The purpose of this report is to provide an overview of the recent trends of Venture Capital (VC) market in the European Union. In particular, it investigates and documents the characteristics of VC transactions, Venture Capitalists, and VC-backed firms, in the context of European Small and Medium-sized Enterprises (SMEs). Indeed, in recent years, the European Commission has devoted increasing attention to this area through relevant policy actions aiming at stimulating the adoption of different sources of external financing available to SMEs that find barriers to more traditional financing. In particular, the 2015 Capital Markets Union (CMU) Action Plan included among its key objectives the financing of innovation, start-ups and non-listed companies, also by supporting new Venture Capital investments. Moreover, the new 2020 CMU Action Plan further incentivises the adoption of alternative sources of funding for SMEs (see, for instance, Action 5).
The increase in Venture Capital penetration in the EU market would lead to at least two complementary beneficial effects, i.e. the diversification of the funding portfolio of companies, and the professional support in their earlier stages of development to young and innovative SMEs, the backbone of the European economy. At the same time, being target of a VC investment could have implication on the SME status of the VC-backed company. Indeed, the current European Commission SME definition (Recommendation 2003/361/EC) sets size-based thresholds for a company to be considered an SME. If a firm is not autonomous, i.e. it is not controlled by third parties, the assessment on the size should be conducted also including the figures of other companies within the group of the assessed firm. Accordingly, if the Venture Capital investor acquires more than 50% of the company’s capital or voting rights through its investment, the target company itself, and the VC investor(s) are considered as a group and consequently, these companies may lose the SME status. Beside classifications, this may lead to a concrete impact on the VC-backed firm, which, by losing the SME status, would not be eligible for EC dedicated funding programs (e.g. Horizon 2020).
The report focuses on different aspects related to the status of the VC market from 2008 to 2018. In particular, it provides evidence on (i) the evolution of Venture Capital investments; (ii) most relevant features of Venture Capital transactions; (iii) characteristics of firms targeted by Venture Capital investments; (iv) the impact of VC investments on measures of growth of target companies; (v) investment strategies of of venture capitalists in targeting firms; and, lastly, (vi) the implications of VC, and potential changes to the 50% threshold, for the current SMEs definition.
BELLUCCI Andrea;
GUCCIARDI Gianluca;
NEPELSKI Daniel;
2021-01-11
Publications Office of the European Union
JRC122885
978-92-76-26939-7 (online),
1831-9424 (online),
EUR 30480 EN,
OP KJ-NA-30480-EN-N (online),
https://publications.jrc.ec.europa.eu/repository/handle/JRC122885,
10.2760/076298 (online),
