2005/644/EC: Commission Decision of 20 October 2004 on the aid scheme ‘Invest Northern Ireland Venture 2003’ which the United Kingdom is planning to implement for SMEs in Northern Ireland (notified under document number C(2004) 3917)   (Text with EEA relevance)
Date: 2004-10-20
Institutions: European Commission
Subjects: Northern Ireland, State aid, United Kingdom, aid to undertakings, control of State aid, small and medium-sized enterprises, venture capital

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 October 2004
on the aid scheme ‘Invest Northern Ireland Venture 2003’ which the United Kingdom is planning to
implement for SMEs in Northern Ireland

(notified under document number C(2004) 3917)

(Only the English text is authentic)

(Text with EEA relevance)

(2005/644/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty
establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
to those provisions (1) and having regard to their
pursuant
comments,

Whereas:

(1)

(2)

I. PROCEDURE

By letter dated 20 March 2003,
the
Commission on 26 March 2003, the United Kingdom
authorities notified the Invest Northern Ireland Venture
2003 scheme to the Commission.

registered at

By letter D/53203 dated 15 May 2003 and by letter
D/55504 dated 29 August 2003,
the Commission
requested further information concerning the notified
measure.

By letter dated 24 June 2003 and by letter dated 30
September 2003, registered at
the Commission on 1
July 2003 and 1 October 2003 respectively, the United
information
Kingdom authorities
requested.

submitted

the

(4)

(5)

(6)

(7)

By letter dated 26 November 2003, the Commission
informed the United Kingdom that it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of the measure.

The Commission’s decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission called on interested parties to submit
their comments.

the
By letter dated 6 January 2004,
Commission on 9 January 2004, the United Kingdom
submitted a response to the Commission’s decision to
initiate the procedure.

registered at

By letters dated 25 February 2004, 27 February 2004, 1
March 2004, 2 March 2004, 3 March 2004, 4 March
2004, and 5 March 2004, registered at the Commission
on 2 March 2004, 3 March 2004, 4 March 2004, 8
March 2004, and 10 March 2004,
the Commission
received observations from 11 interested parties.

(1) OJ C 33, 6.2.2004, p. 2.

(2) See footnote 1.

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the
letter D/52015 dated 18 March 2004,
By
Commission forwarded those comments to the United
Kingdom, which was given the opportunity to react.

The United Kingdom’s opinion on the third parties’
comments was received by letter dated 29 April 2004,
registered at the Commission on 3 May 2004.

(17) Given the

challenges

exceptional

encountered

by
the United Kingdom authorities, by
Northern Ireland,
intend to provide risk
means of the notified measure,
finance of up to GBP 1 500 000 (EUR 2,2
capital
in Northern
in a single tranche to SMEs
million)
Ireland,
thereby exceeding the maximum investment
sizes per tranche as approved in the decision concerning
the Small and Medium Enterprises Venture Capital and
Loan Fund.

(8)

(9)

(10)

(11)

(12)

By letter dated 23 June 2004,
Commission on 24 June 2004,
submitted
additional
notified measure.

information

the
registered at
the United Kingdom
the
concerning

II. DETAILED DESCRIPTION OF THE MEASURE

1. Objective of the measure

The measure is intended to provide risk capital funding
for small and medium-sized enterprises (3)
in
Northern Ireland by establishing a new venture capital
fund.

(SMEs)

Invest Northern Ireland Venture 2003 Fund
The
(hereafter
intended to
address the particular financing difficulties encountered
by SMEs in Northern Ireland.

referred to as

the fund)

is

(13) On 4 February 2003 the Commission approved the
Small and Medium Enterprises Venture Capital and
Loan Fund (4), an umbrella scheme for all regions in
the United Kingdom, including Northern Ireland.

(14)

(15)

The Small and Medium Enterprises Venture Capital and
Loan Fund regulates the establishment of venture capital
funds specialising in risk capital funding for SMEs across
the United Kingdom and in Gibraltar.

State-aided

the Commission
In its decision of 4 February 2003,
certain
approved
economic areas qualifying for assistance pursuant
to
Article 87(3)(c) of the EC Treaty up to a maximum of
EUR 750 000 in a single tranche.

venture

capital

in

(16) As Northern Ireland is currently classified as an area
qualifying for assistance under Article 87(3)(c) of
the
EC Treaty (5), investments to SMEs in Northern Ireland
under the Small and Medium Enterprises Venture Capital
and Loan Fund umbrella scheme are restricted to EUR
750 000 in a single tranche.

(3) The definition of small and medium-sized enterprises applied by the
United Kingdom authorities for the purposes of the scheme is always
in line with the definition given in Annex I to Commission Regu-
lation (EC) No 70/2001 of 12 January 2001 on the application of
Articles 87 and 88 of the EC Treaty to State aid to small and
medium-sized enterprises (OJ L 10, 13.1.2001, p. 33). Regulation
as amended by Regulation (EC) No 364/2004 (OJ L 63, 28.2.2004,
p. 22).

(4) State Aid N 620/2002 — United Kingdom:

‘Small and Medium
Enterprises Venture Capital and Loan Fund’. Commission Decision
of 4 February 2003 (C/2003/110).

(5) State Aid N 265/2000 — United Kingdom:
2000-2006’ (OJ C 272, 23.9.2000, p. 43).

‘Regional Aid Map

(18) All other material aspects of the notified measure respect
the conditions laid down in the decision concerning the
Small and Medium Enterprises Venture Capital and Loan
Fund.

2. Description of the measure

Legal basis of the scheme

(19)

The legal basis of the scheme is Article 7 of the Industrial
Development (Northern Ireland) Order 1982.

Budget of the scheme

(20)

The United Kingdom proposes to establish a GBP 15
million (EUR 22 million) to GBP 20 million (EUR 29
million) venture capital fund.

(21)

If less than GBP 20 million (EUR 29 million) is raised,
the government contribution will reduce pro rata.

(22)

If more than GBP 20 million (EUR 29 million) is raised,
investments from
the fund will accept
private sector investors. The government
funding will
not be increased to a corresponding level.

the additional

(23) Under no circumstances will the public contribution to
the fund exceed 50 % of the total fund volume.

Duration of the scheme

(24)

The fund will be newly set up as a 10-year limited part-
nership that can be extended with the consent of all
investors
to facilitate
successful exits from the fund.

to a maximum of 12 years

Beneficiaries of the scheme

(25)

The scheme will only apply to small and medium-sized
enterprises in Northern Ireland.

(26)

Firms in difficulties are excluded under the scheme.

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(27)

Funding will not be provided to businesses in sectors
suffering from overcapacity, including shipbuilding, and
European Coal and Steel Community sectors.

EUR 750 000 in areas qualifying for assistance under
Article 87(3)(c) of
the Treaty, or EUR 1 million in
areas qualifying for assistance under Article 87(3)(a) of
the Treaty.

(28)

(29)

(30)

(31)

(32)

(33)

(34)

Size of investments

The fund will make investments in beneficiary SMEs in
the range of GBP 250 000 (EUR 367 000) to GBP 1,5
follow-on
million (EUR 2,2 million). On occasions,
investments may be made for a further
round of
funding. These decisions will be
independent of
previous investment decisions and will be based on the
performance of the recipient SME.

Cumulation of aid under the scheme

for the duration of

The United Kingdom authorities have stated that any
SMEs receiving risk capital funding under the scheme
would,
the investment, have any
further eligible regional aid and SME aid reduced by
the aid intensity that would otherwise have
30 % of
been found compatible by the Commission.

Grounds for initiating the procedure

The Commission Communication on State aid and risk
capital (hereafter referred to as the Communication) (6)
risk capital
recognises a role for public funding of
identifiable market
limited to addressing
measures
failures.

The Communication states that specific factors adversely
affecting the access of SMEs to capital, such as imperfect
or asymmetric information or high transaction costs can
cause a market failure that would justify State aid.

that

states

The Communication further
there is no
general risk capital market failure in the Community,
but rather market gaps for some types of investments
at certain stages of enterprises’ lives as well as particular
difficulties in regions qualifying for assistance under
Article 87(3)(a) and (c) of the EC Treaty (assisted areas).

The Communication goes on to explain that in general,
the Commission will require provision of evidence of
market failure before being prepared to authorise risk
capital measures.

The Commission may however be prepared to accept the
existence of market failure without further provision of
evidence in cases where each tranche of finance for an
enterprise from risk capital measures which are wholly or
partially financed through State aid will comprise a
maximum of EUR 500 000 in non-assisted areas,

(6) OJ C 235, 21.8.2001, p. 3.

(35)

(36)

It follows that, for those cases where those amounts are
exceeded, the Commission will require a demonstration
failure justifying the proposed risk capital
of market
measure before
the
measure in accordance with the positive and negative
criteria listed under point VIII.3 of the Communication.

compatibility of

assessing the

The Invest Northern Ireland Venture 2003 scheme
proposed by the United Kingdom foresees risk capital
investments
250 000
range
(EUR 367 000) to GBP 1,5 million (EUR 2,2 million)
per investment tranche for SMEs in Northern Ireland.

GBP

the

of

in

(37) According to the Regional Aid Map 2000-2006 for the
United Kingdom, Northern Ireland is currently classified
as an area qualifying for assistance pursuant to Article
87(3)(c) of the EC Treaty.

(38)

(39)

(40)

(41)

In line with the provisions of the Communication, the
Commission would hence be prepared to accept
the
existence of market failure without further provision of
evidence if risk capital funding for SMEs in Northern
Ireland wholly or partially financed through State aid
would be
to the maximum amount of
EUR 750 000 as foreseen for assisted areas pursuant to
Article 87(3)(c) of the EC Treaty under point VI.5 of the
Communication.

limited

In the notification, the United Kingdom has clarified that
with the exception of the proposed maximum tranche
size of GBP 1,5 million (EUR 2,2 million), all other
material aspects of
the proposed measure will be in
line with the already approved Small and Medium Enter-
prises Venture Capital and Loan Fund.

The Commission therefore considers that its decision on
the Small and Medium Enterprises Venture Capital and
Loan Fund covers all those investments proposed under
Invest Northern Ireland Venture 2003 scheme
the
ranging
to
from GBP 250 000 (EUR 367 000)
GBP 510 000 (EUR 750 000) per single investment
tranche.

In line with the provisions of the Communication, risk
capital investments proposed under the Invest Northern
Ireland
from
GBP 510 000 (EUR 750 000) to GBP 1,5 million (EUR
2,2 million) would necessitate the provision of evidence
of market failure by the United Kingdom.

Venture

ranging

scheme

2003

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(42)

(43)

(44)

(45)

In order to demonstrate the existence of market failure,
the United Kingdom referred to several distinctive parti-
cularities of
in Northern
the venture capital market
study (7). The main
Ireland
arguments brought forward were:

as underlined by

a

(a)

there is a gap in the provision of venture capital for
SMEs in Northern Ireland in the deal size range of
GBP 250 000 (EUR 367 000) to GBP 1,5 million
(EUR 2,2 million);

(b) whilst such a market

regional
Northern Ireland for the following reasons:

economies,

it

failure also exists in other
is more pronounced in

(i)

(ii)

the venture capital market in Northern Ireland
lags many years behind the rest of the United
Kingdom in terms of total investment, number
of deals, number of
funds and availability of
fund management skills;

the size of the Northern Ireland market, the fact
that it is physically separated from the rest of the
United Kingdom, and the long lasting impact of
civil unrest in Northern Ireland have resulted in
an absence of any wholly private sector venture
capital funds, either locally based or investing in
Northern Ireland SMEs from mainland United
Kingdom;

(iii) in addition,

it is difficult to attract experienced

fund managers to Northern Ireland.

By letter dated 26 November 2003, the Commission
informed the United Kingdom of its decision to initiate
the procedure laid down in Article 88(2) of the EC Treaty
in respect of the Invest Northern Ireland Venture 2003
scheme.

In its letter, the Commission stated that it had doubts as
the arguments presented by the United
to whether
Kingdom in support of the existence of market failure
risk capital
could sufficiently justify the granting of
investment
the
maximum amounts foreseen by the Communication for
areas qualifying for assistance pursuant to Article 87(3)(c)
of the EC Treaty.

considerably

exceeding

tranches

The Commission went on to explain that it considered a
more thorough analysis of the issue to be necessary. Such
an analysis would need to include any observations made
by interested parties. Only after consideration of third
party comments could the Commission decide whether
the measure proposed by the United Kingdom affects
trading
to the
to an extent
common interest.

conditions

contrary

(7) ‘Market Failure in the Supply of Venture Capital Funds for SMEs in

Northern Ireland’. Invest NI, October 2002.

(46)

III. COMMENTS FROM INTERESTED PARTIES

In response to the publication of its decision to open the
formal procedure in the Official Journal of the European
Union, the Commission received observations from the
following interested parties:
— Enterprise Equity (NI) Limited,
— Momentum Northern Ireland,
— Qubis Limited,
— Ulster Farmers’ Union,
— CBI Northern Ireland,
— Institute of Directors Northern Ireland,
— Investment Belfast Limited,
— Inter Trade Ireland,
— BDO Stoy Hayward,
— The Ulster Society of Chartered Accountants,
— International Fund for Ireland.

(47) All comments received were positive and underlined the
importance of the measure as well as the appropriateness
of the proposed maximum investment amounts.

(48)

The arguments put
forward by the interested parties
highlight the difficulty for local companies in Northern
Ireland to raise equity funding of GBP 1 million (EUR 1,5
million) to GBP 1,5 million (EUR 2,2 million). This is
mainly a result of the following factors:

(a) venture funds in the rest of the United Kingdom are
levels and this is

increasing minimum investment
also being mirrored in Northern Ireland;

(b) the peripherality of Northern Ireland adversely

influences funds in terms of cost;

(c)

Ireland are

funds from the rest of the United Kingdom and the
Republic of
largely uninterested in
investments of this deal size and there is no local
Northern Ireland fund capable of undertaking such
investments;

(d) a general misplaced negative perception due to civil
unrest in the past that continues to adversely affect
the attitude of investors when considering Northern
Ireland as an investment location.

IV. COMMENTS FROM THE UNITED KINGDOM

(49)

The United Kingdom’s comments on the Commission’s
decision to open the formal procedure laid down in
Article 88(2) of the EC Treaty, as well as on the obser-
vations from third parties will be summarised in the
following recitals.

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(50)

There are a number of general economic weaknesses that
must be addressed in order to improve the competitive
position of Northern Ireland:

(a) peripheral

location: Northern Ireland is significantly

disadvantaged by its geographical location;

(a) Northern Ireland’s Gross Domestic Product (GDP) per
capita is below the United Kingdom average (77,5 %
of United Kingdom average). The gap has only
narrowed marginally over the course of the 1990s
(three percentage points since 1989);

(b) whole economy productivity as measured by GDP
per employee in Northern Ireland is below that of
the United Kingdom (89 % of United Kingdom
average);

(c) high dependency on small businesses: 85 000 busi-
nesses in total, of which 99 % employ fewer than 50
people, and 93 % employ fewer than 10 people;

(b) growth of indigenous business: Growth in the local
economy has been severely limited over the last years
due to civil unrest;

(c) grant culture: This has arisen due to the government’s
need to intervene in Northern Ireland industrial
development activities at a much higher level than
elsewhere in the United Kingdom. Accordingly, busi-
nesses have not been disposed to consider taking in
new equity.

(53) While some funds have been established in recent years,
much more needs to be done, especially in generating
adequate deal flow, but also in broadening the range and
quantity of investors:

(d) manufacturing remains dependent on low value-
added ‘traditional
sectors’,
the high value added
business services sector is only half the size of its
United Kingdom equivalent;

(a) Northern Ireland is poorly represented for venture
capital and has only a small number of
locally
based funds which are mainly focused on small
deal sizes;

(e) a

small number of knowledge-based businesses

compared with other United Kingdom regions;

(b) only three venture capital fund managers maintain a

full-time presence in the region;

(f)

low levels of innovation and R&D activity;

(c)

the majority of venture capital funds available offer
investment of below GBP 500 000 (EUR 730 000);

(g) one of

the lowest start-up rates of any United

Kingdom region;

(h) shortage of debt and equity finance available for

start-up companies.

(51)

In addition to the general economic weaknesses,
the
venture capital market in Northern Ireland is underde-
veloped compared to other United Kingdom regions:

(a)

investment in Northern
the level of venture capital
Ireland over the period 1985-2002 represented only
0,7 % of the United Kingdom’s total venture capital
investment as compared with Northern Ireland’s
share of United Kingdom GDP of 2,2 %;

(b) venture capital activity in Northern Ireland would
have to increase by four times its current level to
levels of other United
capita
match the per
Kingdom regions such as Wales or Scotland.

(52)

There are a number of general factors that are related to
this phenomenon:

(d) studies suggest that the average size of early stage
funding for technology businesses increases as the
the equity
market matures. For Northern Ireland,
five
gap for first round funding within the next
of
range
to
years
GBP 250 000 (EUR 367 000) to GBP 1,5 million
(EUR 2,2 million);

expected

the

be

in

is

(e)

in demand,

in recognition of the increased scale of projects and
predicted increases
two or more
commercial-sized funds of around GBP 15 million
(EUR 22 million) each should be established in
Northern Ireland over the next five years, one of
which should be a government assisted fund.

(54)

The United Kingdom had no further comments to make
on the responses from third parties except to highlight
the strong support expressed by those third parties for
the establishment of the proposed fund.

V. ASSESSMENT OF THE MEASURE

(55)

The Commission has examined the scheme in the light of
Article 87 of the EC Treaty and in particular on the basis
of the Communication. The results of this assessment are
summarised in recitals 56 and following.

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1. Legality

(56)

By notifying the scheme, the United Kingdom authorities
respected their obligations under Article 88(3) of the EC
Treaty.

(57)

(58)

(59)

(60)

2. Existence of State aid

The United Kingdom confirms that, with the exception of
the allowable maximum amount of risk capital funding
per single tranche, all other material aspects of the Invest
Northern Ireland Venture 2003 scheme are in line with
the Commission’s decision concerning the Small and
Medium Enterprises Venture Capital and Loan Fund.

The Commission’s assessment of the existence of State
aid in this case, therefore follows the assessment made in
that decision.

In its decision concerning the Small and Medium Enter-
prises Venture Capital and Loan Fund, the Commission
in line with point IV.2 of the Communi-
stated that,
cation,
the presence of State aid
would need to take into account the possibility that a
risk capital measure may confer aid at different levels.

the assessment of

The Commission went on to conclude that the Small and
Medium Enterprises Venture Capital and Loan Fund
involved State aid within the meaning of Article 87(1)
of the EC Treaty at the level of the investors and at the
level of
the beneficiary SMEs. The Commission also
considered that State aid within the meaning of Article
87(1) of the EC Treaty was not present at the level of the
fund, or for unsecured loans granted to SMEs at the
prevailing reference rate plus 4 percentage points or
more, or for secured loans at the prevailing reference
rate.

(61)

That assessment is still valid for the assessment of the
notified measure in this Decision.

3. Evidence of market failure

(62)

capital

In line with the provisions of the Communication, the
Commission is prepared to accept
the existence of
market failure without further provision of evidence if
risk
financed
in areas qualifying for
through State aid for SMEs
assistance pursuant to Article 87(3)(c) of the EC Treaty
is limited to the maximum amount of EUR 750 000 as
foreseen under point VI.5 of the Communication.

funding wholly or partially

(63)

The measure proposed by the United Kingdom foresees
risk capital
investments in the range of GBP 250 000
(EUR 367 000) to GBP 1,5 million (EUR 2,2 million)
per investment tranche for SMEs in Northern Ireland.

(64) According to the Regional Aid Map 2000-2006 for the
United Kingdom, Northern Ireland is currently classified
as an area qualifying for assistance pursuant to Article
87(3)(c) of the EC Treaty. However, according to the
Regional Aid Map 2000-2006 for the United Kingdom,
Northern Ireland is considered to be an ‘atypical’ Article
87(3)(c) region with a corresponding regional aid ceiling
of 40 %, generally reserved for regions qualifying for
assistance under Article 87(3)(a).

(65)

(66)

the

In line with the provisions of the Communication, the
Commission has informed the United Kingdom that in
the proposed risk capital
view of
fact
investments under
exceed the
EUR 750 000 threshold foreseen for areas qualifying
for assistance pursuant to Article 87(3)(c), the United
Kingdom would have to provide evidence of market
failure.

that
the notified scheme

In order to demonstrate the existence of market failure
for risk capital investments exceeding EUR 750 000 for
SMEs in Northern Ireland, the United Kingdom presented
arguments indicating that the venture capital market in
Northern Ireland is characterised by unique particularities
distinguishing it
in the United
Kingdom.

from other

regions

(67)

The arguments put forward by the United Kingdom were
supported by a study underlining that there exists a gap
in the provision of private venture capital for SMEs in
Northern Ireland in the deal size range of GBP 250 000
(EUR 367 000) to GBP 1,5 million (EUR 2,2 million).

(68) Although such a market gap also occurs in other regional
economies,
is
more pronounced in Northern Ireland. This has been
demonstrated by the study submitted by the United
Kingdom.

the United Kingdom submitted that

it

(69) According to that

and Merseyside

study, venture capital activity in
Northern Ireland, in terms of the number of deals and
the value of the deals, varies significantly from other
such as Scotland and the
United Kingdom regions
North West
the
region. Whereas
number of deals for early stage companies in Scotland
for the period 2000-2002 was 9,9 % of
the United
Kingdom total, and in the North West and Merseyside
region was 8,1 % of the United Kingdom total, Northern
Ireland only accounted for 4,4 % of the United Kingdom
total.
the
in the
respective figures were 10,2 % of the United Kingdom
total in Scotland, 7,9 % of the United Kingdom total in
the North West and Merseyside region, and only 2,4 % of
the United Kingdom total in Northern Ireland.

expansion stage,

companies

For

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(70) With regard to the value of the deals in the early stage
and expansion phases, the study shows that for early
stage investments, Scotland represented 8,1 % of
the
United Kingdom total
for the period 2000-2002, the
North West and Merseyside region 5,7 %, and Northern
Ireland 2,2 % of the United Kingdom total. The difference
is even more accentuated if one looks at the value of
deals
in the expansion stage. There,
Scotland represents 9,5 % of the United Kingdom total,
the North West and Merseyside region 21,2 % of the
United Kingdom total, and Northern Ireland only 0,7 %.

for companies

interested parties in order to decide whether the measure
affects trading conditions to an extent contrary to the
common interest.

(75) All comments received from interested third parties were
positive and underlined the importance of the measure in
general as well as the appropriateness of the proposed
maximum investment amounts.

(71)

(72)

(73)

(74)

(76)

(77)

(78)

is further underlined by data in the study
This fact
comparing the average deal sizes for the period 2000-
2002. Here the United Kingdom average for early stage
investments is GBP 1,14 million compared to GBP 0,93
million in Scotland, GBP 0,81 million for the North West
and Merseyside region, and GBP 0,36 million for
Northern Ireland. For SMEs in the expansion stage, the
again much more pronounced.
difference
Whereas
the United Kingdom is
GBP 2,82 million, GBP 2,63 million for Scotland, and
GBP 7,62 million for the North West and Merseyside
region,
it reaches only GBP 0,86 million in Northern
Ireland.

is once
the

average

for

total

in Northern

capital market

These figures underlining the relative weakness of the
Ireland —
venture
according to the
study Northern Ireland generally
investments in the
accounts for only 0,7 % of
United Kingdom although it represents a 2,2 % share
of the United Kingdom GDP — especially for SMEs in
the expansion phase, can be explained by looking at the
venture capital funds currently active in Northern Ireland.
Out of eight existing and active venture capital funds,
only one offers financing for deal sizes ranging from
GBP 250 000 to GBP 1,5 million, but has already
reached the end of
its investment period. All other
funds only offer financing for deals below GBP 250 000.

the additional

the United Kingdom following

Taking into account the information presented in the
initial notification, the comments submitted by interested
information
third parties as well as
delivered
the
by
Commission’s decision to open the procedure laid
down in Article 88(2) of the EC Treaty, it is concluded
that the United Kingdom has provided sufficient evidence
of the existence of market failure in the venture capital
market in Northern Ireland.

4. Compatibility of the measure

The United Kingdom has confirmed that, with the
exception of the allowable maximum amount of risk
funding per single tranche, all other material
capital
the notified scheme are in line with the
aspects of
Commission’s
and
decision concerning
Medium Enterprises Venture Capital and Loan Fund.

Small

the

The assessment of the compatibility of the notified State
aid therefore follows the assessment made in the decision
concerning the Small and Medium Enterprises Venture
Capital and Loan Fund. In its decision in that case, the
Commission concluded that all positive elements as
outlined under point VIII.3 of the Communication were
fulfilled. This
the Invest
Northern Ireland Venture 2003 fund.

is also true in respect of

The study submitted to the Commission by the United
Kingdom has argued that this gap for the provision of
equity financing in the deal size range between GBP
250 000 and GBP 1,5 million is clearly related to the
general socioeconomic characteristics of Northern Ireland
as described under recitals 50 and following. These parti-
cularities of Northern Ireland, namely its peripherality
and the legacy of civil unrest, have aggravated the two
sources of market failure — imperfect or asymmetric
information and high transaction costs — as described
by the Communication.

(79)

The following elements are regarded as positive elements:

(a) restriction of investments to SMEs in their start up
and early stages and/or SMEs seeking to expand or
diversify;

(b) focus on risk capital market

failure: delivery of
finance to SMEs principally in the form of equity
or quasi-equity;

the EC Treaty in respect of

In its decision to initiate the procedure laid down in
the
Article 88(2) of
proposed aid measure, the Commission stated that in
the maximum investment amounts proposed
view of
under
scheme, which considerably exceed the
maximum investment amounts foreseen by the Commu-
it was necessary to seek observations from
nication,

the

(c) profit-driven nature of

the investment decisions:
Market economy investors will provide at
least
40 % of the capital of the fund. Professional fund
managers will
investment decisions and
their remuneration will be directly linked to the
performance of the fund;

take all

13.9.2005

EN

Official Journal of the European Union

L 236/21

(d) minimisation of

the level of distortion between
investors and investment funds: The investors will
be chosen by competitive tender. Private investors
will be given notice of the opportunity to invest by
virtue of advertising. No person or organisation will
be debarred from investing in the fund. Investors will
be chosen by selecting the least preferential terms
necessary in order to induce the private sector to
invest.
to prevent overcompensation to
the benefits will be split between the
investors,
public and private
investors according to their
respective level of investment;

In order

Communication. The notified measure should therefore
be declared compatible with the
common market
pursuant to Article 87(3)(c) of the EC Treaty as aid to
facilitate the development of certain economic activities
or of certain economic areas without adversely affecting
trading conditions to an extent contrary to the common
interest,

HAS ADOPTED THIS DECISION:

Article 1

(e) sectoral focus: sensitive sectors are excluded;

(f)

investment on the basis of business plans: All
investments will be made on the basis of robust
business plans
together with a variety of other
standard commercial tests to ensure the viability of
the project and the expected commercial return;

(g) avoidance of cumulation of aid measures to a single
enterprise: The United Kingdom authorities have
stated that any SMEs receiving risk capital funding
under the scheme would,
for the duration of the
investment, have any further eligible regional aid
and SME aid reduced by 30 % of the aid intensity
that would otherwise have been found compatible by
the Commission.

The State aid which the United Kingdom is planning to
implement under the Invest Northern Ireland Venture 2003
scheme is compatible with the common market within the
meaning of Article 87(3)(c) of the Treaty. Implementation of
the aid is accordingly authorised.

Article 2

The United Kingdom shall submit an annual report on the
implementation of the aid.

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

(80)

It
is therefore concluded that all positive aspects as
required by the Communication are present in respect
of the notified scheme.

Done at Brussels, 20 October 2004.

VI. CONCLUSION

(81)

It is therefore concluded that the Invest Northern Ireland
Venture 2003 scheme fulfils the conditions set out in the

For the Commission

Mario MONTI
Member of the Commission