VADEMECUM COMMUNITY RULES ON STATE AID - Interact

Criteria for assessing risk capital measures
The Commission will assess the compatibility of risk capital measures taking into account the
incentive effect, necessity of aid, existence of market failure and proportionality of aid.
The Guidelines set out a set of conditions under which the Commission will consider that aid
in the form of risk capital is compatible with Article 87(3)(c) of the Treaty. For measures
fulfilling these criteria it will be assumed that incentive effect, the necessity and
proportionality of aid are met and that the overall balance of the aid measure is positive.
These criteria include:
• Maximum level of investment tranches of EUR 1.5 million per target SME over each
period of twelve months;
• Restriction to seed, start-up and expansion financing or to start-up phase for medium
enterprises outside of assisted areas;
• Prevalence of equity and quasi-equity investment instruments (at least 70% of the
budget of the measure);
• Obligatory participation by private investors (at least 50% of the funding, or 30% in
assisted areas);
• Profit-driven character of the investment decisions;
• Commercial management.
Risk capital measures which do not satisfy all the conditions laid down above are subject to a
detailed compatibility assessment based on a balancing test, in order to verify the targeting of
the relevant market failure, the higher risks of potential crowding-out of private investors, and
distortion of competition.
The Commission will regard the following characteristics as positive elements in its balancing
test evaluation:
• Existence and evidence of market failure;
• Appropriateness of the instrument;
• Incentive effect and necessity of aid:
o Commercial management;
o Presence of an investment committee;
o Size of the measure/ fund;
o Presence of business angels;
• Proportionality (including open tender for managers, call for tender or public
invitation to investors).
The Commission will balance these positive elements against the following potential negative
effects of the aid:
• Crowding-out of private investment;
• Other distortions of competition, as it cannot be excluded that risk capital measures
might have the effect of keeping inefficient firms or sectors afloat or of artificially
increasing their valuation and thus, distorting the market for risk capital. Sector
specific aid may also maintain production in non-competitive sectors, whereas regionspecific
aid may build up an inefficient allocation of production factors across regions.
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