.

The development and promotion of European entrepreneurship, a key priority area, has been
pursuit  primarily  through  conferences,  workshops,  training  schemes  and  exchange  of  best
practices. Cultural barriers are difficult to erase and, in spite of the positive evolution of recent
years,  programmes  need  to  continue  for  longer.  A  sector  where  efforts  to  develop
entrepreneurship  could  prove  to  be  the  most  cost-effective  is  that  of  R&D.  The  Lisbon
Summit envisaged the creation of the most dynamic economy in the world by the end of this
decade.  This  will  require  the  creation,  diffusion,  and  commercialisation  of  sophisticated
technologies and related applications, results of effective and dynamic R&D programmes. In
order to exploit fully the work of researchers, encouraging them to develop an innovation and
commercial reflex will be important. In this regard, the rapid adoption of the New Framework
Programme for R&D should be a top political priority.

In  the  area  of  public  funding  important  steps  have  been  taken  to  improve  the  overall
efficiency of Community risk capital markets: the Commission has clarified its policy towards
state aid; the EIF has strengthened and fully defined its role as the risk capital arm of the EIB
Group; the EIB Group  and  the  Commission have  signed  a  joint  memorandum  to  co-finance
R&D  activities;  risk  capital  is  becoming  more  involved  in  regional  development;  and  some
Community instruments have been redirected toward early stage finance.

In conclusion, there has been some progress in all the RCAP areas. However, for Europe to
become a world leader, as foreseen in Lisbon, much more sustained activity has to continue
on a wide range of risk capital fronts.

2

1. INTRODUCTION

Since the adoption of the Risk Capital Action  Plan (RCAP)  in June 1998
by the Cardiff Summit1, there have been two annual progress reports2. The
present document concentrates on developments in the year 2000 and in
early 2001. Building on the results of the ECOFIN of 7.11.2000 and on the
conclusions  of  the  Stockholm  and  Göteborgh  Summits,  it  provides  an
evaluation (mostly qualitative) of the degree of progress already achieved,
including a comparison with the main competitor, the USA. As the RCAP
should  be  implemented  by  2003,  this  document  completes  a  mid-term
review for the RCAP.

Actions  taken  to  eliminate  the  risk  capital  barriers,  as  foreseen  in  the
RCAP, are part of the on-going structural reforms and will contribute to the
improvement  of  the  efficiency  of  Community’s  product  and  capital
markets. Following on from the conclusions of last year’s RCAP progress
report, the BEPG (Broad Economic Policy Guidelines) 2001-2002 includes
recommendations on the development of the EU risk capital markets. Later
this year, Member States will report on progress on implementing general
and  country-specific  recommendations  when  they  present  their  national
progress reports on structural reform in the context of the Cardiff process.

Mid-term  review
of 
the  RCAP
completed

The RCAP is part
of the EU’s on-
going structural
economic reforms

This Communication has been prepared by an Ad-Hoc Commission Inter-
Service  Group  where  the  EIB  and  the  EIF  were  also  represented,  and  in
consultation with the industry (EVCA).

Ad-hoc inter-
service group

Section  2  describes  and  analyses  relevant  market  developments  including
prospects  for  the  immediate  future.  Section  3  concentrates  on  on-going
legislative work both of financial and non-financial nature. Section 4 refers
to  tax  issues  relevant  for  risk  capital.  Section  5  describes  developments
related to entrepreneurship with special attention to R&D issues. Section 6
refers  to  the  important  steps  taken  in  the  area  of  public  funding.  Finally,
section  7  contains  some  general  conclusions  on  the  degree  of  progress
achieved.

2. Market Dev.
3.Framework
4. Tax issues
5. Entrepren.
6. Public Funds
7. Conclusions

2. MARKET DEVELOPMENTS

2.1. Venture Capital in 2000

The total volume of venture capital investments in Europe3, covering seed,
start-up,  expansion  and  replacement  phases  of  company  development,
grew spectacularly from about €10 billion (0.14% of GDP) in 1999 to over
€19.6 billion (0.23% of GDP) in 2000, continuing the trend of the last few Continuing rapid

1

2 
3 

Based on Commission Communication “Risk Capital : A key to Job Creation in the European Union”,
SEC(1998) 522, April 1998
COM(1999) 493 of 20.10.1999 and COM(2000) 658 of 18.10.2000
The  year  2000  has  been  an  uneven  period  which  started  with  an  overheated  market  and  ended  in  a
sluggish fashion, opening a (possibly lengthy) period of uncertainty. The numbers here are based on total
amounts  and  therefore  do  not  reflect  the  changing  mood  in  the  market  during  the  year.  Figures  are
derived  from  the  survey  conducted  by  PWC  (PriceWaterhouseCoopers)  for  EVCA  and  published  in
EVCA’s 2001 Yearbook.

3

                                                
years  (Fig.1).  This  reflected  both  an  increase  in  the  average  size  of
individual  investments  (up  from  €1.6  million  in  1999  to  €2.3  million  in
2000)  and  increases  of  30%  and  35%  in,  respectively,  the  number  of
investments and invested companies.

growth of venture
capital investment

Fig.1: Venture Capital Investments in EUR-14

1995-2000

25.000

20.000

15.000

EU
R
mill
ion

10.000

5.000

0

1995

1996

1997

1998

1999

2000

SOURCE: EVCA

early stage expansion

Growth in total seed and start-up investment was even more striking, up
by nearly 115% at €6.4 billion, a figure equivalent to the total volume of
venture  capital  investments  only  two  years  earlier.  Start-up  investments,
moreover,  more  than  doubled  in  volume,  representing  29%  of  the  total
venture  capital  invested  (Fig.2)  and  38%  of  the  total  number  of
investments. Here the increase was due more to a doubling of the number
of transactions (a record 1121) rather than to larger transaction sizes.

More focus on
early-stage
investment

Most investee companies were small (less than 100 employees), with 45%
of all private equity investments (i.e. including buy-outs, which tend to be
larger)  in  companies  employing  fewer  than  20  people  at  the  time  of
investment.

Mostly small
investee
companies

On  the  funding  side,  nearly  €20  billion  was  raised  in  2000  for  future
venture capital investments, compared  with around €11.5  billion  in  1999.
Of  this  total,  nearly  €9  billion  was  expected  by  fund  managers  to  be
directed  towards  early-stage  investments  (compared  with  less  than  €5.5
billion  in  1999)  and  some  €14  billion  for  high-tech  investments  (early-
stage and expansion).

Funding nearly
doubled in 2000

On  the  sources  of  funds,  there  is  a  growing  involvement  of  institutional
investors. In 2000 pension funds more than doubled their contribution from
the previous  year, providing for the  first time  the  largest  single  source  of
private  equity  capital  (24%),  supplanting  banks  (22%),  while  insurance
companies  added  a  further  13%.  It  should  be  noted,  however,  that  a
significant  share  of  this  pension  fund  investment  is  accounted  for  by  US
pension funds investing in, notably, the UK private equity industry.

Growing
institutional
investment

4

Fig. 2: Stage Distribution of Venture Capital Investments in EUR-14

2000

expansion
62%

start-up
29%

Source EVCA

seed
4%

replacement
5%

The  European  risk  capital  market  is  now  less  focussed  on  buy-out
investments  and  provides  greater  coverage  of  the  different  stages  of
company development. But, despite its growth, the European market is still
small  compared  with  that  of  the  US  where  investment  rose  to  over  €74
billion  in  2000  (up  120%  over  the  previous  year),  equivalent  to  0.7%  of
GDP. Of this total some €28 billion (37%) went to early-stage investments.
This is more than total European venture capital investment as a whole and
more than 4 times European investment in early-stage.

More matured
and sophisticated
market

Gap with the US
remains

Differences
among European
Countries persist

The aggregate figures for the EU reflect a pattern of substantial growth
in  the  volume  of  venture  capital  investment  in  2000  across  the  Member
States. In Belgium there was also a substantial growth in seed and start-up
investments  but  not  in  the  total  due  to  exceptionally  high  growth  of  the
previous year. Funds in the single biggest national market (the UK)  more
than  doubled  their  venture  capital  investments  to  over  €6  billion 4  and,
strikingly,  there  was  a  seven-fold  increase  in  start-up  investments  and  a
substantial increase in seed-capital, thus reducing relatively the traditional
focus  on  buy-out  finance.  German  funds  consolidated  the  growth  of
venture capital to €3.9 billion, an increase of nearly 50%, with a doubling
of  seed  and  a  substantial  increase  in  start-up  investments.  In  France  too
there  was  nearly  a  doubling  of  venture  capital  investments  (up  to  €3.3
billion),  including  a  similar  increase  in  start-up  investments.  The  other
major  contributors  by  volume  were  the  Netherlands  (venture  capital
investment  of  over  €1.5  billion),  representing  0.39%  of  GDP  which  is
almost on a par with the share the UK, and Italy with €1.6 billion (nearly a
tripling over 1999), including a four-fold increase in start-ups, although the
share of venture capital in GDP remains modest at 0.14%. The Finnish and
Swedish markets, which have been developing  significantly  over  the  past
few years, continued to grow, although the most striking growth in Sweden
in  2000  came  in  the  buy-out  market  (75%  of  the  volume  of  new
investments).  In  the  remaining  Member  States  both  volumes  of  venture
capital and shares in GDP, though growing, remain low (Figure 3).

4 

These figures, like those for all the Member States, represent investments  made by  funds in their home
market.  They  exclude  investments  actually  carried  out  in  other  European  countries  as  well  as  in  third
countries  (notably  the  USA).  While  pan-European  and  extra-European  investments  have  been  growing,
over  four-fifths  of  the  number  and  some  three-quarters  of  the  total  volume  of  private  equity
investments continue to be made domestically.

5

                                                
Graph 3: Venture Capital Investments as % of GDP 
 2000

0,80

0,70

0,60

0,50

%

0,40

0,30

0,20

0,10

0,00

A

B

DK

FIN

F

D

EL

IRL

I

NL

P

E

S

UK

EU

US

Source: EVCA

All  this  against  the  backdrop  of  a  European  private  equity  and  venture
capital industry which is now bigger, more sophisticated, and more mature
than  ever  in  the  past,  with  a  substantial  core  of  weathered  professional
managers,  more  experienced  investors  and  diversified  support  services
(specialised  lawyers,  accountants,  consultants  etc)  with  a  stake  in  its
successful development.

The Industry has
become more
professional and
better organised

2.2. The Stock Markets for High-Growth Companies

Prices  on  the  German  Neuer  Markt  fell  by  40%  during  2000  (or  by  68%
from their March peak), those on the  French  Nouveau Marché  by  2%  (or
by  61%  from  their  peak)  and  those  on  the  pan-European  stock  exchange
EASDAQ by 57% (Fig. 4). The downward momentum intensified in the
second  half  of  2000  and  has  accelerated  in  2001  amid  a  series  of  profits
warnings from  technology  companies  (especially  internet  companies)  and
market  concern  about  the  levels  of  indebtedness  of  telecommunications
companies,  as  well  as  general  uncertainty  on  the  back  of  poor  company
results.

The first half of 2000 witnessed a continuing growth in new listings on the
new exchanges. AIM in London saw more than 250 listings last  year, the
Neuer Markt 130, the Nouveau Marché 50, the Nuovo Mercato in Italy 35.
Companies  newly  listed  on  the  high-growth  exchanges  raised  some  €22
billion as against €8 billion in 1999, although the growth in capital raised
was even higher on the traditional exchanges. 2000 also saw the launch of
new exchanges in Ireland and Spain. Most IPOs were completed in the first
half of 2000. Moreover the  fall in prices  and in new flotations was  faster
and  steeper  on  the  high-growth  markets  than  on  the  main  stock  markets.
The main exception to this trend was AIM which saw a continuing flow of
companies applying for listing throughout the year, reflecting the fact that
it  is  less  focussed  on  technology  stocks  and  quotes  companies  across  a
wide range of sectors.

Strong stock
market correction
in 2000, which
continuous in
2001

Most IPOs
completed in the
first half 2000

6

 
Fig.4: New growth stock price indices 1997-2001

19
97
=1
00

1400

1200

1000

800

600

400

200

0

1/01/1997

1/07/1997

1/01/1998

1/07/1998

1/01/1999

1/07/1999

1/01/2000

1/07/2000

1/01/2001

Nouveau Marché

Neuer Markt

EASDAQ

AIM

At  the  same  time  the  pressures  for  consolidation  and  integration  among
European  stock  exchanges  have  remained  and  may  even  have  been
reinforced  by  the  turmoil  on  the  markets.  Following  the  creation  of
EURONEXT5,  which  includes  a  high  tech  segment,  in  April  2001  the
American  NASDAQ  acquired  majority  ownership  in  EASDAQ,  the  pan-
European exchange for growth companies to become NASDAQ-Europe.

Pressure for stock
market
consolidation
remains

2.3. The Outlook for 2001

Figures  are  not  yet  available  on  European  venture  capital  investment  and
fund-raising for the first half of 2001. But the trends and the prospects for
the  near-  and  medium-term  have  been  intensively  discussed  among
participants  in  the  industry.  Access  to  all  forms  of  external  finance  has
become  more  difficult  and  more  costly.  There  has  been  an  appreciable
widening  of  spreads  for  non-investment  grade  borrowers,  a  slowdown  in
loan  approvals  and,  as  discussed  above,  a  drying  up  of  the  IPO  market6,
particularly on the new exchanges.

With  exits  more  problematical  and  against  a  background  of  a  general
slowdown in economic growth and  a  climate of  uncertainty exacerbated
by the events of 11 of September 2001 in the USA, many venture capital
funds  now  face  the  prospect  of  holding  less  profitable  investments,
nurturing them for longer periods and having to inject more cash into them
through  several  funding  rounds  which  may  lead  to  a  consolidation  of  the
industry.  On  the  other  hand,  as  there  is  a  considerable  amount  of  money
already  raised  (and  not  yet  committed)  for  new  investments,  downward
valuations have created new opportunities for liquid venture capital funds
which could produce very high returns over the next 2-3 years.

A year of
adjustment in
European venture
capital markets

Exit has become
more difficult

Consolidation
may become
inevitable

5 

6 

EURONEXT  was  created  in  September  2000  by  the  Paris,  Brussels  and  Amsterdam  Bourses.  Other
exchanges, such as Lisbon, are being attracted to the project.
It has been reported that in the period January-August 2001 only 7 IPOs have taken place in the high-tech
sector in the whole Europe.

7

                                                
In 2001 the growth of both investment and fund-raising in Europe can be
expected to  fall back. The same is true  of the  US market which  could  be
even  more  sharply  affected  because  of  its  greater  exposure  to  the  IT
industry.  Figures  for  the  US  market  for  Q1  2001  already  show  a  sharp
downturn. Investment in US venture-backed companies dropped by 39% in
Q1 2001 compared with Q4 2000, the biggest single quarter-on-quarter fall
in  the  history  of  the  industry,  while  venture  capital  investment  in  the  IT
industry fell by more than 50%7. In spite of the retrenchment in Europe,
which could impact  negatively  on  the  welcome  shift  in  2000  towards  the
financing  of  early-stage  investments,  the  European  industry  being  more
experienced,  bigger  and  stronger  than  ever  before  should  be  expected  to
emerge successful from current difficulties.

3. REGULATORY FRAMEWORK

Downturn in
Europe expected
to be weathered
successfully

As  already  envisaged  in  the  RCAP,  and  continuously  requested  by  the
industry8,  the  setting-up  of  an  appropriate  regulatory  framework  at  both
Community and National levels remains a top political priority for public
authorities.  Therefore,  a  modern,  flexible  and  cost-effective  regulatory
system  comprising  legal  and  administrative  measures,  and  which  takes
fully into account  the  needs  of  efficient  risk  capital  markets  (both  supply
and  demand),  should  be  introduced  without  delay.  This  section  analyses
the most relevant of those measures, both financial and non-financial. Tax
related measures are discussed in the next section.

An adequate
regulatory
framework should
be in place
without delay

3.1. Introduction of the EURO

The introduction of the Euro in physical form in 12 Member States and the
corresponding  disappearance  of  national  currencies  will  further  highlight
the  EU,  and  the  Euro-area  in  particular,  as  a  truly  single  market.  In  this
dynamic scenario9, towards integration, the presence of regulatory barriers
will become more visible and the need for their removal more pressing.

The Euro makes
barriers more
visible

The special Stockholm European Council (23/24 March 2001) makes this
need clear. Paragraph 18 of the Presidency conclusions states that : “Rapid
implementation of the Financial Services Action Plan (FSAP) is of utmost
importance”. Paragraph 19, second indent, is more specific  and ask, as in
Lisbon,  for  full  implementation  of  the  FSAP  by  2005.  In  addition,  it
requires that securities markets legislation provided in the FSAP should be
given  a  priority  and  that  an  integrated  securities  market  should  be
completed  by  2003.  As  for  well  functioning  risk  capital  markets,  the
Lisbon  deadline  of  2003  is  reconfirmed  in  paragraph  19.  The  fact  that
securities  markets  legislation  and  the  completion  of  the  RCAP  share  the
same deadline implicitly recognises their inter-related nature. Accordingly,

Securities market
legislation should
be completed by
2003

Close inter-
relation between
the RCAP and
Securities markets

7 
8 

9 

PriceWaterhouseCoopers and VentureOne MoneyTree Survey May 2001
See for instance “White Paper : Priorities for Private Equity-Fostering Long-Term Economic Growth”,
EVCA,  June  2001. This  document  was  the  basis  of  the  4th  EVCA  Policy  Meeting  which  took  place  in
Brussels on 11 September 2001 with the participation of industry and Commission representatives.
Institutional investors increasingly view Europe’s securities markets as a single entity and there is some
evidence of the extension of this trend to retail investors. Moreover, several public offerings in the last
18 months have included a pan-European retail element.

8

                                                
a seamless pan-European financial system should be in place soon, able to
cater for the needs of enterprises during their whole life cycle, from start-
up to stock market flotation and for any subsequent capital raising.

confirmed at the
European Council

Furthermore,  the  Stockholm  Council  adopted  a  Resolution  endorsing  the
final  report10,  published  on  15  February  2001,  of  the  Committee  of  Wise
Men on the Regulation of European Securities Markets, chaired by Baron
Alexandre Lamfalussy. As a result the Commission has adopted, on 6 June
2001, two decisions to create the European Securities Committee (ESC)
and  a  Committee  of  European  Securities  Regulators  (CESR)11.  These
new  arrangements  should  ensure  not  only  that  European  Securities
legislation  would  be  adopted  faster  and  through  more  transparent
procedures,  but  also  that,  by  distinguishing  framework  principles  from
implementing  technical  details,  the  new  rules  would  become  more
effective  and 
to  unforeseen  market
to 
developments  and  to  financial  innovation.  The  essence  of  the  new
Lamfalussy  approach  has  already  been  introduced  in  the  proposed
directives on Collateral (adopted by the Commission  on  27  March  2001),
on  Prospectuses  (see  below),  and  on  Market  Abuse  (adopted  on  30  May
2001).

flexible  enough 

respond 

Lamfalussy
procedures need
to be implemented
for faster and
more effective
legislation

Figure 5 : Implementation of Financial Services Legislation12

B
DK
D
EL
E
F
IRL
I
L
NL
A
P
FIN
S
UK
EU

10 
11 
12

Banks

Insurance

Securities

8/8
8/8
8/8
6/8
6/8
8/8
8/8
8/8
8/8
8/8
8/8
7/8
8/8
8/8
8/8
95.8%

23/24
24/24
24/24
23/24
24/24
23/24
24/24
23/24
24/24
24/24
24/24
23/24
24/24
24/24
23/24
98.3%

14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
14/14
100%

Payment
systems
2/2
2/2
2/2
2/2
2/2
1/2
2/2
1/2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
93.3%

Company
law

Total

Position

15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
15/15
100%

62/63
63/63
63/63
60/63
61/63
61/63
63/63
61/63
63/63
63/63
63/63
61/63
63/63
63/63
62/63
98.6%

9
1
1
15
11
11
1
11
1
1
1
11
1
1
9
/

See http://europa.eu.int/comm/internal_market (financial services, general matters section)
See http://europa.eu.int/comm/internal_market (financial services, securities section)
As  of  May  2001.  On  the  other  hand,  the  number  of  banking  directives  has  diminished  drastically,
compring  with  previsous  years,  due  to  the  adoption  of  Directive  2000/12/EC  (Codification  of  Banking
Directives) which has abolished 20 directives.

9

                                                
According to the 4th FSAP progress report13 approved by the Commission
on 1st June  2001 and  endorsed by  the  ECOFIN  Council  of  5  June  2001  :
“Overall progress is at present reasonably satisfactory although care must
be taken to avoid any complacency to emerge” (pp7). On the other hand, as
the  Commission  moves  towards  a  situation  at  the  beginning  of  next  year
when it will have tabled nearly all its major proposals, the centre of gravity
of  decision  taking  will  have  shifted  from  the  Commission  to  the  Council
and European Parliament.

Political center of
gravity shifting
towards Member
States and
European
Parliament

3.2. Measures included in the FSAP14

For  the  legislative  measures  included  in  both  the  FSAP  and  the  RCAP
there is some progress to report :
(cid:1)  Measure  :  “Upgrading  of  directives  on  prospectuses  to  facilitate

companies raising cross-border capital” (e.g. IPOs)

The Commission adopted on 30  May 2001  a proposal for  a directive that
would introduce a truly “single passport for issuers”. The new procedures
are simpler and would make it easier and  cheaper to raise capital  all over
the  EU.  In  particular,  this  would  facilitate  pan-European  IPOs  (Initial
Public Offerings) and admission to trading to specialised stock markets for
fast-growing SMEs.

Prospectuses :
IPOs procedures
will be
streamlined

(cid:1)  Measure  :  “Adoption  of  prudential  rules  to  allow  institutional

investors to invest in venture capital”

Regarding  legislation  on  investment  funds  (UCITS)  substantial  progress
has  already  been  attained.  The  two  common  positions  on  the  two
Commission proposals have been adopted by the Council on 5 June 2001.
Regarding  the  Commission  proposal  on  supplementary  pension  funds15
negotiations  continue.  There  are  still,  in  the  Council,  divergent  views  on
several  critical  issues.  The  debate  is,  basically,  split  between  those
countries  already  having  “second  pillar”  funded  pensions  and  those
Member States considering the introduction of such schemes.

UCITS close to
adoption, but
Commission
pension fund
proposals
threatened

(cid:1)  Measure : “Assess of existing accounting and auditing requirements”

On 13 February 2001, the Commission adopted a proposal for a Regulation
on the application of International Accounting Standards (IAS) in the EU.
It  will  introduce  the  requirement  for  all  listed  EU  companies  to  prepare
their consolidated financial statements in accordance with IAS as of 2005.
Member  States  will  be  granted  the  option  to  extend  this  requirement  to
unlisted  companies.  Concerning  statutory  audit,  the  Commission  adopted
on 21 November 2000 a Recommendation setting minimum standards for
external quality assurance systems for statutory audits in the EU. A further
recommendation on auditor independence may be issued before end-2001.

IAS will favour
pan-European
and international
markets

13

14

15

See http://europa.eu.int/comm/internal_market (financial services, action plan section)
The  measures,  in  the  RCAP,  of  financial  nature  were  included  in  the  FSAP  and  affect  primarily  the
supply side of risk capital.
COM(2000) 507 of 11 October 2000

10

                                                
(cid:1)  Measure : “Dissemination of best practices in corporate governance”

The  Commission  launched16  a  comparative  review  of  existing  codes  of
corporate governance with a view to identifying any legal or administrative
barriers  which could frustrate the development of  a  single  capital market.
The results are expected for December 2001 at the latest, and their analysis
will allow to determine to what extent any intervention at EU level in this
debate is desirable or not.

Best practices in
Corporate
Governance
should be
encouraged

3.3. Measures outside the FSAP17

For  the  RCAP  legislative  measures  not  included  in  the  FSAP  some
progress is also been reported :

(cid:1)  Measure : “Reform of the legislation on insolvency and bankruptcy”

A  Seminar  on  Business  Failure  was  held  on  10/11.5.2001  in  Noordwijk
(the Netherlands). Its conclusions included helping failed entrepreneurs to
make a fresh start by addressing the problem of stigma. A comprehensive
report on the event will be drawn up and disseminated in Autumn 2001. On
the other hand, the Commission is going to launch before end-2001 a study
on “Bankruptcy and a  Fresh start” which will  include  relevant  indicators
on bankruptcy laws and the stigma of failure, as well as recommendations.

The problem of
stigma linked to
failure should be
addressed

(cid:1)  Measure : “Reform of the European Patent System”

On 1 August 2000, the Commission adopted a proposal for a Regulation on
the  Community  patent18.  The  Regulation  would  give  inventors  the  option
of  obtaining  a  single  patent  to  be  issued  by  the  European  Patent  Office
which  would  be  both  affordable  and  legally  certain.  It  is  expected  that  a
Community patent would significantly reduce translation and related costs,
which  are  today  a  major  element  of  cost  of  the  European  patent  and
deterrent for patenting especially for SMEs.

An affordable
single patent
should be adopted

4. TAX ISSUES

The taxation of the collection and provision of risk capital, as well as the
taxation of risk capital income, play clearly a key role in the development
of  both  domestic  and  international  risk  capital  activities.  Generally,
different  forms  of  investment  or  different  sources  of  financing  may  be
subject  to  different  tax  treatment,  thus  leading  to  different  effective  tax
rates and influencing business decisions. These issues are analysed in depth
in a comprehensive Commission study19.

Tax barriers are
analysed in a
Commission study

Whereas risk capital cannot form the single most important element to take Risk capital

should also be

16

17

18

19

The open invitation to tender has been published in the Official Journal in March 2000, and the contract
has been signed in December 2000.
The measures outside the FSAP affect primarily the demand side of risk capital.
JO C 337 E of 28.11.2000
Report by the Commission Services on “Company Taxation in the Internal Market”. See
http://europa.eu.int/taxation_customs

11

                                                
into  account  while  designing  the  structure  of  tax  systems  care  must  be
taken to avoid unintentional negative effects on this type of activity. Thus,
the  structure  of  any  national  tax  system  should  not  hamper  the  positive
aims  of  risk  capital,  innovation  and  R&D.  On  the  contrary,  special  tax
regimes  have  been,  and  should  continue  to  be,  used  to  encourage  these
activities.

4.1. Tax obstacles to cross-border and international risk capital activities

Both  general  and  more  specific  tax  obstacles  still  persist.  The  divergence
of national tax rules can act as a barrier and there are also still instances of
discriminatory treatment.

As regards company taxation, the existing general tax obstacles to cross-
border economic activity in the  Internal  Market  are  all  also  important  for
risk  capital  activities.  Indeed,  the  study  finds  (see  part  III)  that  the
underlying  cause  of  almost  all  the  obstacles  is  the  existence  within  the
Internal  Market  of  15  separate  tax  systems  which  also  influences
negatively  the  development  of  a  pan-European  risk  capital  market  in  a
number of ways. For instance, Member States are reluctant to allow relief
for losses incurred by associated companies whose profits fall outside the
scope  of  their  taxing  rights.  Moreover,  cross-border  reorganisations
entailing a loss of taxing rights for a Member State are liable to give rise to
capital  gains  taxation  and  other  charges.  Finally,  double  taxation  may
occur as a result of conflicting taxing rights. The lack of co-ordination of
Member States' policies concerning double taxation conventions is a major
source  of  complexities  and  difficulties  for  cross-border  and  international
risk  capital  activities.  Furthermore,  certain  systems  of  company  taxation
have an in-built bias in favour of domestic investment. For example, under
imputation systems applied in a number of Member States, whereas a tax
credit  is  granted  to  resident  shareholders  (individual  or  corporate)  for  the
tax paid on a company, that credit is usually not available to non-resident
shareholders  and  is  not  normally  granted  in  respect  of  foreign  dividends.
On  the  basis  of  the  study  the  Commission  has  developed  a  strategy  for
action to address the various obstacles20.

In the field of personal income taxation, the risk capital market, as part of
the  broader  financial  market,  also  suffers  still  from  a  number  of  tax
problems. These concern, for instance, the taxation of stock options where
the divergence of rules between Member States may easily lead to double
taxation.  Moreover,  in  many  cases,  Member  States'  income  tax  laws
(personal  and  corporate)  grant  tax  relief,  either  on  the  level  of  the
individual investor or on the level of the collective fund, only for certain,
mostly  domestic,  investments  or  investment  funds.  It  is  likely  that  such
discriminatory arrangements would not stand a challenge before the ECJ21.

taken into account

The main barrier
is the existence of
15 different
jurisdictions

A strategy for
action has been
developed by the
Commission

Some barriers
affect all financial
markets

20

21

Communication on “Towards an Internal Market without tax obstacles – A strategy for providing
companies with a consolidated corporate tax base for their EU-wide activities”. See
http://europa.eu.int/taxation_customs.
For a more detailed overview about potential discriminatory rules in Member States see : Price
Waterhouse Coopers and Fédération Européenne des Fonds et Sociétés d'investissement (FEFSI),

12

                                                
The Commission has begun to raise such issues with the Member States. It
may be noted that the ECJ has found unlawful laws concerning the taxation
of foreign dividends derived from shares in companies established in other
Member  States  due  to  their  discriminatory  character22.  The  Commission
will devote increasing attention to these issues (including the development
their
of  guidance  on 
implementation via “soft law” instruments) and insist on the respect of the
basic Treaty freedoms in this area.

important  ECJ  ruling  and  co-ordination  of 

4.2. Tax measures to foster risk capital activities in Member States

As illustrated in the last year’s progress report, several Member States have
introduced specific or general tax measures for fostering, sometimes along
with  other  issues,  risk  capital.  In  so  doing,  Member  States  should  fully
respect Treaty obligations, notably those concerning State Aid,  as well as
other  commitments  taken  in  the  EU  tax  area.  In  this  context,  it  is  also
noteworthy  that  many  Member  States  have  recourse  to  specific  tax
incentives for encouraging R&D activities. For instance, in the majority of
Member  States  R&D  activities  can  benefit  from  favourable  depreciation
rules and in  some  (e.g. in  Spain,  France,  Italy,  the  Netherlands,  Portugal,
UK)  of  specific  tax  credits.  Such  tax  incentives  have  to  meet  the  same
conditions as regards state aid and regulatory commitments in the tax area
as  for  risk  capital.  The  Netherlands  and  the  UK  are  currently  leading  an
exercise  which  is  looking  more  broadly  at  EU  research  and  innovation
incentives.  The  results  of  this  work  are  due  to  be  presented  to  the
Economic  Policy  Committee  in  December  before  being  forwarded  to  the
Council  in January  2002.  In  view  of  these  developments,  and  in  order  to
identify  good  practices,  the  Commission  is  launching  an  exercise  in
relation  to  the  use  of  fiscal  incentives  to  promote  investment  in  R&D.
This  is  intended  to  identify  ways  of  improving  the  effectiveness  of  such
measures  and  to  enhance  their  complementarily  with  other  incentives  for
research  and  technological  development.  National  research  and  tax
administrations will be associated to the initiative.

The  following  measures  and  reforms  in  Member  States  are  of  particular
importance with a view to risk capital activities. Germany has reduced its
corporate  (in  stages  until  2005)  and  income  tax  rates  and  will  eliminate
taxation of sales of  shares  by  corporations as  from  2002.  France  has  also
reduced its corporate and income tax and increased tax benefits granted to
reinvesting  business  angels.  Italy  has  granted  favourable  tax  treatment  to
closed-end investment funds. Spain has granted tax incentives to registered
venture  capital  investors.  Several  Member  States  have  reduced  the  tax
disincentives  to  business  creation.  Several  Member  States  (Ireland,  UK,
Belgium,  Denmark,  Germany,  France,  Italy,  the  Netherlands,  Finland,
Sweden)  have  laid  down  specific  rules,  or  clarified  the  application  of
general  rules,  on  the  taxation  of  stock  options  which  are,  however,  not
always  compatible  in  cross-border  situations.  In  France,  the  application

The basic Treaty
freedoms must be
respected

Tax incentives for
R&D already in
place in many
Member States

The Commission
is launching an
exercise on R&D
fiscal policy to
determine good
practice

A variety of
measures already
taken

Discriminatory Tax Barriers in the Single European Investment Funds Market: a discussion paper”,
London, June 2001
Cases C-35/98 (Verkooijen), OJ C 247 26.08.2000, p.5 ; and C-251/98 (Baars), OJ C 192, 8.7.2000, p.4

22

13

                                                
requirements for the BSPCE system have been expanded and extended up
to end-2001.

5. ENTREPRENEURSHIP

If anything, the RCAP is about entrepreneurship23. There are still too few
innovative projects in Europe with a profile as to become the target of risk
capital providers (i.e. the  demand side of risk  capital  is still weak24).  The
RCAP  will  not  be  a  success  unless,  because  of  its  influence,  there  is  a
substantial increase, in the short/medium term, in the number of innovative
fast-growing  companies  in  Europe.  Equally,  the  Lisbon  objectives25  will
not  become  attainable.  Therefore,  the  promotion,  at  all  levels,  of
entrepreneurship remains a political objective of prime importance.

The RCAP is
about
entrepreneurship

Boosting
entrepreneurship,
a prime political
objective

Innovative  fast-growing  companies  are  also  affected  by  horizontal
initiatives  affecting  the  SME  industry  as  a  whole.  The  Commission  has
recently  published  a  report26  providing  an  overall  view  of  the  relevant
Community  activities  affecting  them.  Of  particular  interest  are  the  BEST
Action  Plan  to  promote  Enterpreneurship  and  competitiveness  and  the
Benchmarking  Exercise27.  Discussed  below  are  some  aspects  and
measures,  where  progress  is  reported,  relevant  for  the  promotion  and
diffusion of enterpreneurship, with special attention to R&D initiatives.

5.1. Access to finance for entrepreneurs

Recourse  to  “non-formal”  equity  capital  for  entrepreneurs  setting  up
innovative  businesses  has  improved  in  Europe.  Some  proof  of  increased
funding  from  Business  Angels  in  Europe  stems  from  the  fact  that  the
number of  Business Angels networks  has  increased  to  around  130  spread
over  almost  all  EU  countries.  Several  thousand  Business  Angels  are
organised  in  such  networks,  and  there  are  often  close  links  to  local  or
regional  venture  capital  funds  which  could  then  take  promising  start-up
companies further upstream by providing subsequent rounds of  financing.
The Commission has supported the setting up of Business Angels networks
successfully  and  20  new  networks  received  financial  support  from  the

Increased funding
from Business
Angels is taken
place

23

24

25

26

27

This is also the understanding of the industry. See, for instance, the EVCA White Paper (Opus Cit.)
Until  the  demand  side  for  risk  capital  reaches  a  minimum  stable  critical  mass,  it  would  be  difficult  to
satisfy the industry desire for risk capital to become a recognised distinct asset class (i.e. an asset class
of its own).
The Lisbon objectives go well beyond the RCAP’s initial aim of fostering grow and job creation. Indeed,
the  ambitious  goal  of  transforming  the  EU,  in  a  decade,  into  the  most  competitive  and  dynamic,
knowledge-based society require a more solid, stable, influential and ever expanding innovative industry
segment capable of diffusing their output, on a continuous fashion, into the whole economy and society at
large.
Commission report “Creating an Entrepreneurial Europe : The Activities of the European Union for
Small  and  Medium-Sized  Enterprises  (SMEs)”,  COM(2001)  98  of  1.3.2001.  This  is  the  latest  report
draw up in accordance  with the Third  Multi-annual  Programme  for  Enterprise  and  Entrepreneurship.  A
new  Multi-Annual  Programme  (MAP)  (2001-2005)  for  Enterprise  and  Entrepreneurship  has  been
adopted by the Council at the end-2000  (see  Council  Decision  2000/819/EC  of  20.12.2000,  OJ  L  333,
29.12.2000, p. 84)
See http://europa.eu.int/comm(enterprise)

14

                                                
Community budget since the action was launched at the end of 1998.

Business Angel´s contribution to the overall seed and early stage finance in
Europe is reckoned, by some estimates, to have reached the same level as
funding from the « formal » venture capital industry whereas in the US it is
estimated to exceed four times “formal” VC investment.

But big gap with
the US still persist

Corporate  venturing  in  Europe  is  becoming  an  increasingly  important
source of financing for entrepreneurs. Exact figures are not available, but it
is estimated that around € 1,2 billion are invested each year. This figure is
expected to grow according to the general pattern of risk  capital, but it  is
still small in relation to the USA where the figure is estimated to be 5 times
larger.  This  type  of  investment  would  greatly  benefit  in  Europe  from  a
regulatory framework favourable to cross-border investment28.

Corporate
venturing is
becoming more
relevant

5.2. Entrepreneurship promotion and entrepreneurial training

A  BEST  procedure  project  aiming  to  promote  enterprise  culture,  from
primary  school  to  university,  has  been  launched.  It  will  focus  on  best
practice  and  benchmarking.  The  first  meeting  with  experts  took  place  on
14 June 2001. Final results are expected in September 2002.

A BEST
procedure project
has been
launched

The Commission, in close co-operation with National authorities and also
within  the  BEST  framework,  has  continued  to  promote  an  exchange  of
good practice  in  enterprise  policy  by  organising fora and workshops  with
the participation of officials and practitioners. Two fora (in addition to the
seminar on “Business failure” mentioned in section 3), each with 300-400
participants,  have  particularly  addressed 
theme of  promoting
entrepreneurship. In October 2000 in Nice, Sophia Antipolis, a forum on
“Training  for  Entrepreneurship”  aimed  to  provide  concrete  evidence  on
how to promote entrepreneurship in schools and universities, in vocational
training and within companies (“Intrapreneurship”). At the Växjö Forum in
Sweden  (March  2001)  “Entrepreneurship  for  the  Future”  was  the  theme
and good practice in response to the emerging issues of the ‘new economy’
was examined, specifically in relation to new forms of entrepreneurship29.

the 

Successful fora
have been
organised in the
last 12 months

Under the Commission FITO3 initiative, Madrid hosted in March 2001 the
“FITO3  European  Workshop  on  Entrepreneurship  Training  Curriculum”.
The  workshop  addressed  the  training  needs  for  Europe’s  technology
entrepreneurs  and  aimed  to  provide  good  practice  on  how  to  adapt  a
general training model to specific conditions.

Workshop for
high-tech
entrepreneurs

The « Seed-Capital Action”30, to be managed by the EIF, will be designed
in a way to support  the recruitment  of junior investment managers in VC
funds  (including  seed-capital  funds ;  small  funds ;  regional  funds ;  and Recruitment of

young

28

29

30

See Commission publication “Corporate Venturing in Europe”, 2001 (EUR 17029)
The good practice identified in these events is being publicised in paper and on the Commission’s  web
site
Foreseen within the new MAP (2001-2005) (Opus Cit.). It will replace the CREA Scheme.

15

                                                
incubators) in which it participates. It will take the form of a grant of 100
000 EUR for each junior investment manager remaining at least 3 years in
the  funds  or  incubators  concerned.  This  will  substantially  ease  the
recruitment and training of young professionals by European VC operators.

professionals will
be supported

Finally, as part of the policy to improve the availability and motivation of
human resources and to encourage their effectiveness, the Commission has
launched  in  July  2001  a  consultation31,  to  be  completed  by  30.10.2001,
which would be the basis for a subsequent Communication, together with
an Action Plan, on Financial Participation.

Financial
participation
should be
encouraged

5.3. European Area of Research and Innovation

is  an 

The  research  sector 
important  source  of  new
increasingly 
opportunities  for  risk  capital  investment.  These  arise  from  projects
developed  directly  by  researchers,  as  a  result  of  university-industry  co-
operation and through high technology spin-offs32. The European Area of
Research  and  Innovation  initiative  and  the  new  Framework  Programme,
described  below,  aim  to  increase  these  opportunities  by  focusing,  in
particular, on the need to strengthen innovation performance33.

R&D has become
an increasingly
important source
of projects to be
financed by risk
capital

In January 2000, the Commission adopted a Communication proposing the
creation of a European Research Area34. In setting out the priorities the
document  stressed  the  need  for  more  dynamic  private  investment  in
research  and  innovation.  In  this  regard,  it  drew  attention  to  the  potential
role  of  indirect  support  instruments  such  as  fiscal  measures  (see  section
4.2.). It also emphasised the need for action to encourage researchers to set
up companies, notably in high tech sectors, and to increase the flow of risk
capital investment to such companies.

More dynamic
private investment
in R&D is needed

research 

the  environment 

The  Lisbon  European  Council  endorsed  the  objective  of  achieving  a
European Area of Research and Innovation35 and emphasised the need to
improve 
investment,  R&D
for  private 
partnerships  and  high-tech  start-ups  and  proposed  the  use  of  tax  policies,
venture  capital  and  EIB  support  (see  section  6.4.).  It  also  called  for  an
open  method  of  co-ordination  for  benchmarking  national  research  and
development policies.  As  a  result, the Commission launched a number  of
benchmarking exercises in relation to national research policy, including a
project addressing the issues around public and private investment in R&D.
Later on, the Stockholm European Council invited the Council to consider
ways  in  which  Member  States’  ideas  for,  and  experiences  of,  boosting
R&D through economic incentives could be shared.

The Lisbon and
Stockholm
Summits paved
the way for more
risk capital
involvement

31

32

33

34

35

Commission  Working  Paper  on  “The  Financial  Participation  of  Employees  in  the  European  Union”,
July  2001,  addressed  primarily  to  Member  States,  social  partners,  companies,  and  associations  dealing
with financial participation. See http://europa.eu.int/comm(employment and social affairs)
For current Community programmes see www.cordis.lu
In other words, researchers would be encouraged to develop an innovation/commercial “reflex”
COM(2000) 6 of 18.01.2000, “Towards a European Research Area”
Lisbon European Council of 23-24 March 2000, Presidency Conclusions, page 4

16

                                                
A proposal for a New (the Sixth) Framework Programme (2002-2006)36
for R&D has been submitted to the Council and the European Parliament.
It includes a number of novel features. Central to  these is that innovation
has  been  made  an  integral  part  of  the  overall  design  of  the  Programme.
This  reflects  the  principle  that  innovation  does  not  start  where  research
ends  but  is  embodied  in  the  conception  of  a  project  and  accompanies  its
development.  As  an  example,  the  Programme  will  facilitate  networking
activities 
researchers,
enterprises  and  the  financial  world.  In  this  regard,  exchanges  of  good
practice  and  implementation  of  transnational  co-operation  involving
universities,  incubators  and  risk  capital  funds  will  be  a  priority.
Organisation  of  investment  fora  is  an  example  of  the  type  of  networking
activity  envisaged  under  this  action.  The  “Biotechnology  and  Finance
Forum”, active since end-1997, can be a  role model. A rapid adoption of
the  new  Framework  Programme  would  be  of  paramount  importance  to
achieve the Lisbon and Stockholm objectives.

interfaces  between 

to  encourage 

improved 

Innovation should
be an integral
part of R&D
programmes

Rapid adoption
would be of
paramount
importance

6. PUBLIC FUNDING

Described  below are  some  important steps taken  in  the  last  12  months  in
order to clarify, rationalise or refocus the provision of risk capital through
European  public  funds.  It  should  be  expected  that  these  decisions  will
increase  significantly  the  overall  efficiency  of  the  risk  capital  markets  in
the EU in the future.

6.1.State aid in the field of risk capital

Public support for venture  capital in Europe has  been  given, for  years,  in
various forms and through a number of schemes, playing often a key role
in  its  development.  Last  year’s  progress  report,  while  noting  the  risks  of
market  distortion  and  of  displacing  private  funds,  and  pointing  out  the
obligation to respect the state aid rules, recognised a role for public funding
limited to “addressing identifiable market failures”37.

Public  funds  only
to  address  market
failures

With  these  considerations  in  mind,  the  Commission  has  developed  its
policy  on  the  issue  of  public  funding  for  risk  capital,  and  has  adopted  a
communication  on  the  subject38.  The  Commission  intends  to  apply  the
terms of the communication for five years39. However, as the approach of
this communication represents a departure from previous methods of state
aid  control,  and  that  it  deals  with  an  area  of  rapid  developments,  the
Commission  reserves  the  right  to  adjust  its  approach  in  the  light  of
experience.

A communication
on state aid and
risk capital has
been published

36

37 
38

39

COM(2001)  94  of  21.02.2001.  For  proposals  on  Specific  Programmes  see  COM(2001)  279  of
30.05.2001
See Section 3.4 of COM(2000) 658 of 18.10.2000 (Opus Cit.)
Communication on “State Aid and Risk Capital “, 23 May 2001. See OJ C235 of 21.08.2001, p. 3, and
http://europa.eu.int/comm(competition)
Drawing  on  the  policy  set  in  the  new  communication,  the  Commission  authorised  in  June  2001  the
Regional  Venture  Capital  Funds  due  to  operate  in  England  (case  C  52/2000),  and  in  July  2001  the
framework scheme for risk capital funds in France (N 448/2000).

17

                                                
6.2. The European Investment Fund

The  reform  of  the  EIB  Group,  approved  in  June  2000,  resulting  in  the
rationalisation and streamlining of the organisation, gave the EIF control
over all venture capital operations of the Group. This has resulted in a
sharp acceleration of EIF investments40 and has allowed the EIF to achieve
a  sufficient  critical  mass  as  to  become  a  significant  participant  in  the
European  VC  market.  It  has  already  a  portfolio  (committed  as  of
30.6.2001) in excess of EUR 1.6 billion invested in 124 VC funds, and an
investment capacity of EUR 800 million p.a. over the next years.

This  new  dimension  will  allow  the  EIF  to  fulfil  better  the  pursuit  of
traditional  Community  objectives  which  has  been  confirmed  as  its  core
mission. The EIF primary task now consists of enhancing the competitive
strength of small enterprises, developing VC know-how (see Section 5.2.),
fostering innovation and  technology,  promoting  growth,  high-quality  jobs
and  balanced  regional  development,  while  continuing  to  generate  an
“appropriate  return”41.  Moreover,  the  EIF  gives  priority  to  investing  in
“early stage” funds. In particular: (i) funds focused on specific industries or
technologies42 (i.e. biotechnologies,  content industries, nano-technologies,
“enabling  technologies”  etc)  ;  (ii)  regional  VC  funds,  with  a  view  to
facilitating the balanced development among European regions; (iii) funds
financing the exploitation of R&D results; and (iv) pan-European funds.

Finally, an important aspect of the EIF investment policy  is  not to  crowd
out private investors. Moreover, the EIF acts as a catalyst to and not as a
substitute for private investors. As a strategic fund-of-funds, the EIF is well
placed to sustain this catalytic role and take a lead in encouraging other co-
investors  to  continue  to  invest  despite  the  present  uncertainty  in  the
markets.

6.3. “Innovation 2000 Initiative”

EIF has become
the venture
capital arm of the
EIB Group

Appropriate
returns should be
generated

EIF  gives  priority
to 
stage
funds

early 

Innovation  2000  Initiative  ("i2i")  was  launched  by  EIB  in  2000,  in
response  to  the  Lisbon  EU  Summit  and  as  EIB’s  contribution  to  the
emergence  of  a  more  innovative  and  knowledge-based  society.  i2i
comprises  finance  for  :  (i)  education/e-learning  ;  (ii)  information  and
communication technologies ; (iii) R&D ; and (iv) diffusion of innovation,
including the audio-visual sector. EIB expects to lend under i2i, EUR 12 to
15  billion  in  the  3  years  following  its  official  launch  in  May  2000.  EIF,
also  part  of  i2i,  will  play  a  significant  role  in  the  programme.  With  i2i,
EIB's role in R&D finance has greatly increased.

The “i2i”
initiative is well
underway

40

41

42

More than 40 investments in venture capital funds were approved by the EIF Board between September
2000 and June 2001, for EUR 700 million, 80% of them being first time funds.
This dual approach is unique among European financial institutions
The  EIF  has  pioneered  investment  in  so-called  frontier  technologies  and  is  considering  supporting  a
range of emerging technologies which are expected to underpin the next generation of VC funds.

18

                                                
6.4. Co-operation between the Commission and the EIB

On 7 June 2001, the Commission and the EIB signed a Joint Memorandum
in  the  field  of  research.  This  establishes  a  framework  for  co-operation
between  the  Community  Framework  Programme  for  research  and  i2i.  It
aims  to  increase  the  overall  impact  of  the  instruments  of  the  two
institutions  by  enhancing  their  complementarily  and  facilitating  their
combined  used  by  industry  and  public  research  organisation  across  the
various  stages  of  the  research  and  technological  innovation  investment
cycle.  The  memorandum  encompasses  strategic  co-ordination,  coherent
information  actions  and  sharing  of  expertise.  By  enlarging  the  global
envelope available to Community research and innovation financing, it will
give  Community  research  and  innovation  a  boost  by  providing  access  to
funding sources not traditionally available.

6.5. Refocusing of Community funds

For regional development, the Council Structural Funds Regulations and
the  Commission  Guidelines  for  implementing  Structural  Funds  in  the
period  2000-200643  stress  the  need  to  achieve  the  best  leverage  from
operations  funded  from  the  Community  budget  by  favouring  as  far  as
possible recourse to private sources of financing, namely risk and venture
capital and Public-Private Partnerships (PPP). The new forms of financing
are  particularly  foreseen  to  encourage  start-ups,  spin-offs  and  innovative
developments,  specialised  business  services,  technology  transfer  and
related  services.  The  Commission  is  currently  preparing  a  Guide  for
Financial  Engineering  under  the  Structural  Funds  accompanied  by  an
evaluation of the negotiation results and of a benchmarking exercise.

On the other hand, following the invitation of the ECOFIN Council of 7
November  200044  to  reorientate  Community  instruments  managed  by  the
EIF, in order to address continuing market failures, the New Multi-Annual
Programme For Enterprise and Entreprenuership45, adopted in December
2000, foresees that the EFT Start-up Scheme will be adapted as to support
the  financing  of  incubators  and  seed  capital,  and  the  SME  Guarantee
Facility will add new “windows” to provide guarantees for equity, micro-
credit and investments in ICT46.

Finally, the examples above show that the range and characteristics of the
financial instruments made available by public authorities should continue
to evolve as to properly fulfil their intended policy purpose. To achieve the
same policy objectives in the future different means may become necessary
in a new market climate. The Commission will continue to creatively use
its  financial  instruments  with  the  aim  of  stimulating  even  further  private
sector  investment.  In  this  respect  the  Commission  considers  that,  for

A joint
memorandum for
R&D activities
has been signed

Risk capital
becoming more
involved in
regional
development

Existing schemes
and facilities have
been reorientated

Reflection on
further
development of
financial

43

44

45

46

See http://europa.eu.int/comm(regional policy)
Based  on  Commission  Communication  “Review  of  Specific  Community  Financial  Instruments  for
SMEs”, COM(2000) 653 of 18.10.2000.
New MAP (2001-2005) (Opus Cit.)
This is in addition to the Seed-Capital Action (replacing the CREA scheme), mentioned in Section 5.2,
which has become an integral part of the new MAP. For details of all these programmes see www.eif.org.

19

                                                
instance,  financial  instruments  producing  a  leverage  effect  on  existing
private  VC  funds47  could  be  seen  as  the  natural  evolution  of  equity
guarantees  (already 
in  several  Member  States  and
contemplated  in  the  new  windows  of  the  SME  guarantee  Facility).  They
may  provide,  in  specific  cases,  an  optimal  mix  of  public/private  co-
operation  and,  due  to  their  multiplier  effects,  may  avoid  the  risk  of  the
private sector being crowded out.

in  operation 

instruments will
continue.

7. CONCLUSIONS

The figures for risk capital investment in Europe in 2000 show spectacular
growth comparing with previous years. Since the mid-90s, the combination
of  improving  economic  conditions  in  Europe,  the  control  of  government
deficits  as  a  result  of  EMU,  rapidly  raising  stock  market  valuations,  the
positive  influence  of  the  thriving  US  economy,  and  the  abundance  of
investment  opportunities  in  new  promising  technologies  and  applications,
pushed  the  risk  capital  markets  into  exponential  growth.  This  has  also
allowed  the  European  risk  capital  industry  to  become  stronger  and  more
mature. Since the adoption of the RCAP (1998) venture capital investments
in  Europe  has  multiplied  by  three  and  investment  in  “early  stage”  by
four. As a result, investment in “early stage” in 2000 has been equivalent
to the total venture capital investment in 1998. From that point of view the
mid-term  point  of  the  RCAP  shows  real  progress.  This  optimistic
valuation,  however,  should  be  tempered  when  comparing  with  the  USA.
Indeed,  in  1998  investment  by  the  US  venture  capital  industry  was
approximately twice that of Europe, in 1999 triple, and in 2000 four times
bigger.  The  gap,  therefore,  seems  to  be  widening.  The  size  of  the  US
industry  is  not  only  much  bigger  but  their  larger  investments  have  been
growing at a faster rate.  If this trend continuous, the ambitious objectives
set  in  Lisbon,  which  go  well  beyond  those  in  the  RCAP  (to  foster
economic growth and job creation), would become unattainable.

The figures above imply that, in spite of the progress in recent years, there
are  not,  at  present,  enough  entrepreneurs  in  Europe  with  the  capacity  to
create  and  propose  a  world  class  flow  of  innovative  projects  and
companies,  which  could  become  the  target  of  risk  capital  financing.
Therefore,  for  Europe  to  become  much  more  entrepreneurial,  the
completion of RCAP, regardless of cyclical considerations, should be a top
political priority. The emphasis now should be on the “demand” side (e.g.
developing and consolidating innovations, with commercial potential, from
R&D).  Moreover,  risk  capital  considerations  should  continue  to  be  fully
embedded  in  all  Community  and  national  policies.  In  this  regard,  to
properly  track  the  degree  of  implementation  of  the  RCAP  by  Member
States48 much more detailed information is required from them, on an on-

Still a long way to
go to be on track
for 2010

More information
from Member
States is needed

The new situation
requires a

47

48

An  example  along  those  lines,  often  cited  and  generally  regarded  as  successful,  is  the  American
programme  known  as  SBIC  (Small  Business  Investment  Programme)  which  is  administered  and
supported  through  a  guarantee  by  the  SBA  (Small  Business  Administration)  of  the  US  Federal
Government.
Belgium  sent  to  the  Commission,  in  early  2001,  a  full  report  on  the  RCAP  implementation  :
“Contribution(s)  de  la  Belgique  à  la  Mise  en  Oeuvre  du  Plan  d’Action  Capital-Investissement”,
December 2000

20

                                                
going  basis.  The  incoming  national  progress  reports  on  structural
reform should be the first important step of that process.

rethinking of
strategy

Finally, the current difficult market conditions and the surrounding climate
of  uncertainty,  exacerbated  by  the  dramatic  events  of  11  of  September
2001 in the USA, may  certainly provoke consolidation in the industry,  as
well as a rethinking of their strategy.

21

LIST OF ANNEXES

Annex 2. - RCAP – Layout by type of barrier

Annex 3. - Acronyms used in the RCAP

Annex 4. - Glossary of terms used in the RCAP

ANNEX 1

22

RCAP (RISK CAPITAL ACTION PLAN) APROVED AT THE CARDIFF SUMMIT (JUNE 1998)

LAYOUT BY TYPE OF BARRIER – SITUATION IN OCTOBER 2001

ANNEX 2

The RCAP comprises six (6) categories of barriers to be removed in the EU:

(cid:1) MARKET FRAGMENTATION

(cid:1) INSTITUTIONAL AND REGULATORY

(cid:1) TAXATION

(cid:1) PAUCITY OF HIGH-TECH SMALL BUSINESSES

(cid:1) HUMAN RESOURCES

(cid:1) CULTURAL

23

Measure

Objective

Responsibility/Participation

Situation

BARRIER : MARKET FRAGMENTATION

Develop  networks  of  business
angels  at  regional,  national  and
Community levels

Market monitoring and development
of  information  and  statistics  on  all
levels of venture capital in the EU

Round  table  on  the  impact  of  the
fragmentation  of  the  European  risk
capital market

Prompt  all  the  market  players  to
the
generate  synergy 
effects of fragmentation

to  reduce 

Private sector

Member States

Commission

EVCA
Commission
Market players

Commission

Member States

Market players

Detailed  examination  of  the  cost  to
European  firms  of  raising  debt  and
equity finance

Obtain  a  clearer  picture  of 
the
difficulties  and  financial  needs  of
firms

Commission

Market players

(banks,  venture-capital  funds,  capital
markets, etc..)

(regulatory  bodies,  new  capital  markets,
venture-capital funds, banks, etc.)

Action  started  in  1998  and
finished in 2000. 20 Networks
have  been  supported  by  the
Commission.  Evaluation  of
the results launched in August
2001.

On-going

The round table took place on
24 October 1998 in Brussels

(cid:1)  The  Commission 
has
launched in July 2001 a study
on Corporate Financing
(cid:1)  For  tax  related  impact  see
Commission  study  referenced
in Chapter 4

24

INSTITUTIONAL AND REGULATORY BARRIERS

Measure

Objective

Responsibility/Participation

Situation

Transposal  and  implementation  of
all  financial  services  directives  -
monitoring 
single  market
scoreboard

via 

Simplification  of 
administrative
formalities  for  company  formations
capital
(including 
requirements)

minimum 

Venture-capital  funds  :  Assessment
of  whether  there  is  a  need  for
Community 
covering
legislation 
specific closed-end funds

Review  of 
implementation  and
possible  amendment  of  prospectus
to  facilitate  companies
directive 
raising  cross-border  capital  (e.g.
IPO’s)

Create,  along  the  lines  of  Directive
85/611  on  UCITS,  a  European
passport 
funds
closed-end 
for 
funds),
(including  venture-capital 
enabling  them  to  raise  funds  and
offer  their  services  in  all  Member
States without restriction

In these areas, a prospectus or offer
document  approved  in  one  Member
State  should  be  available  for  use  in
all the Member States

25

Member States
Commission

See  scoreboard  in  Figure  5
(section 3)

Member States
Commission

(disseminating best practice)

Commission
Council
EP

Industry :
- EFIFC
- EVCA
- Small business

Commission
Council
EP

Capital  markets  (competent  authorities
and small businesses)

Figures and evolution will be
made  available  by  the  end-
the
2001 
Benchmarking  Exercise  (see
section 5)

through 

UCITS  Contact  Committee
and  industry  representatives
met  on  18  November  1998  in
Brussels.  Consensus  that  an
ad-hoc  directive  was  not
needed.

Commission 
adopted on 30 May 2001

proposal

INSTITUTIONAL AND REGULATORY BARRIERS (Continuation)

Measure

Objective

Responsibility/Participation

Situation

Adoption  of  prudential  rules 
investors 
allow 
invest in venture capital

institutional 

to
to

Allow  institutional  investors,  acting
in  accordance  with  “prudent  man”
rules, to invest in venture capital

Member States

Commission  (follow-up 
Paper on supplementary pensions)

to 

the  Green

Assess  existing  accounting  and
auditing requirements

Reduction 
of 
requirements for setting up firms

the 

capital

Reform  of 
insolvency and bankruptcy

the 

legislation  on

Allow  companies 
to  draw  up
consolidated  accounts  to  facilitate
access to risk capital (for IPO’s and
listed companies)

Member States

Commission

Accounting Bodies

Facilitate the setting up of firms

Member States

Whilst  protecting  the  interest  of
creditors and consumers, ensure that
entrepreneurs  who 
gone
bankrupt can have a second chance

have 

Member States

Commission 
practice)

(dissemination  of  best

26

(cid:1)  UCITS  common  positions
adopted on 5 June 2001
(cid:1)  Commission  proposal  on
pension  funds  adopted  on
11 October 2000

proposal 

on
Commission 
international 
accounting
standards  adopted  on  13
February 2000

Figures and evolution will be
made  available  by  the  end-
the
2001 
Benchmarking  Exercise  (see
section 5)

through 

A  Seminar  on  “Business
Failures”  was  organised  in
May  2001.  A  report  will  be
made  available  in  Autumn
2001. A study on “Bankruptcy
and  a  Fresh  Start”  expected
to  be 
the
Commission before end-2001.

launched  by 

Themes

Issues to consider

Responsibility/Participation

Situation

Taxation of venture capital funds

Double taxation

Member States

BARRIER : TAXATION

Capital gains tax

Impact on venture capital

Member States

Tax arrangements for new firms

Fiscal environment for start-ups

Member States

measures 

have
Several 
already  been 
taken  by  a
number  of  Member  States
(See 
study
Commission 
referenced in section 4)

Taxation  of  low-risk  capital  (e.g.
bank deposits, bonds compared with
venture capital)

Stock options

Situation in Member States

Member States

Impact on recruitment and company
performance

Member States

Study  to  be  launched  by  the
Commission before end-2001

27

BARRIER : PAUCITY OF HIGH-TECH SMALL BUSINESSES

Measure

Objective

Responsibility/Participation

Situation

Development  of  networking  and
universities,
between 
clustering 
research  centres,  financial  backers,
lawyers, 
resources
human 
specialists,  etc.  and  link  them  at
European level

of 

Development 
customised
electronic  commerce  modules  for
small businesses to ease their access
to  electronic  commerce  and  the
internal market

Creation  of  a  pan-European  club  of
high-tech innovatory firms

Private sector

Member States

Commission 
disseminating 
Framework Research Programme)

schemes,
practice,  Fifth

(pilot 

best 

Private sector

Member States

Commission (pilot schemes)

in 
the
Envisaged 
new  R&D
Commission’s 
Framework 
Programme
proposal  of  February  2001.
The 
&
“Biotechnology 
Finance  Forum”  active  since
end-1997  would  provide  a
role model

adopted 

Commission 
Communication 
“GoDigital” on 13.03.2001

a
on

Facilitate dissemination at European
level  of  examples  of  successes  and
good  practice  :  facilitate  contact
with investors

Market 
players 
venture-capital funds, etc.)

(small 

businesses,

Commission

The  European  Federation  of
High  Tech  Enterprises  was
created in 1999

Reform  of 
system

the  European  patent

Following on from the Green Paper,
simplify  procedures  and  create  a
genuine Community patent

Commission

Member States

Commission 
adopted on 5 July 2000

proposal

EP

28

Measure

Objective

Responsibility/Participation

Situation

BARRIER : HUMAN RESOURCES

Promotion of entrepreuneurship and
innovation  within  educational  and
training systems

Member States
Commission (disseminating best practice)

Determination  of  training  needs  for
fund  managers,
venture-capital 
market  makers,  analysts  of  high-
tech firms

Identify  training  schemes  to  be  set
up  to  make  good  any  shortages  of
skilled staff in these areas

Commission
Market players

are 

culture, 

expected 

A  BEST  procedure  project
aiming to the promotion of an
enterprise 
from
primary  school  to  university,
has  been 
launched.  First
took
meeting  with  experts 
place  in  June  2001.  Final
results 
in
September  2002.  For  other
initiatives see Section 5.
(cid:1) Training schemes have been
set up by EVCA.  Courses  are
regularly  offered  to  market
participants
(cid:1)  “Seed-Capital  Action”,  to
the  EIF,
be  managed  by 
would  concentrate  on  junior
investment managers

Assessment  of  benefits  of  equity
pay 
ownership
employee 
schemes

and 

Begin  study  of  future  at  European
level

Member States
Commission
Social partners

A  Commission  consultative
document  was  released 
in
July 2001 (see section 5)

29

Measure

Objective

Responsibility/Participation

Situation

CULTURAL BARRIERS

Demonstration  of  the  advantages  of
venture  capital  and  promotion  of
entrepreneurship

Private sector

Member States

Commission

Dissemination  of  best  practices  in
corporate governance

Facilitate 
corporate 
demanded by investors

the  dissemination  of
practices
governance 

Private sector

International bodies

Commission

Member States

A  number  of  conferences  at
international
national  and 
level  have  been  organised
the  participation  of
with 
Commission  officials 
(see
section 5)

Commission  call  for  tender
for  a  comparative  study  was
published on 21 March 2000.
Results  expected  before  end-
2001.

30

ANNEX 3

ACRONYMS USED IN THE RCAP

AIM :

BEPG

Alternative Investment Market (www.londonstockexchange.com/aim)

Broad Economic Policy Guidelines

BEST :

Business Environment Simplification Task Force. Established by the Commission in September 1997

BSPCE :

The French “Bons de Souscription des Parts et Créateurs d’Entreprises”

CSER :

CVC :

EASDAQ :

EIB :

EIF :

EJC :

ESC :

Committee of European Securities Regulators

Corporate Venture Capital

European  Association  of  Securities  Dealer  Automated  Quotation.  Renamed  “NASDAQ-Europe”
(www.nasdaqeurope.com)

European Investment Bank (www.eib.org)

European Investment Fund (www.eif.org)

The European Court of Justice (www.curia.eu.int)

European Securities Committee. It replaces the High Level Securities Supervisors Committee

EURO. NM :

Nouveau  Marché  (Paris)  +  Neuer  Markt  (Frankfurt)  +  Nouveau  Marché  (Brussels)  +  Nieuwe  Markt
(Amsterdam) + Nuovo Mercato (Milan)

EVCA :

European Private Equity and Venture Capital Association (www.evca.com)

FESCO :

Forum of European Securities Commissions (www.europefesco.org). See also the CSER*

31

FIBV:

FSAP

IAS :

ICT:

ISD :

IT :

MAP

Federation Européenne des Bourses de Valeurs/International Federation of Stock Exchanges (www.fibv.com)

Financial Services Action Plan

International Accounting Standards

Information and Communication Technology

Investment Services Directive (93/22/EEC)

Information Technology

Multi-annual Programme for Enterprise and Entrepreneurship

NASDAQ :

The American National Association of Securities Dealers Automated Quotation system (www.nasdaq.com)

R&D

RTD :

SME :

Research and Development

Research and Technological Development

Small and Medium sized Enterprise

UCITS :

Undertakings for Collective Investment in Transferable Securities (Investment Funds)

US GAAP :

The American Generally Accepted Accounting Principles

VC

Venture Capital

32

ANNEX 4

GLOSSARY OF TERMS USED IN THE RCAP

 Accounting Directive:

 Directives 78/660/EEC and 83/349/EEC.

 Business Angels:

 Private  individuals  who  invest  directly  in  young  new  and  growing  unquoted  businesses  (seed
finance). In may cases they also facilitates the  finance of the next stage of the life  cycle of  young
companies (start-up phase). Business angels usually provide finance in return for an equity stake in
the business, but may also provide other long-term finance. This capital can complement the venture
capital*  industry  by  providing  smaller  amounts  of  finance  (generally  under  EUR 150 000)  at  an
earlier stage than most venture capital firms are able to invest.

 Capital market:

 A market in which long term capital is raised by industry and commerce, the government and local
authorities. Stock exchanges are part of the capital market.

 Corporate governance:

 The manner in which organisations, particularly limited companies, are managed and the nature of
accountability of the managers to the owners. This topic has been of increased importance since the
beginning  of  the  1990’s,  the  providers  of  external  finance  to  a  company  wanting  to  ensure
management is not acting contrary to their interests.

 Corporate venturing:

 Corporate  venture  capital*  whereby  a  larger  company  takes  a  direct  minority  stake  in  a  smaller
unquoted  company  for  strategic,  financial  or  social  responsibility  reason.  Predominantly  used  by
large corporates to support external technology development.

 Development capital:

 Financing provided for the growth and expansion of a company.

33

 Early stage capital:

 Financing  to  companies  before  they  initiate  commercial  manufacturing  and  sales,  before  they  be
generating a profit. Includes seed* and start-up* financing.

 Equity:

 The ordinary share capital of a company.

level 
 High 
Supervisors Committee :

Securities

 Informal  advisory  group  created  in  1985  by  the  Commission  and  the  EU  Securities  Supervisory
Regulators  with  the  purpose  of  dealing  with  co-operation  and  cross  border  matters.  It  has  been
replaced by the European Securities Committee (ESC*)

 Institutional investors:

 This  term  refers  mainly  to  insurance  companies,  pension  funds  and  investment  funds  collecting
savings  and  supplying  funds  to  the  markets,  but  also  to  other  types  of  institutional  wealth  (e.g.
endowment funds, foundations, etc).

 Investment 
Directive:

Services

 Directive  93/22/EEC  (ISD*).  It  provides  a  European  “passport”  for  investment  firms  (brokers,
dealers,  etc.)  and  gives  the  right  to  electronic  exchanges  to  place  their  terminals  in  other  Member
States.

 IPO:

 Initial Public Offering (flotation, going public) : the process of launching a public company for the
first time by inviting the public to subscribe in its shares.

 Management buy-out:

 Financing  provided  to  enable  current  operating  management  and  investors  to  acquire  an  existing
product line or business. Also known as MBO.

 Market capitalisation:

 The  price  of  a  stock  multiplied  by  the  total  number  of  shares  outstanding.  The  market’s  total
valuation  of  a  public  company.  By  extension,  the  total  valuation  of  companies  listed  on  a  stock
market.

 Primary market:

 Market into which a new issue of securities is launched.

 Private equity:

 As opposed to public equity, equity investment in companies not listed on a stock market. It includes
venture capital and buy-out investments.

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 Prospectus:

 A formal written offer to sell securities that sets forth the plan for a proposed business enterprise, or
the facts concerning an existing one that an investor needs to make an informed decision.

 Prospectus Directive:

 Documents  drawn  up  according  to  the  rules  of  Directives  89/298/EEC  (public  offers)  and/or
80/390/EEC (listing particulars).These Directives will be replaced by a new one under negotiation
(proposal adopted by the Commission on 30 May 2001)

 Prudent-man regulation:

 Obligation  of  pension  managers  to  invest  as  a  prudent  investor  would  do  on  his  own  behalf,  in
particular by  carrying out  sensible  portfolio  diversification,  with  no  limits  to  portfolio  distribution
other  than  on  self  investment  for  pension  funds  financing  defined  benefit  plans.  NL,  UK,  Ireland
USA, Canada, Australia have such a legislation.

 Regulated markets:

 Organised markets where buyers and sellers meet to trade according to agreed rules and procedures.
Markets meeting the conditions set under article 1.13 of the ISD.*

 Replacement capital:

 Purchase  of  existing  shares  in  a  company  from  another  venture  capital  investment  organisation  or
from another shareholder or shareholders.

 Risk capital markets:

 Markets  providing  equity  financing  to  a  company  during  its  early  growth  stages  (start-up*  and
development*). In the framework of this communication, it covers three sorts of financing:

(cid:1)  Informal investment by Business Angels* and corporates (“Corporate Venturing”*)

(cid:1)  Venture capital.

(cid:1)  Stock markets specialised in SMEs and high growth companies.

Secondary market:

Market  where  securities  are  bought  and  sold  subsequent  to  original  issuance.  The  existence  of  a
flourishing, liquid, secondary market creates the conditions for a healthy primary market.

Security:

A  financial  asset,  including  shares,  government  stocks,  debentures,  bonds,  unit  trusts  and  right  to
money lent or deposited.

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Seed capital:

Financing provided to research, assess and develop an initial concept.

Start-up capital:

Provided to companies for product development and initial marketing.

Stock  exchange  or  Stock
Market:

A market in which securities are bought and sold. Its basic function is to enable public companies,
governments and local authorities to raise capital by selling securities to investors.

Stock option:

Option given to employees and/or managers to buy shares at a fixed price.

Venture capital:

Investment in unquoted companies by venture capital firms managing in-house or third-party funds.
It includes  early  stage*,  expansion*  and  replacement*  finance,  but  excludes  the  financing  of  buy-
outs*.

Venture capital funds

Closed-end funds, created to provide venture capital.

(*) Word defined in the glossary or the acronyms

(cid:1) (cid:1) (cid:1) (cid:1) (cid:1)

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