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C 302/8 EN Official Journal of the European Communities 1.10.

98

COMMISSION
Measures of financial assistance for innovative and job creating SMEs
Notice of implementation of the ETF start-up facility and the SME guarantee facility under the
growth and employment initiative

(98/C 302/07)

Following the Council’s adoption of Decision It will not invest in funds whose primary focus is on
98/347/EC (OJ L 155, 29.5.1998) on 24 July 1998 the management buy-out (MBO) and management buy-in
Commission entered into cooperation agreements with (MBI) transactions or on replacement capital.
the European Investment Fund (EIF) concerning the
implementation of the above facilities.
ETF start-up will invest only in venture capital funds
operating in the European Union, taking as a rule a
minority position of 25Ø% of the total capital of the
1. THE ETF START-UP FACILITY venture capital fundØ(Î). However, this percentage will
be:

The EIF manages the facility on behalf of the —Ùreduced by the percentage of the venture capital
Community and will make the selection of the fund’s capital available for investment outside the
investments into appropriate venture-capital funds. In European Union, always within the overall
order to ensure maximum transparency on how requirement that the majority of its capital must be
investments are selected, the investment policy, which invested in the Member States,
EIF will follow, is hereby published in full:

—Ùreduced to a lesser amount at the request of the fund
manager,
THE ETF START-UP FACILITY — INVESTMENT
POLICY —Ùalways at least 10Ø% of the investee fund.

Purpose In any event, the amount committed to a single venture
capital fund will be limited to a maximum of ECU 10
million.
ETF start-up is a facility funded by the European
Community designed to stimulate job creation by
An ETF start-up investment shall always be on the same
assisting the establishment and growth of innovative
terms as, and shall rank pari passu with, other equity
SMEs through the increased availability of risk capital
investors.
across the European Union. The amount allocated to
ETF start-up is expected to be in the range ECU 150 to
190 million, to be committed by 31 December 2002.
ETF start-up will normally first invest at the first closing
of the fund. Further ETF start-up investment will be
available at subsequent closings provided that the
conditions set out above are met at each closing. It will
Nature of investments be expected that the final closing will take place within
six months of the first closing.

ETF start-up will invest in specialised venture capital
funds established specifically to provide equity or other
forms of risk capital to SMEs, in particular smaller or (Î)ÙSubject to the approval of the European Commission, the
newly established funds, funds operating regionally, percentage of a fund held by ETF start-up may occasionally,
funds focused on specific industries or technologies and in exceptional cases such as for new funds which are likely
funds financing the exploitation of R@D results, for to have a particularly strong catalytic role in the devel-
opment of venture capital markets for a specific technology
example funds linked to research centres and science or in a specific region, be increased to an amount not
parks. exceeding 50Ø%.
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Direct investments into SMEs will not be undertaken. Up to 10Ø% of the committed capital of a target venture
capital fund may be invested in smaller venture capital
funds with similar investment policy objectives as those
of ETF start-up.
Target venture capital funds

ETF start-up will target commercially oriented venture Target SMEs
capital funds managed by independent professional
teamsØ(Î) with sufficient business experience to demon-
strate the necessary capability and credibility to manage The principal target of the venture capital funds in which
a venture capital fund, although they need not have prior ETF start-up investments are made shall be SMEs with
direct experience of fund management. growth potential, especially SMEs at their establishment
and early stages (including seed capital) and innovative
SMEs. Investments must provide long-term equity or
Fund managers will be required to demonstrate a clear quasi-equity capital (including subordinated or partici-
strategy, adequate deal flow and appropriate exit pative loans, convertible bonds.) The investment funding
policies. They will be expected to apply best market may be applied to assist that growth by financing capital
practice in terms of legal structure, investment principles investment, modernisation and expansion (including
and reporting. Funds will be structured through suitable working capital and investment in human resources) and
domestic or international vehicles. Where more than one to a limited extent acquisition of businesses or changes in
legal entity is used to form a venture capital fund, the ownership where this is expected to safeguard
investment criteria will be applied to the aggregate of the employment or to lead in due course to expansion and
entities. capital investment. The funding must not principally be
used to refinance existing obligations.

ETF start-up will target funds with a sufficient size to
achieve a critical mass in the segment of the venture All investments made by a venture capital fund shall be
capital market that they address. Funds will need to be in SMEs, which are defined as companies that at the
able to support adequate professional management, make time of the initial investment have less than 250
a sufficient number of SME investments and be in a employees, turnover not exceeding ECU 40 million or
position to provide follow-on investments. While it is net assets not exceeding ECU 27 million and conform
expected that the funds supported will normally not be with the criterion of independence and the definition of
smaller than ECU 10 million, the facility will be available SMEs as outlined in Commission Recommendation
to smaller funds of ECU 5 million or more, notably 96/280/EC (OJ L 107, 30.4.1996). Priority will be given
taking into account such factors as their regional focus, to SMEs with up to 100 employees.
their specialisation in smaller investments and the risks
attaching to their proposed investments, provided that
they can clearly demonstrate that the above criteria have
been satisfactorily addressed.
Co-investment

Fund vehicles will have a finite life unless, exceptionally,
Co-investment finance from other Community facilities
realisation through a stock market is achievable, and
will be permitted provided that the aggregate amount
must not extend beyond 30 June 2014.
does not exceed 50Ø% of the capital of the target venture
capital fund. However, there will be no co-investment
with the European Investment Fund or with facilities
Fund managers shall be required to maximise private managed by it, as ETF start-up is designed to
sector investment and will normally be expected to complement these facilities by addressing a different
obtain an amount of least 50Ø% of the total fund size segment of the venture capital market.
from private sources. A broad range of investors is
encouraged. No single investor shall account, directly or
indirectly, for more than 50Ø% of the capital of any
fund.
ETF start-up reporting requirements

Annual statistical information for each investment made
(Î)Ù‘Independent’ management teams include teams operating by a target venture capital fund will be required,
within a corporate structure provided that the operation of
the fund management business has a high degree of inde- including data on the number of employees. Funds must
pendence from the parent company. make provisions to allow the European Commission’s
C 302/10 EN Official Journal of the European Communities 1.10.98

Financial Controller and the European Court of — Deal flow
Auditors to have access to adequate information to Track record of access to deals
enable them to discharge their duties with respect to
control of the application of European Community Quality of deals
funds. Credibility of plans to develop deal flow

— Investment strategy
Realisation of investments Appropriateness of the investment strategy to the
market
Coherence with the purposes of the facility
As venture capital funds in which ETF start-up Identification of suitable and achievable exit routes
investments are made will typically be unquoted and for investments
illiquid, the realisation of ETF start-up investments will
be achieved principally through the distribution of the
proceeds from the sale of investments made by the — Size of the fund
venture capital funds. Fund managers will be expected to Balance between fund size and expected deal flow
manage their portfolios with the clear objective of Adequacy of provision for follow on investments
realising all investments within the life of their funds.

— Proposed terms
In the case of ETF start-up investments in funds listed on In line with market norms, with explanations for
a stock market, shares will be realised at an appropriate deviations
time with a view to achieving a suitable investment Any performance related remuneration such as
return and maintaining an orderly market in those carried interest to be designed to reward overall fund
shares. performance

— Expected returns
Financial performance Evidence that the fund is to be run on a commercial
basis and that it can be expected to be financially
viable
Fund managers will be required to demonstrate their
objective of managing the venture capital fund so as to
achieve financial viability. — Other investors
Evidence of support from other investors especially
from the private sector
The extent to which the ETF start-up investment can
Selection be expected to have a catalytic effect

Investment proposals will be examined as and when Investments will be considered for approval in chro-
received on a continuing basis, taking into account in nological order following satisfactory conclusion of this
particular the following factors: examination within the available budget allocations made
from year to year by the European Commission and the
need to achieve reasonable geographical balance across
the European Union.
— Management team
Relevant experience
Size of team and balance of skills Venture capitals funds interested in benefiting from the
Ability to provide relevant added-value facility should contact:
Ability to provide adequate commitment for the life
of the fund
The Programme Manager — ETF start-up
European Investment Fund
43, avenue J.ØF. Kennedy
— Market L-2968 Luxembourg
Identification of the target market Tel. (35-2) 426Ø68Ø81
Size of market and potential development of it Fax (35-2) 426Ø68Ø83Ø00
Growth potential of SMEs in the target market E-mail info-eif.org
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2. THE SME GUARANTEE FACILITY co-guarantor in respect of the same type of risk-
taking as is covered by the EIF guarantee, and/or

Purpose
—Ùenhanced access to debt finance for small SMEs
The objective of the SME guarantee facility (the facility) through less stringent eligibility criteria, for example
is to stimulate job-creation by supporting the investment with regard to start-up companies, investment in
activity of innovative small and medium-sized enterprises intangible assets, loan maturities, or reduced cost of
(SMEs) through increased availability of loan finance. finance to small SMEs, and/or
The facility is targeted at SMEs established or to be
established in a Member State of the European Union,
with growth and therefore job-creating potential. —Ùacceptance of higher risk through, for example
increased proportionate share of loan losses covered
or reduced proportionate collateral requirements.

Characteristics of the facility
Intermediaries will be required to provide information on
The EIF will manage the facility on behalf of the the financial standing and on the number of employees
European Commission. of the final beneficiaries (SMEs) of the guarantees. In
addition, intermediaries will be required to provide
quarterly information on the utilisation of the facility.
Under the facility the Community provides budget allo-
cations for the purpose of covering the cost of guar-
antees issued by the EIF. The guarantees are issued and For each intermediary, the cover of loan losses will be
managed by EIF on a trust basis. Losses covered by the capped to a predetermined amount, above which the
guarantees will be fully covered by budget allocations, up guarantee will be void.
to a pre-determined cap.

The amount allocated to the facility will be decided on Subject to the cap above, the facility will normally cover
an annual basis and is expected to reach a total of ECU the same payment obligations as the intermediaries and
150 to 190 million. Amounts allocated to the facility will will always provide for a risk sharing with the inter-
have to be committed in full by the EIF by 19 May 2002. mediary.

Guarantees will normally be provided free of charge;
Characteristics of guarantees
commitment fees may, however, be charged on the non
utilised guarantee commitments made by the EIF under
Intermediaries will be required to undertake to lend or the facility.
allow lending exclusively to final beneficiaries which, at
the date of the respective loan agreement evidencing the
loans, constitute small SMEs (i.e. have no more than 100
employees and otherwise comply with the definition of Target intermediaries
SMEs as outlined in Commission Recommendation
96/280/EC established in a Member State of the
European Union, unless otherwise approved by the The facility will primarily target existing guarantee
Commission. schemes operating in Member States within the public
and/or private sector including mutual guarantee
schemes and where available guarantee schemes set up
Intermediaries will be required to undertake specific primarily to help finance loans that the banking system
action to ensure that the risk covered by the facility will would not readily provide without guarantee cover.
be additional to the risk that the intermediary would
have underwritten in the normal course of its business
during the utilisation period of the EIF guarantee. The
additionality of the EIF guarantee shall be measurable or Secondarily, where adequate guarantee schemes are not
otherwise quantifiable having regard to one or more of established in any one country, the EIF may also enter
the following criteria: into agreements with financial intermediaries, including
exceptionally the European Investment Bank (EIB), to
guarantee directly portfolios of eligible loans. With the
—Ùthe volume of guarantees or, where appropriate, exception of the EIB such intermediaries shall be selected
loans extended by the intermediary or the following calls for expression of interest.
C 302/12 EN Official Journal of the European Communities 1.10.98

Selection of intermediaries The EIF will consult with the relevant national auth-
orities in each Member State before finalising its
The EIF will select the intermediaries in conformity with selection of intermediaries.
best business and market practice in a fair and trans-
parent manner having regard to the following criteria:
Proposals by intermediaries will be examined on a
—Ùthe financial standing and operational capability of continuing basis. The final selection will take into
the intermediary, its ability to manage risk and its account the budget allocations made from year to year
willingness to accept the contractual terms proposed by the European Commission and the need to achieve a
under the facility, reasonable geographical balance of the facility across the
European Union.
—Ùthe geographical coverage provided by the inter-
mediary either at national level or, as the case may
be, at regional level, Further information concerning this facility can be
obtained from:
—Ùthe extent to which the intermediary’s guarantees are
accessible by SMEs in the Member State or region of The Programme Manager — The SME guarantee
operation, facility
European Investment Fund
—Ùthe extent to which guarantees will cover loans with 43, avenue J.ØF. Kennedy
lesser collateral than is customary for commercial L-2968 Luxembourg
SME lending,
Tel. (35-2) 426Ø68Ø81
—Ùthe overall risk-sharing arrangements between the Fax (35-2) 426Ø68Ø83Ø00
intermediary and the lenders. E-mail info-eif.org