Report from the Commission to the European Parliament and the Council - Measures on financial assistance for innovative and job creating Small and Medium-Sized Enterprises (1998 Growth and Employment Initiative) - As at 31 December 2002 (SEC(2003) 902)
Date: 2003-08-05
Institutions: European Commission
Subjects: EU financial instrument, EU industrial policy, EU programme, European Investment Fund, activity report, consortium, early-stage capital, investment protection, small and medium-sized enterprises, venture capital

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 5.8.2003
COM(2003) 480 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT
AND THE COUNCIL

Measures on financial assistance for innovative and job creating
Small and Medium-Sized Enterprises
(1998 Growth and Employment Initiative)

As at 31 December 2002

(SEC(2003) 902)

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT
AND THE COUNCIL

Measures on financial assistance for innovative and job creating
Small and Medium-Sized Enterprises
(1998 Growth and Employment Initiative)

As at 31 December 2002

1.

2.

2.1.

2.2.

2.3.

2.4.

2.5.

3.

3.1

3.2

3.3

3.4

3.5

3.6

4.

4.1.

4.2.

4.3.

4.4.

4.5.

5.

5.1.

5.2.

General introduction .................................................................................................... 3

ETF Start-up Facility.................................................................................................... 5

Description of the facility............................................................................................. 5

Budgetary situation ...................................................................................................... 6

Financial Intermediaries............................................................................................. 14

Beneficiary SMEs ...................................................................................................... 14

Employment ............................................................................................................... 16

Joint European Venture (JEV) ................................................................................... 17

Description of the programme ................................................................................... 17

Budgetary situation .................................................................................................... 17

Financial Intermediaries............................................................................................. 18

Review of the projects................................................................................................ 19

Employment ............................................................................................................... 23

Take-up of JEV .......................................................................................................... 23

SME Guarantee Facility............................................................................................. 25

Description of the Facility.......................................................................................... 25

Budgetary situation .................................................................................................... 25

Financial Intermediaries............................................................................................. 30

Beneficiary SMEs ...................................................................................................... 33

Employment ............................................................................................................... 37

Conclusions................................................................................................................ 38

Growth and Employment Initiative............................................................................ 38

Multiannual programme for enterprise and entrepreneurship (MAP) ....................... 38

ANNEXES {SEC(2003)902}

2

1.

GENERAL INTRODUCTION

The 2002 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  fourth  report  is  the  last  report  due  under  the  above  Council  Decision  that  specifies  in
article  8  that  the  programme  comes  to  an  end  on  31.12.2000.  Furthermore  the  commitment
period for both the SME Guarantee Facility and the ETF Start-up ended on 28.05.02.

In December 2000 a successor programme was adopted : MAP, the multiannual programme
for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises-
SMEs  (2001-2005).  This  programme  builds  on  the  Growth  and  Employment  Initiative  and
further  extends  it.  The  next  report  will  be  drawn  up  in  the  context  of  this  programme,  in
accordance with the MAP reporting requirements1.

The annual report is broken down into three parts, one for each of the financial instruments. It
is complemented by annexes, referring particularly to statistics on SMEs that are beneficiaries
under the ETF Start-up Facility or under the SME Guarantee Facility. These statistics for ETF
Start-up and SME Guarantee Facility are based on data as at the latest stage available. Finally,
the  conclusion  describes  further  developments  of  the  instruments  of  the  Initiative  and  the
context in which they have been implemented.

As at 31.12.02, an amount of EUR 59,82 million out of a total appropriation of EUR 449.56
million2 was still available for commitments. Under the ETF Start-up Facility, an amount of
EUR  17.42  million  was  available  subject  to  an  extension  of  the  reinvestment  period.  An
amount of EUR 42.4 million was also available for JEV.

The activity of the EIF related to the ETF Start-up Facility and the SME Guarantee Facility
developed according to plan, although it was affected by the economic situation that resulted
in  a  downturn  of  risk  capital  in  Europe  and  the  increased  reluctance  of  banks  to  lend  to
activities towards SMEs. In this respect, the banks also anticipated consequences, in terms of
higher risk exposure, of the Basle II capital accord. As regards JEV, the take-up by the market
was lower than expected3.

1

2

3

the 

includes 

initial  budgetary  appropriations  of 

Article 5 of Council Decision 2000/819/EC (OJ L 333, 29.12.2000, p. 84)
This  amount 
EUR 418.56 million and the interest and other income earned amounting to EUR 31 million.
The  Action  Plan  "Financing  research"  launched  by  the  Commission  on  30  April  2003  identifies,  in
particular, two actions to "ensure that Community legislation on capital adequacy, which will be based
on the future Basel II capital agreement, properly takes into account the needs of risk capital providers"
and  to  "examine  ways  to  promote  the  use  of  rating  systems  that  include  technology  risk  assessment
(technology rating) to enable potential investors to appraise the specific risks and rewards associated to
investments  in  technology-based  SMEs"  (COM(2003)  226  final,  Section  6.4  "Financial  markets",
Actions 2 and 3, p. 24).

the  Initiative  amounting 

to

3

                                                
In September 2002, European Parliament adopted the Resolution on the Commission’s third
annual  report  on  the  Growth  and  Employment  Initiative,  on  the  basis  of  the  report
(A5-0304/2002) submitted by Mr Bushill-Matthews, rapporteur of the European Parliament’s
“Committee on Employment and Social Affairs”.

In  2001  and  2002,  the  Court  of  Auditors  carried  out  audits  of  the  financial  instruments
managed  by  the  EIF,  i.e.  the  ETF  Start-up  and  SME  Guarantee  Facilities.  The  Court’s
observations and the Commission’s detailed replies can be found in the annual report of the
Court of Auditors ( OJ C 295 of 28 November 2002 ).

4

2.

ETF START-UP FACILITY

2.1.

Description of the facility

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

The  EIF  invests  in  specialised  venture  capital  funds  (below  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  small  or  newly  established  ones,  in  particular  funds
operating  at  a  regional  level,  focusing  on  specific  industries  or  technologies  and  funds  that
finance the exploitation of R&D results.

Investments are made on equal terms with other equity investors. The amended Fiduciary and
Management Agreement between the EIF and the EC that entered into force on 18 December
2001 specifies that investments must represent between 10% and 25% of the total capital of a
VC fund or business incubator, or 50% in exceptional cases. Investments can be made up to a
maximum  amount  of  EUR  10  million.  In  exceptional,  duly  substantiated  cases  the  amount
committed may be higher, but will not in any case exceed EUR 15 million4.

The  new  agreement  also  foresees  the  possibility  of  co-investments  in  VC  funds  with  other
Community facilities, EIF’s own resources or other resources under mandate. Co-investments
are  allowed  provided  that  the  aggregate  amount  does  not  exceed  50%  of  the  capital  of  the
fund.  This  option  has  been  used  for  several  investments,  in  particular  in  the  case  of
multipurpose funds that include start-up companies in their investment programme.

Venture-capital fund managers are required to maximise private sector participation and will
normally  be  expected  to  obtain  an  amount  of  at  least  50%  of  total  fund  size  from  private
sources.  For funds mainly  operating  in  assisted regions  (objectives 1 and  2)  or  in  candidate
countries, up to 70% of public funding may be authorised.

Where  the  investment  policy  of  a  VC  fund  foresees  investments  outside  the  participating
countries,  the  EIF's  participation  is  reduced  by  the  corresponding  percentage  of  such
investments.  However,  always  taking  into  account  the  requirement  that  the  majority  of  the
capital must be invested in the participating countries.

The  EIF  examines  the  fund  proposals  based  on  criteria  which  include  size,  level  of
involvement from the private sector, investment strategy, target market, deal flow, proposed
terms, expected rate of return, management team and 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
achieve an adequate geographical coverage across the European Union (see point 2.2.2).

Following  approval  by  the  Commission  of  a  VC  fund  proposal,  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
(see point 2.2.4).

4

Investments  approved  prior  to  18  December  2001  must  comply  with  the  provisions  of  the  previous
Fiduciary  and  Management  Agreement  that  foresees  investments  between  10%  and  25%  of  the  total
capital of the VC fund, up to a maximum of EUR 10 million.

5

                                                
2.2.

Budgetary situation

2.2.1. Overview

As at 31.12.02, the budgetary appropriations of the ETF Start-up Facility amounted to EUR
168 million. In addition, according to the Council Decision 98/347/EC, Annex I, points 7 and
8, proceeds from realised investments may be reinvested during the reinvestment period5 and
the  interest  earned  on  the  trust  account  shall  be  added  to  the  resources  of  the  facility.
Therefore, these two income sources shall be added to the budgetary appropriations.

This total budget shall cover the full cost of the facility, including investments in VC funds
and  any  other  eligible  costs  of  the  facility.  The  table  below  shows  the  breakdown  of  the
budget appropriations, interest and other income as well as their utilisation:

Table 2.1. Budgetary data

Resources

Budget appropriations

Interest & other income

Total

Utilisation

EIF signatures to VC funds

EIF commitments to be signed

Maximum EIF fees & other

Available budget to be committed in case of extension of
re-investment period

Total

2.2.2. Geographic distribution

(EUR million)

168.00

22.02

190.02

110.92

46.90

14.78

17.42

190.02

In 2002, the EIF continued receiving a steady flow of enquiries from potential fund managers
and sponsors throughout the European Union. As at the end of 2002, following due diligence
by  the  EIF,  investment  proposals  into  28  VC  funds  had  been  approved  by  the  EIF  and  the
Commission services, corresponding to a total amount of EUR 207 million. 18 contracts had
been signed by the EIF with VC funds. For the remaining 10 approved proposals, negotiations
were unsuccessful (see point 2.2.3). The breakdown of the amounts committed to the 18 VC
funds by country is shown below:

5

According to this provision, the reinvestment period corresponds to the first four years of operation of
the  facility.  The  reinvestment  period  can  be  extended  by  up  to  three  years,  subject  to  a  satisfactory
evaluation of the facility 48 months after its adoption.

6

                                                
Spain
11%

Portugal
6%

Belgium
2%

France
22%

Luxembourg
13%

Germany
15%

Austria
6%

United Kingdom
11%

Finland
4%

Sweden
4%

Denmark
6%

Figure 2.1. Breakdown by country of the VC funds according to the seat of the management
company

Geographical  distribution  as  presented  in  Figure  2.1  is  based  on  the  location  of  the
management  company  of  the  venture-capital  funds.  It  should  be  noted  that  VC  funds  may
choose  to  have  their  seat  in  a  given  country  for  legal,  operational,  market,  tax  or  other
reasons,  but  that  their  investments  are  not  necessarily  limited  to  this  particular  country  and
may  extend  to  other  participating  countries.  In  this  respect,  the  Commission  suggests
considering the merits and the possibility of developing an harmonised European fund legal
structure ensuring tax transparency for risk capital operations throughout the Union6.

Approvals of new funds in the first half  of  2002 have  resulted in  significant  changes  to  the
geographical distribution based on amounts committed to VC funds. For example, the share
of France has decreased from 28% by the end of 2001 to 22% by the end of 2002.

Another  way  of  examining  geographical  distribution  is  on  the  basis  of  the  location  of  the
SME portfolio companies that have benefited from the facility. This provides a snapshot of a
situation at a particular moment in time. However, it does not distinguish between VC funds
that are at the beginning of their 5-year investment period and those that have reached the end
of  this  period.  A  breakdown  by  country  of  beneficiary  SMEs  as  at  30.09.02  is  provided  in
Table 2.2.

As already explained in the context of the 2001 discharge procedure, the ETF Start-up facility
commenced  its  activities  on  a  ‘first  come,  first  served’  basis.  This  resulted  in  an  unevenly
balanced absorption for some time. The investment programme of VC funds typically covers
4 to 6 years. It is therefore evident that the French funds which signed at the early stage of the
programme are more advanced in their investment programme into final beneficiary SMEs.

6

COM(2003) 226 final, Section 6.4 "Financial markets", Action 1, p. 24

7

                                                
The following pie chart (figure 2.2.) gives a projection of the estimated number of SMEs by
country at the end of the investment programme of the VC funds that are currently in different
stages  of  their  investment  cycle.  The  projection  takes  into  account  the  average  investment
amount per VC fund and the remaining investment period.

Luxembourg
14%

Belgium
6%

Denmark
9%

France
24%

United Kingdom
17%

Spain
4%

Sw eden
5%

Finland
7%

Germany
8%

Portugal
6%

Figure 2.2. ETF Start-up. Projected number of SMEs by country at termination date of EIF
committed amounts as at 31.12.02, weighted by relative investment

As in the past, the EIF has made significant efforts to achieve a broad geographical coverage7.
However, it has been difficult to attract private capital in those countries where little venture
capital activity exists, for a number of reasons:

–  different stages of development of the venture capital market in the various countries;

–  requirement that ETF Start-up only invests pari passu with other equity investors;

–  at least 50% of capital must be provided by the private sector.

The  Commission  considers  that  different  needs,  market  conditions  and  macro-economic
circumstances in the various Member  States  have  an  impact  on  the  absorption  capacity  and
the  take-up  of  the  various  financial  instruments.  Based  on  the  experience  gained  in  the
implementation of the instruments, the new Fiduciary and Management Agreement specifies
that  appropriate  geographical  distribution  should  be  achieved  across  the  various  SME
financial  instruments  (considered  globally)  rather  than  individually  for  each  of  them.  A
breakdown  of  geographical  distribution  for  ETF  Start-up  and  the  SME  Guarantee  Facility,
based on the seat of the intermediaries/VC funds as at 31.12.02, is given in Annex 4.

7

In  2002,  operations  in  Ireland  and  Spain,  which  were  not  covered  in  2001,  were  approved  under  the
Multiannual Programme for enterprise and entrepreneurship (MAP).

8

                                                
2.2.3. Commitments

The  investments  committed  under  ETF  Start-up  in  2002  should  be  considered  against  the
general  development  of  the  venture  capital  market.  The  years  2001  and  2002  were
characterised  by  a  decrease  in  investment  activity  in  the  European  venture  capital  market
compared  to  the  year  2000.  According  to  the  statistical  data  published  by  the  European
Private Equity & Venture Capital association (EVCA)  8 the amount invested was reduced by
48% in 2001 while the number of investments decreased by 25% compared to 2000.

Of the 28 operations approved by the EIF and the Commission services and referred to under
point 2.2.2 above, corresponding to a net commitment of EUR 157.82 million 18 had resulted
in  contracts  between  the  EIF  and  VC  funds  at  the  end  of  2002.  The  amount  committed  to
these 18 VC funds is EUR 110.92 million. In addition, 3 out of these 18 funds also received a
total  amount  of  EUR  16.6  million  from  EIF  own  resources  or  under  the  EIB  Risk  Capital
Mandate,  thus  taking  advantage  of  the  possibility  to  co-invest  alongside  ETF  Start-up
resources  (see  2.1).  The  18  VC  funds  have  raised  an  amount  of  EUR  558.1 million9  from
private and public investors, thus providing a substantial leverage to Community funds.

Despite significant efforts made by the  EIF, the 10 remaining investment operations did not
materialise. This was due to a number of reasons, in particular:

–  the adverse market circumstances, as explained above;

–  difficulties experienced by the approved VC funds in raising funds within the time limit10;

–  reluctance of private investors to participate in the formal signature (closing) of deals;

–  changes  by  VC  funds  of  their  proposed  investment  policy  resulting  in  ineligibility  under

the facility.

The  graph  below  shows  the  quarterly  approvals  of  investments  into  VC  funds.  It  should  be
noted that no further commitments under Growth and Employment were made after 28.05.02.
ETF Start-up investment proposals submitted by the EIF after that date have been approved
under the Multiannual Programme for Enterprise and Entrepreneurship (MAP)  (2001-2005),
that  is  subject  to  a  separate  reporting  in  accordance  with  article  5  of  the  MAP  Council
Decision.

8

9

10

Corporate Venturing European Activity Update 2001, EVCA Research Paper, p.4.
Indicative total amount based on the EIF report as at 31.12.2002
In accordance with the Amended and Restated Fiduciary and Management Agreement of 18 December
2001,  the  EIF  cannot  formally  commit  funds  to  VC  funds  after  31.12.2002  under  the  Growth  and
Employment Council Decision.

9

                                                
n
o
i
l
l
i

m
R
U
E

45
40
35
30
25
20
15
10
5
0

1998Q3

1998Q4

1999Q1

1999Q2

1999Q3

1999Q4

2000Q1

2000Q2

2000Q3

2000Q4

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

Signed Withdrawn Under Process

Figure 2.3. Quarterly approvals of investments in the VC funds

The graph below shows the cumulative evolution of the total amount committed (i.e. contracts
signed plus those still being processed, corresponding to EUR 157.82 million as at the end of
2002) compared to the available budget for commitments to VC funds (EUR 190 million as at
the end of 2002).

It  also  shows  the  evolution  of  the  amounts  signed  by  the  EIF  with  VC  funds  (EUR  110.92
million as at the end of 2002).

x
 x
n
o
i
l
l
i

m
R
U
E

200
180
160
140
120

100
80

60
40
20
0

1998Q3

1998Q4

1999Q1

1999Q2

1999Q3

1999Q4

2000Q1

2000Q2

2000Q3

2000Q4

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

Total budget

Budget available for commitments to VC funds (net of EIF management fees)

Amount committed

Contracts signed

Figure 2.4. Cumulative evolution of operations

10

 
 
2.2.4. Disbursements

As at 31.12.02, the total disbursements to VC funds amounted to EUR 63 million, compared
to EUR 50 million at the end of 2001 and to EUR 32 million at year end 2000. As a result of
the  increased  pace  of  investments  of  VC  funds  into  SMEs,  the  overall  disbursement  rate  is
now 57% of the amounts signed.

It is worth noting that the first ETF Start-up VC funds that signed a contract with the EIF in
1999 show an  average disbursement rate of  89%.  Those  signed  in  2000  have  reached  59%.
Considering  the  average  investment  period  of  VC  funds,  these  disbursement  rates  can  be
considered satisfactory.

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

n
o
i
l
l
i

m
R
U
E

120

100

80

60

40

20

0

1998Q3

1998Q4

1999Q1

1999Q2

1999Q3

1999Q4

2000Q1

2000Q2

2000Q3

2000Q4

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

Contracts signed

Disbursements to VC funds

Figure 2.5. Disbursements to the VC funds

The  graph  below  shows  the  investments  made  by  the  VC  funds  in  beneficiary  SMEs
compared  to  the  EIF  disbursements  to  the  VC  funds.  At  the  end  of  2002,  the  ratio  of  the
facility  contribution  to  the  investment  of  VC  funds  was  1:4.  Taking  into  account  that  VC
funds have raised a total amount of EUR 558.1 million, the following graph shows that these
VC funds have about half of their capital still to be invested in new SMEs or to be used for
follow-on investments in SMEs already in their portfolio.

11

 
n
o
i
l
l
i

m
R
U
E

250

200

150

100

50

0

1998Q3

1998Q4

1999Q1

1999Q2

1999Q3

1999Q4

2000Q1

2000Q2

2000Q3

2000Q4

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

Disbursements to VC funds

Investments by VC funds

Figure 2.6. Investments by the VC funds in beneficiary SMEs

2.2.5.

Repayments by the venture capital funds

Some ETF Start-up VC funds have commenced repaying the EIF, following the sale of their
equity  participation  in  successful  SMEs.  More  information  on  the  realised  investments  is
given in point 2.4 below.

In the year 2002, a total amount of approximately EUR 446,000 was repaid by the VC funds
to the trust account of the facility, resulting in a total amount repaid (including dividends) of
EUR 16.1 million as at 31.12.02.

12

 
n
o
i
l
l
i

m
R
U
E

70

60

50

40

30

20

10

0

1998Q3

1998Q4

1999Q1

1999Q2

1999Q3

1999Q4

2000Q1

2000Q2

2000Q3

2000Q4

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

Disbursements to VC funds

Repayments from VC funds

Figure 2.7. Repayments by the VC funds

As at 30.09.02 the portfolio was valued at EUR 36 million (see annex  9). The total amount
invested (draw downs) was EUR 57.2 million and the capital repayments received amounted
to EUR 11.2 million. A further amount of EUR 4.7 million of realised gains was received.

The result is EUR 5.4 million or 11.3% of unrealised losses, after having taken into account
the realised gains (details and methodology are given in annex 9). These losses are due to the
dramatic  deterioration  of  the  VC  market  in  the  last  two  years.  It  should  be  noted  that  the
unrealised  losses  may  increase  further,  given  that  the  deterioration  of  the  VC  market
continued into 2003. However, the size of any realised losses or gains cannot be known until
all  investments  are  exited.  Proceeds  from  realised  investments  will  be  returned  to  the
Community budget.

2.2.6.

Accounts

The financial statements of the facility are enclosed in annex 8.

13

 
2.3.

Financial Intermediaries

Most of the VC funds that have contractual agreements with the EIF have a national, or even
regional  focus,  although  some  of  them  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
investment policy of ETF Start-up.

A  short  description  of  the  VC  funds  that  have  contractual  agreements  with  the  EIF  can  be
found in annex 1.

2.4.

Beneficiary SMEs

As at 30.09.02, the VC funds had invested in 206 SMEs11. The total amount invested is EUR
221.2 million, which corresponds to an average investment of EUR 1.1 million per company.
This  is  in  line  with  the  statistics  provided  in  the  EVCA  2001  yearbook.  According  to  this
yearbook  in  2000  the  average  investment  in  companies  in  their  seed  phase  amounts  to
EUR 0.98 million, while the average investment in companies in their start-up phase amounts
to EUR 1.52 million.

In  line  with  common  venture  capital  market  practice,  VC  funds  under  ETF  Start-up  draw
down the money during their investment period, according to their investment opportunities
into  SME  beneficiaries.  The  timing  of  these  draw-downs  is  determined  by  market
circumstances  and  the  funds’  investment  policy,  which  sometimes  foresees  setting  aside
reserves  for  follow-on  investments  in  promising  SME  beneficiaries.  Furthermore,  in
accordance with market practice, a small portion of disbursed amounts are used to remunerate
the management companies of VC funds, and are therefore not invested in final beneficiaries.

As at 30.09.02, out of EUR 106 million signed at that date (EUR 111 million as at 31.12.02),
the  VC  funds  had  invested  EUR  47.1  million  into  final  beneficiaries,  i.e.  some  40%.
Considering that the existing investments into VC funds have been signed between 1999 and
2002, the disbursement schedule appears to be as expected.

The breakdown by country is as follows:

11

According to the reporting requirements of the VC funds under ETF Start-up

14

                                                
Table 2.2. Breakdown by country of beneficiary SMEs

Country

Number of
beneficiary SMEs

Average investment
(EUR million)

Amounts invested by
VC funds (including
amounts of other
private and public
investors)
(EUR million)

Belgium

Denmark

Finland

France

Germany

Luxembourg

Netherlands

Sweden

United Kingdom

Non-EU (*)

Total

3

15

15

103

36

3

1

10

11

9

206

(*) US, Canada, Israel and Switzerland (see point 2.1)

1.4

7.9

7.7

101.7

43.9

7.5

0.9

19.8

18.1

12.2

221.2

0.5

0.5

0.5

1.0

1.2

2.5

0.9

2.0

1.6

1.4

1.1

Electronic related
2%

Other
18%

Biotechnology
12%

Medical / health 
related
8%

Industrial Products 
and Services
2%

Consum er related
2%

Com puter related
28%

Com m unications
28%

Figure 2.8. Investments by VC Funds into SMEs, according to sector

Out of the 206 companies, 166 are still in the portfolios of the VC funds and 40 investments
have been realised. Out of these, 21 have been sold and 19 have been written off. The table
below gives details of these 40 investments:

15

Table 2.3. Realised investments

Cost
(EUR million)

Final value
(EUR million)

Gain/Loss
(EUR million)

Gain/Loss
(%)

22.1

24.2

46.3

9.3

2.2

88.8

91

18.5

-19.9

64.6

44.7

9.2

-90%

267%

97%

99%

Number of
investee
companies

19

21

40

Written off

Sold

Total

ETF  Start-
up share

As far as realised investments are concerned, the final value of the investments represents on
average twice the initial capital invested. This contrasts significantly with the situation of the
active portfolio companies as explained in section 2.2.5.

The ETF Start-up share is paid back to the trust account of the facility after deduction of the
management fees due to the VC funds.

2.5.

Employment

Detailed information about employment is included in annex 2.

16

3.

JOINT EUROPEAN VENTURE (JEV)

3.1

Description of the programme

The JEV programme aims to encourage transnational joint ventures between European SMEs
in  the  European  Economic  Area12,  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 (Facility for preparatory work and investment). The amount (maximum EUR 100,000
per project) and the terms of this contribution are as follows:

(cid:1)  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.

(cid:1)  The second part of the contribution covers up to 10 % of the total amount of the investment

made.

Until  autumn  2001,  JEV  also  supported  actions  promoting  the  programme  (Promotion
Facility). The maximum amount of a contribution for the Promotion Facility was EUR 10,000
for  promotional  action  material  and  EUR  20,000  for  events  intended  to  stimulate  co-
operation. It consisted of 50% of all eligible expenses in the form of a grant. Entities which
were  eligible 
to  apply  for  a  JEV  Promotion  Facility  contribution  were  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. The Commission suspended support
for the Promotion Facility In autumn 2001 as the JEV Programme was undergoing a review
and internal evaluation.

3.2

Budgetary situation

3.2.1. Overview

The budgetary allocations for the JEV programme totalled EUR 57 million, including EUR 5
million allocated in 1997 for the JEV pilot action.

3.2.2. Geographic distribution

For JEV, as the projects are by definition transnational, geographic distribution of budgetary
allocations  by  Member  States  is  not  relevant.  The  geographic  distribution  is  therefore
presented in the context of the review of the projects under point 3.4. hereunder.

12

Decision of the EEA Joint Committee n°72/1999 of 15.06.99

17

                                                
3.2.3. Commitments

At  the  end  of  2002,  the  Commission  services  had  committed  EUR  14.6  million  of  the
available  budgetary  resources  to  final  beneficiary  SMEs  on  the  basis  of  approved
applications.

3.2.4. Disbursements

As at 31.12.02, the total disbursements to beneficiary SMEs amounted to EUR 2.0 million.

3.2.5.

Accounts

The financial statements of the programme are enclosed in annex 8.

3.3

Financial Intermediaries

The  JEV  programme  is  implemented  through  a  network  of  financial  institutions.  This
network,  constituted  following  a  call  for  expressions  of  interest  (Official  Journal  S  42  of
28 February  1998),  comprised  71  financial  intermediaries  at  31.12.02  (unchanged  from  the
year before). A complete list of these financial intermediaries is attached (annex 4).

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

Table 3.1. Breakdown of financial intermediaries by country

Country

Number of financial
intermediaries

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Norway

Portugal

Spain

Sweden

UK

Total

7

6

2

1

7

10

2

1

19

3

1

2

8

1

1

71

18

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  the  71  financial  intermediaries  currently  remaining  in  the  network,  about  one  third
have  never  submitted  an  application  for  a  joint  venture  project.  Of  the  active  financial
intermediaries,  one  quarter  accounted  for  more  than  three-quarters  of  the  joint  venture
projects.

3.4

Review of the projects

From the start in 1998 until 31.12.02, after an in-depth assessment of potential projects by the
financial  intermediaries,  273  projects  had  been  received  by  the  Commission  services,  of
which  200  had  been  approved.  Of  these,  54  were  promotion  projects  and  146  were
preparatory  work  and  investment  projects.  The  table  below  summarises  the  evolution  of
projects:

Table 3.2. Project status

(Cumulative figures)

Projects

31.12.98

31.12.99

31.12.00

31.12.01

31.12.02

Projects received

Joint Venture Projects

Promotion Facility

Total

Projects approved

Joint Venture Projects

Promotion Facility

Total

Projects rejected

Projects withdrawn

Projects 
review at year-end

under

23

-

23

11

-

11

2

2

8

79

25

104

53

12

65

5

9

25

127

59

186

83

46

129

17

25

15

173

70

243

121

54

175

21

26

21

203

70

273

146

54

200

30

28

15

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. By the second year of
the  programme,  104  projects  had  been  received.  In  2000  and  in  2001  the  number  of  new
applications received remained at about the same level as the year before. This was lower than
expected. In 2002 the number of new applications almost halved.

19

To  date,  almost  one  in  five  projects  was  refused  by  the  Commission  or  withdrawn  by  the
financial intermediary. Most refusals were due to non-compliance with the eligibility criteria
or  to  insufficient  impact  as  regards  the  setting-up  of  new  economic  activities  involving
investment and job creation. Most of the withdrawals were due to the level of administrative
requirements related to the processing of the files and the resulting delays.

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

Table 3.3. Breakdown by country of the planned joint ventures

Planned joint ventures

1998-2000

2001

2002

Total

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

United Kingdom

Undecided

Total

1

8

6

1

11

7

1

1

10

1

4

0

8

16

3

4

1

83

1

2

2

0

2

6

2

2

2

1

4

1

4

4

2

3

0

3

0

1

0

0

6

2

0

3

0

1

1

2

3

1

2

0

5

10

9

1

13

19

5

3

15

2

9

2

14

23

6

9

1

38

25

146

20

Nationalities of partners (lead and other) involved in projects are as follows:

Table 3.4. Breakdown by country of joint ventures’ partners

Partners

1998-2000

2001

2002

Total

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

United Kingdom

Other

TOTAL

4

19

12

3

27

17

1

3

18

1

13

0

11

24

6

21

3

2

4

11

2

3

12

2

2

8

1

7

3

5

4

4

9

0

3

0

3

0

5

12

2

0

12

0

4

2

3

2

2

2

0

9

23

26

5

35

41

5

5

38

2

24

5

19

30

12

32

3

183

79

52

31413

13

A minority of projects includes more than two partners.

21

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

Table 3.5. Sector of activity of planned joint ventures

Planned joint ventures

1998-2000

2001

2002

Total

Multimedia, 
audio-visual

software,

and

Marketing 
commercialisation

Manufacturing

Waste management

Biotechnology

Transports, logistics

Information technology

Energy

Construction

Industry

Telecommunications 
data-processing

and

Other services

Total

2

13

14

2

2

8

20

4

4

5

2

7

83

5

4

9

0

1

1

3

4

1

2

0

8

1

4

6

1

0

1

4

1

2

0

0

5

38

25

8

21

29

3

3

10

27

9

7

7

2

20

146

The  size  of  the  SMEs  involved  in  the  approved  joint  venture  projects  (until  31  December
2002) is as follows:

Table 3.6. Employment in lead and partner SMEs

Number of employees

31.12.99

31.12.00

31.12.01

31.12.02

Number of SMEs (cumulative figures)

< 10

10-49

50-249

Total

48

46

21

115

97

56

28

181

137

85

36

258

166

109

39

314

Out of the 314 partner SMEs, 53 % had fewer than 10 employees, while 35 % had between 10
and 49 employees.

22

3.5

Employment

With  only  31  joint  ventures  created  and  reported  so  far  (according  to  the  88  questionnaires
returned by SMEs for the evaluation of the Growth and Employment Initiative), the effect on
employment has been disappointing. Although first indications seemed positive, by the end of
2002 only 10 applications had been received requesting the investment grant to be awarded on
the basis of investments realised in the newly created joint ventures.

The questionnaires returned by SMEs indicate that 31 joint ventures have in fact been created,
leading to 252 new  jobs.  The  SMEs  anticipate  that  employment  in  these  joint  ventures  will
increase to 787 in 5 years’ time. However, in many of the grant request cases, the actual job
creation  was  significantly  less  than  foreseen  in  the  initial  applications  forms,  so  these
forecasts may well be rather optimistic. On the other hand, the job creation figures given in
the grant application only reflect the current situation - creation of, and investment in a joint
venture is often a long process and it may be that further jobs will be created as the business
progresses.

The great majority of the joint ventures created and reported so far have opted not to apply for
the investment grant. General opinion is that the procedures are too lengthy and complicated.
Another  reason  for  not  applying  for  the  investment  grant  is  that  the  joint  ventures  have
invested  only  limited  amounts  in  fixed  assets  and  therefore,  the  10%  support  has  not  been
considered  as  incentive  enough  to  justify  the  administrative  effort.  It  can  reasonably  be
assumed that jobs have been created also in the joint ventures that have decided not to apply
for an investment  grant, but in view  of the  actual job creation  figures  available for  the  four
grants submitted, the numbers are probably rather limited. The actual number of jobs created
will only be confirmed when the first reports are received from the joint ventures under their
5-year reporting obligation.

3.6

Take-up of JEV

Demand  for  JEV  from  the  market  has  been  much  lower  than  originally  expected.  The
programme was originally conceived, partly in response to requests from SME representative
organisations,  to  complement  the  (then)  existing  ECIP  (European  Community  Investment
Partners) and JOP (Joint Venture Programme – Phare/Tacis) joint venture programmes, which
covered the ALAMEDSA and CEEC/NIS countries respectively. ECIP was closed at the end
of 1999 and JOP during 2000. One effect of this was that some financial intermediaries who
had offered ECIP, JOP and JEV to their SME clients scaled down or ceased their  activities,
since JEV alone did not provide them with a sufficient volume of projects to justify dedicated
staff. The remuneration paid to financial intermediaries for submitting files was regarded by
many as insufficient in view of the administrative obligations that the financial intermediaries
have assumed when concluding the Framework Agreement with the Commission.

Although  the  logic  behind  the  JEV  programme  was  considered  sound,  time  has  shown  that
there  was  in  fact  relatively  little  demand  from  SMEs  for  support  for  the  creation  of
transnational  joint  ventures  in  the  EU.  In  reality,  SMEs  investing  in  other  Member  States
often  preferred  to  create  subsidiaries  rather  than  joint  ventures,  or  to  enter  into  looser
cooperation agreements without the obligation to create a new legal entity.

23

Take-up  of  the  programme  may  also  have  been  affected  by  the  need  to  impose  thorough
controls on the processing of applications in order to ensure sound financial management and
reduce the risk of irregularities to the minimum. As a result, file-processing times have been
longer than expected and the programme has appeared to suffer from bureaucratic inertia. On
the other hand, however, there has been no confirmed case of fraud either.

24

4.

SME GUARANTEE FACILITY

4.1.

Description of the Facility

The  objective  of  the  SME  Guarantee  Facility  is  to  stimulate  job-creation  by  facilitating  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 (FIs), 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.  The  EIF  manages  the  contacts  with
financial  institutions  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  applies  mainly  to  companies  with  fewer  than  100  employees.
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.

4.2.

Budgetary situation

4.2.1. Overview

As  at  31.12.02,  the  budgetary  appropriations  for  the  SME  Guarantee  Facility  amounted  to
EUR 198.56  million.  In  addition,  according  to  the  Council  Decision  98/347/EC,  Annex  III,
point  7,  interest  earned  on  the  trust  account  shall  be  added  to  the  resources  of  the  Facility.
This total budget shall then cover the full cost of the Facility, including guarantee losses and
any other eligible costs or expenses under the Facility. The table below shows the breakdown
of budget, relevant income and expenditure:

25

Table 4.1. Budgetary data as of 31.12.02

Resources

Budget appropriations

Interest & other income

Total

Utilisation

EIF commitments to FIs (basis: EC approvals)

Maximum EIF fees14 and other eligible expenses

Amount to be returned to the EC budget

Total

4.2.2. Geographic distribution

(EUR million)

198.56

8.98

207.54

188.87

18.37

0.30

207.54

The  final date  for commitments  under  the  Facility  was  28.05.02.  At  the  end  of  2002  of  the
EUR 188.87 million approved by the EC, EIF had signed guarantee commitments amounting
to EUR 186.95 million. The geographic distribution of guarantee commitments approved by
the Commission of EUR 188.87 million is shown below:

Portugal
1%

France
19%

Germany
27%

Denmark
3%

Belgium
4%

United Kingdom

4% Austria

3%

Spain
11%

Sweden
3%

Netherlands
7%

Finland
2%

Italy
16%

Figure 4.1. Breakdown by country of the guarantee commitments to financial intermediaries
at the end of 2002

14

Maximum EIF fees for the full facility period, i.e. until 28 May 2012

26

                                                
4.2.3. Commitments

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

30

25

20

15

10

5

0

n
o
i
l
l
i

m
R
U
E

28

27

25

22

22

22

8

11

7

7

7

1

0

1

0

2

0

0

Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02

Figure 4.2. Quarterly EIF commitments to financial intermediaries

The  graph  shows  the  evolution  of  the  EIF  guarantee  commitments  (EUR  188.87  million  at
31.12.02)  compared  to  the  total  available  budget  (EUR  207.54  million  minus  EUR  18.37
million for EIF fees15 and other eligible expenses, at 31.12.02). The graph also indicates the
actual  utilisation  of  the  budgetary  resources  by  the  financial  intermediaries.  At  31.12.02,
average  utilisation  reached  82.45  %.  It  should  be  noted  that  for  certain  financial
intermediaries the availability period does not end until 31.12.03 and it is expected that this
will result in an increased utilisation.

15

Maximum EIF fees for the full facility period, i.e. until 28 May 2012

27

 
                                                
250

200

150

100

50

s
n
o
i
l
l
i

m

0
Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02

Total budgetary resources
Available budget (net of EIF management fees)
EIF commitment
Actual utilisation by the financial intermediaries

Figure 4.3. Cumulative evolution of operations

Guarantee  schemes  in  general  have  a  high  leverage  effect.  As  at  31.12.02,  the  aggregate
amount of SME loans  guaranteed under  the Facility  totalled  EUR  9.02  billion.  At  the  same
time,  the  utilisation  of  the  budgetary  resources  by  the  financial  intermediaries  amounted  to
EUR 155.7 million, achieving a leverage effect of 58.

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

28

 
16000

14000

12000

10000

8000

6000

4000

2000

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 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02

Aggregate SME loan volume
Aggregate SME investment amounts

Figure 4.4. Loans granted to SMEs and corresponding investments

The EIF has not signed any contracts with new intermediaries in 2002, but amended 9 already
existing contracts.

4.2.4.

Loss payments

Amount of the EIF’s portion in regard to the defaulted loans totals EUR 18.4 million for the
year 2002 (EUR 7.2 million in 2001 and EUR 0.4 million in 2000). This represents 9.7 % of
the EIF commitment of EUR 188.87 million

A  detailed  analysis  of  defaulted  loans  as  of  30.09.02  is  provided  in  Annex  7  following  the
request  in  the  final  report  (A5-0304/2002)  submitted  in  September  2002  by  Mr  Bushill-
Matthews, rapporteur  of the  European  Parliament’s “Committee  on Employment  and  Social
Affairs”.

4.2.5.

Accounts

The financial statements of the Facility are enclosed in annex 8.

29

 
4.3.

Financial Intermediaries

4.3.1. Overview

The  EIF  has  signed  contracts  with  23  financial  intermediaries  in  12  of  the  15  member
countries.  Although  substantial  efforts  were  made  by  the  EIF,  no  interest  was  shown  from
potential intermediaries in Greece, Luxembourg and Ireland.

The  commitment  period  of  Community  funds  under  the  Growth  and  Employment  budget
under  the  Facility  came  to  an  end  on  28.05.02  and  the  amount  available  has  been  fully
committed to financial intermediaries.

As  from  29.05.02,  all  the  future  commitments  have  to  be  made  under  the  Multiannual
Programme  for Enterprise  and  Entrepreneurship  (2001-2005),  MAP.  An  amended  Fiduciary
and Management Agreement between the Commission and the EIF was signed in December
2001.  Under  this  agreement,  the  coverage  of  the  Facility  is  extended  to  other  products  and
countries. Under the MAP, 10 new contracts have been signed so far. The implementation of
this facility is the subject of a separate report.

The  average  utilisation  of  the  financial  intermediaries  under  the  Growth  and  Employment
Initiative is 82.45%.

The  following  graph  shows  the  utilisation16  of  the  EIF  commitments  by  country  as  of
31.12.02.

The graph also takes into account the subsequent amendments to the contracts. The following
country description gives more detailed information. Furthermore a detailed description of the
different  financial  intermediaries  and  their  financing  products  that  are  guaranteed  under  the
SME Guarantee Facility is to be found in annex 5.

D e n m a r k

U n it e d   K in g d o m

A u s t r ia

N e t h e r la n d s

B e lg iu m

S p a in

G e r m a n y

P o r t u g a l

F in la n d

S w e d e n

I t a ly

F r a n c e

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

Figure 4.5. Utilisation by financial intermediaries

16

The  utilisation  is  calculated  as  the  ratio  between  aggregate  amount  of  the  guarantees  included  in  the
relevant SME Guarantee Facility portfolio of each intermediary and the maximum guarantee portfolio
volume contractually agreed for the intermediary.

30

                                                
4.3.2. Countries

Austria

Bürges offers two guarantee products covered under the facility:

“Jungunternehmer-Förderungsaktion” supporting start-ups and ownership transfer ;

“Unternehmensdynamik” supporting innovative SMEs.

Due to the high demand by SMEs, EIF’s contract with Bürges was extended in 2000 and 2001
with subsequent increases  of the  portfolio volumes and extensions  of the availability period
until 31.12.02. At the end of the fourth quarter 2002 the actual utilisation rate was 96.6%, and
the volumes available under the “Unternehmensdynamik” programme had been fully used.

Belgium

The Facility supports two loan programmes offered by Fonds de Participation (FdP) to start-
ups.  The  utilisation  of  the  FdP  programmes  has  been  rapidly  growing  under  the  facility.
Therefore,  the  contract  was  amended  in  June  2002,  the  volumes  were  increased  and  the
availability  period  extended  until  31.12.03.  Utilisation  reached  58.8%  during  the  fourth
quarter 2002.

Denmark

The  Growth  Fund  (Vaekstfonden)  offers  two  different  loan  guarantee  programmes,
specifically  designed  for  the  Facility:  the  first  is  targeted  at  innovative  SMEs  with  growth
potential  and  designed  to  support  job  creation  and  the  second  supports  potential  employees
with reduced productivity, i.e. people with some kind of social or physical handicap.

By  December  2002  utilisation  reached  70.7%  The  availability  period  for  the  intermediary
ended  31.12.02.  The  EIF  has  signed  a  new  agreement  under  the  MAP  Loan  Guarantee
Window in order to ensure on-going support to SMEs in Denmark.

Finland

Finnvera has made a strong marketing effort resulting in a significant increase in the demand
for the facility in 2002. As a result the current utilisation of the Facility reached 99.6%, after
the fourth quarter this year. A contract under the MAP Loan Guarantee Window was signed
in October 2002 ensuring the continuous support of SMEs.

France

SIAGI  offers  guarantees  to  micro  enterprises  typically  artisans  and  retailers.  The  utilisation
under  the  Facility  is  below  expectations,  5.9  %  as  at  the  end  of  the  availability  period  on
31.12.02.  The  low  utilisation  rate  is  mainly  due  to  the  difficulties  that  SIAGI  had  in  the
promotion of its guarantee activity among the major French banking groups. As for SOFARIS
the utilisation rate had reached 100% at the end of 2002.

31

Germany

As  a  result  of  the  continued  high  demand  for  its  “Startgeld”  product  that  supports  the
establishment  of  micro  enterprises  the  contract  with  DtA  was  amended  in  May  2002,  the
volume  of  the  portfolio  was  increased  and  the  availability  period  was  extended  until  the
31.12.03. The utilisation rate at the end of 2002 stood at 82.1 %.

The  utilisation  for  the  “KfW-Mittelstandsprogramm  –  Beschäftigung  und  Qualifizierung”
reached  70.8  %  at  the  end  of  2002.  The  availability  period  for  the  intermediary  ended
31.12.02. KfW decided not to continue the programme beyond that date.

Please note that these two intermediaries merged in 2003.

Italy

The EIF has signed contracts with 10 Intermediaries: 9 operating at a regional level and one at
a national level. During the first two quarters of 2002 the EIF has amended 4 operations with
existing Italian intermediaries. The performance of the intermediaries under the Facility is in
line with expectations with very good results in terms of utilisation, which reached 80.8 % at
the end of 2002.

Netherlands

BBMKB’s  contract  was  amended  in  June  2002  because  of  the  continued  success  of  the
facility  in  the  Netherlands.  The  volume  of  the  portfolio  was  increased  and  the  availability
period was extended until 31.12.03. As at 31.12.02 the utilisation reached already 81.1%.

Portugal

SPGM  planned  to  set  up  and  manage  a  national  guarantee  fund  to  support  the  mutual
guarantee  system  in  the  country.  However,  due  to  a  delay  in  the  change  of  the  national
legislation, the process of setting up the mutual guarantee societies was put on hold for more
than  1  year.  Therefore,  the  contract  has  been  extended  by  one  year,  without  changing
volumes. As at 31.12.02 utilisation was 37 %.

Spain

CERSA offers counter guarantees to regional mutual guarantee funds and to loans granted by
the Ministry of Science and Technology. In June 2002, CERSA’s contract was amended for
the  second  time,  because  of  the  high  utilisation  and  the  high  demand  by  the  SMEs.  The
availability period was extended until 31.12.03 and the volume of the portfolio was increased.
Utilisation reached 77.6 % at the end of 2002.

Sweden

ALMI  is  a  development  agency  and  provides  loans  to  SMEs  with  growth  and  job  creation
potential.  It  provides  financing  to  SMEs  that  are  excluded  from  financing  by  commercial
banks  due  to  the  high  risk  involved.  In  order  to  reflect  the  change  in  market  demand  the
portfolio  volumes  for  ALMI  were  revised  in  May  2002  and  the  availability  period  was
extended  until  31.12.02.  The  utilisation  rate  reached  97.8%  at  the  end  of  2002.  In  order  to
meet the high demand and ensure on-going support, a contract under the MAP Loan Window
was signed on 21.11.02.

32

United Kingdom

The Prince's Trust supports disadvantaged young people who want to set up small enterprises
but are unable to have access to bank finance.

No  other  organisation  in  the  UK  offers  nation-wide  micro  lending  programmes  including
mentoring services to support young people in the age between 18 and 30.

As  of  December  2002,  utilisation  reached  approximately  74.1%.  The  Prince's  Trust  did  not
achieve full utilisation by the year end mainly due to an increasingly difficult environment to
find suitable young entrepreneurs.

4.4.

Beneficiary SMEs

At the end of 2002 the number of SMEs benefiting from the Facility was 125,164, compared
with 112,581 at 30.06.02 and 92,408 at 31.12.01 The following table shows the breakdown by
country and the corresponding average loan amounts according to the latest available data.

Table 4.2. Breakdown by country of beneficiary SMEs

Country

Austria

Belgium

Denmark

Finland

France

Germany

Italy

Netherlands

Portugal *)

Spain

Sweden

UK

Total

Number of beneficiary
SMEs

Average loan amount
(EUR 000)

3,827

918

683

1,768

30,592

18,465

35,592

3,563

45

7,498

4,355

5,275

112,581

108

42

162

227

53

33

61

160

612

113

42

4

62

*) SPGM is in the process of establishing a mutual guarantee system in Portugal. As the mutual guarantee funds
are not yet operational, SPGM has issued guarantees under its normal activities to SMEs. The high average loan
amount is explained by the fact that this intermediary guarantees up to EUR 1.25 million per SME loan and that
about 40% of the client companies were medium-sized requiring larger loans.

Final beneficiaries with up to 10 employees made up 93% 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 2002 Observatory of European SMEs, 93% of SMEs are micro-

33

enterprises (0-9 employees), 6% are small enterprises (10-49) and less than 1% are medium-
sized  enterprises  (50-249).  This  clearly  demonstrates  that  the  SME  Guarantee  Facility  is
firmly  focused  on  the  target  population  of  the  European  Union  “Charter  for  small
enterprises”.

The following table shows the classification by country of the SMEs in terms of the number
of employees at the date of the loan agreement:

Table 4.3. Beneficiary SMEs per size class as at 30.06.02

Country

Austria

Belgium

Denmark

Germany

France

Finland

Italy

0-5

3,229

917

651

17,732

27,800

1,066

28,710

Netherlands

1,921

Portugal

Spain

Sweden

UK

Total

7

4,829

3,430

5,273

95,565

85%

Number of SMEs per size class

6-10

11-20

21-50

51-100

289

1

16

493

2,791

274

3,242

615

3

1,080

443

2

9,249

8%

182

102

0

8

149

1

190

2,148

537

4

832

271

0

4,322

4%

0

8

68

0

171

1,153

391

14

591

175

0

2,673

2%

25

0

0

23

0

67

339

99

17

166

36

0

772

1%

Total

3,827

918

683

18,465

30,592

1,768

35,592

3,563

45

7,498

4,355

5,275

112,581

100%

The above table shows that the SME Guarantee  Facility mainly helps the financing of start-
ups and the development of young enterprises. 93% of the SMEs that have benefited from the
SME  Guarantee  Facility  are  smaller  companies  that  have  up  to  10  employees.  When  the
number of employees is not reported the existence of only one employee is assumed.

34

Table 4.4. Breakdown of beneficiary SMEs by year of establishment as at 30.06.02

Country

Austria

Belgium

Denmark

Germany

France *)

Finland

Italy

Netherlands

Portugal

Spain

Sweden

UK

Total

Year of establishment

2002

2001

2000

1999

1998

< 1998

131

84

44

471

512

187

847

316

234

1,314

5,721

7,217

93

303

934

208

992

0

60

3,914

1,015

118

505

1

21

36

634

93

Not
available

Total

19

4

9

3,827

918

683

52

18,465

862

1

128

211

3,450

24,464

30,592

913

3

1,768

3,837

4,489

2,622

1,723

21,850

168

35,592

691

1

831

902

704

1

1,045

1,138

0

661

5

681

560

0

184

1,025

4

538

169

0

34

4,134

1,155

0

1

0

0

1

0

3,563

45

7,498

4,355

5,275

1,890

3,385

5,494

16,934

17,133

10,628

3,908

33,763

24,721

112,581

5%

15%

15%

9%

3%

30%

22%

100%

2

130

903

297

0

269

430

*) This data mainly concerns Sofaris. Approximately 52% of Sofaris’ guarantee portfolio relates to its start-up
programme.  Therefore,  out  of  the 24,721  SMEs  for  which  data  on  the  year  of  establishment  is  not  available,
some are start-ups.

35

Purpose of financing

The  table  below  shows  the  main  finance  purpose  of  the  SME  loans  guaranteed  under  the
Facility:

Table 4.5. Purpose of financing as at 30.06.02 expressed as a percentage

Purpose of
financing

Tangible
assets

Intangible
assets

Working
capital

Country

A

B

DK

D

F

FIN

I

NL

P

E

S

Average

83.7

100

35.6

63.7

38.7

47.3

87.9

64.7

64.9

91.5

61.5

68.0

6.9

9.4

0

0

22.0

0.3

51.7

13.1

4.3

16.4

4.6

2.9

18.0

12.0

42.4

36.0

9.5

39.5

7.8

18.9

30.6

5.6

20.5

20.0

This  table  is  based  on  a  sample  of  80,678  cases  for  which  complete  investment  breakdown
has been provided.

Sector coverage

The following graph shows the main sectors of the beneficiary SMEs:

The m ain sectors of the beneficiary SMEs, data as of 30/6/2002

Manufacturing
22%

Real estate and other 
business activities
11%

Transport and 
telecommunications
7%

Wholesale and retail 
trade
20%

Hotels and restaurants
7%

Construction
15%

Community service 
activities
9%

Education and Health 
3%

Agriculture 
2%

Others
4%

Figure 4.6. The main sectors of the beneficiary SMEs, data as of 30.06.2002

36

4.5.

Employment

The 112,581 SMEs benefiting from the SME Guarantee Facility have declared that they have
464,839 employees as at 30.06.02. They have  also  indicated that they  expect an increase of
59,477 employees within one year and a further increase of 38,961. Hence it is estimated that
the SMEs that have benefited from the Facility will create a total of around 98,438 new jobs
within two years. This is substantial, if one takes into account that approximately 85% of the
beneficiary SMEs are very small companies with up to 5 employees.

Detailed information on job creation is contained in Annex 6 of this report.

37

5.

CONCLUSIONS

5.1.

Growth and Employment Initiative

2002  was  a  difficult  year  for  the  European  venture  capital  industry  as  demonstrated  by  the
sharp  decline  of  49.2  %  in  fundraising,  with  EUR  19.4  billion  raised,  compared  with  EUR
38.2 billion in 200117. In this context, the progress made during the year under review in the
implementation of the ETF Start up facility is satisfactory and shows that the facility worked
in a complementary way to fill the gap created by the relative absence of private funding.

It should be noted that the worsening economic climate may have a significant impact on the
expected returns of venture capital funds.

In  2002,  the  SME  Guarantee  Facility  showed  its  strength  in  supporting  SMEs.  Against  a
worsening and unstable economic climate, participating banks and other guarantee institutions
relied on it to provide them with an extra cushion of assurance to  continue financing SMEs
and  thus  to  maintain  job  creation  opportunities  that  might  otherwise  suffer  from  lack  of
finance.  Compared  with  2001,  guarantee  commitments  by  the  EIF  to  participating  financial
intermediaries increased by 14.2%.

As  far  as  JEV  was  concerned,  the  take-up  by  the  market  was  far  below  expectations.  The
employment creation impact was minimal and the cost-effectiveness was very low, as already
reported last year. An evaluation of the various financial instruments has been carried out by
the  Commission  services.  The  Commission  will  present  this  evaluation  in  a  separate
document that will include a proposal on the future of JEV.

5.2.

Multiannual programme for enterprise and entrepreneurship (MAP)

On  20  December  2000,  the  Council  decided18  to  extend  the  financial  instruments  of  the
Growth and Employment  Initiative under  a new  legal basis, the  multiannual programme for
enterprise  and  entrepreneurship,  and  in  particular  for  small  and  medium-sized  enterprises
(2001-2005)  (MAP).  The  MAP  proposes  modifications  and  extensions  of  the  ETF  Start-up
Facility  and  the  SME  Guarantee  Facility  and  introduces  a  new  action,  the  Seed  Capital
Action.  All  three  actions  are  managed  by  the  EIF  and  aim  to  address  recognised  market
failures in order to improve SMEs’ access to finance.

The  Commission  proposal  on  the  implementation  of  these  measures  received  a  positive
opinion  on  4  October  2001  from  the  Enterprise  Programme  Management  Committee,  as
required under Article 3 of the above-mentioned Council decision.

On  10  December  2001,  the  Commission  adopted  its  Decision  C(2001)  3973  on  the
implementation of the financial instruments of MAP. Following this, on  18  December 2001
the EC signed with the EIF the  fiduciary  and management  agreements  for the ETF Start-up
Facility, SME Guarantee Facility and Seed Capital Action.

Within the 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.

17

18

EVCA data
Decision 2000/819/EC

38

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

– 
– 
– 

micro-credits;
equity investments;
loans to cover IT equipment, software and training in the area of internet and e-
commerce.

The Seed Capital Action is intended to support seed funds, incubators or similar in which the
EIF participates. The support is aimed at the long-term recruitment of additional investment
managers to reinforce the capacity of the venture capital industry to cater for investments in
seed capital.

In  May  2002,  the  first  commitments  were  made  for  the  MAP  budget,  ensuring  a  smooth
transition  from  Growth  and  Employment.  Formalities  to  allow  the  candidate  countries  to
participate  in  the  financial  instruments  were  largely  completed  in  2002.  The  formal
implementation  notice  for  candidate  countries  was  published  on  25.02.03.  Performance
information  on  the  SME  Guarantee  Facility,  the  ETF  Start-up  Facility  and  JEV  will  be
provided in the context of the MAP.

39