A new report by the European Court of Auditors (ECA) has examines the European Commission’s mobilisation of venture capital funding for small and medium enterprises (SMEs).
The Commission is set to allocate more than €3.3bn to support venture capital investment in startups and SMEs between 2014 and 2022, the auditors said; but the Commission is yet to carry out an assessment of the impact of its investment, the needs of the market or the absorption capacity of the sector. The audit covered the six centrally managed interventions conducted by the Commission since 1998 in order to gauge whether the Commission had made the most effective use of its instruments in mobilising venture capital for SMEs; whether the instruments had been correctly implemented; and whether Commission-led intervention had triggered further investment from the public and private sectors.
By providing startups and SMEs with access to venture capital funding, the Commission aims to encourage innovation and catalyse economic growth; with investments enabling SME operators to grow their business and gain easier access to sources of finance. The auditors found, however, that the Commission had typically not carried out impact assessments before releasing venture capital funds; or had not produced evaluations until after making decisions on budget allocation.
Support was allocated to projects based solely on merit, rather than taking the location of venture capital funds and investment sectors into account; meaning that locations with more developed venture capital markets were prioritised – this in turn has led to the concentration of investment in the EU’s largest economies, with 50% of venture capital investment based in France, Germany and the UK; while smaller and underdeveloped markets stagnate, with no allocation of venture capital for SMEs at all reported in Cyprus, Malta, Slovenia and Slovakia.
Baudilio Tomé Muguruza, the ECA Member responsible for the report, said: “Significant EU funding has been made available to strengthen the EU venture capital market, but challenges remain. To develop a pan-European venture capital market, the Commission needs a comprehensive investment strategy which aims to support less developed venture capital markets and decrease dependence on the public sector.”
The auditors’ report recommended the Commission develop a comprehensive strategy for the mobilisation of venture capital funds for SMEs, streamlining the management of its investments and conducting more thorough analyses into its interventions.