EC delays decision on state aided VC

It is believed the European Commission will now take a decision on the UK government's plans to offer state aided venture capital for small to medium enterprises in April or May.

The EC is believed to be close to approving the UK government’s proposal to offer state aided venture capital finance to small and medium enterprises in the regions.

Regional venture capital funds are intended to fill a gap in the provision of risk capital to British companies. The gap exists, according to the UK government, in investments in the range of £100,000 to £500,000, as returns on such relatively small investments tend to be effected by the high administrative costs when venture capital funds are involved. It is believed that up to 300 businesses in England alone could benefit from the scheme.

The government and venture capital firms will jointly contribute to the proposed funds, one in each of the English regions. Agencies such as the European Investment Bank would also be able to invest. The fund managers who will manage the funds will be selected in each region and are expected to invest on a commercial basis, aiming for an average return on investment of 12 per cent.

On Monday, British Chancellor Gordon Brown voiced frustration at the European Commission for what he sees as unjustified delays in approving the establishment of these funds which it is estimated could be worth up to £1bn.

The EC believes that public sector funding of private companies can prove counterproductive. “Although the Commission is in favour of promoting the supply of venture capital to SMEs, it believes that care is needed when state aid is proposed to fulfil this objective”, the EC said in a statement in October.

Proceedings to investigate the UK scheme were opened in October last year. A European Commission spokeswoman told The Financial Times that the commission is in favour of the proposals but added: “We must be absolutely certain the rules are not abused or applied inconsistently in different countries.”

However a spokesperson from the UK's department of trade and industry told PEO that the commission does not have a single framework or policy to assess state aid rules.

A decision will probably be reached in April or May this year pending the formulation of new guidelines on aid to venture capital companies. These were being discussed on Monday by member states.