The inefficiencies in the capital market for innovative firms in Europe have been characterised as a “thin market” where limited numbers of investors and innovative growth firms have difficulties finding and contracting with each other at reasonable costs. To improve the matching of investors and innovative firms, a series of actions on a wide front are needed.
First, an efficient ecosystem of venture capital requires the presence of informed institutional investors, a strong deal flow of attractive firms, large and professional venture capital funds, support and advice for entrepreneurs, and efficient exit markets. The Commission is committed to these actions (see also action 11 of the Innovation Union Communication and proposals in the forthcoming Single Market Act). The SME Finance Forum, that will meet regularly, will review progress and provide the stakeholders an opportunity to discuss the most pressing issues of financing SMEs.
Second, on the demand side, European entrepreneurs are too often unaware of, or insensitive to, investor concerns – and sometimes lack sufficient knowledge in finance. This prevents them from presenting their projects to potential investors in a convincing way and acquiring investment. Professionally-run investment readiness programmes, and other ways of increasing the level of knowledge in finance, can prepare entrepreneurs both to understand the benefits and constraints of different forms of finance and to make the best presentation of their projects.
Third, tools are needed to facilitate the matching of firms that are ready for investment, and investors that are seeking profitable investment opportunities. The most effective form of investor-investee interaction are platforms with person-to-person contacts, but these are only feasible on a local basis. To open up opportunities on a Europe-wide basis, Internet-based tools can generate initial contacts and provide information on which more personal interaction can be based at local, national or European levels.
Entrepreneurs are reluctant to disclose information for fear of imitators and the resulting information asymmetries need to be overcome in a close working relationship between the investor and the entrepreneur, which means that a neutral operator needs to act as a guarantor of quality in the matching process. The Enterprise Europe Network could be a useful tool to operate a European-wide matching service pilot scheme.
Success by 2012: A leading figure has evaluated the thinness of the European market for innovative firms receiving equity investments. Based on the merits of different search platforms facilitating contacts between investors and entrepreneurs, the Commission will have proposed the most effective approach to facilitate matching at European level.
To initiate the project the Commission has selected a leading figure to analyse methods to bring investors and enterprises tgether in line with public procurement rules.
In addition, the Commission set up a European Expert Group which convened three times (November 2011 January 2012, March 2012). The mission mandate of the expert group was to enhance access to finance for innovative firms in strengthening cross-border matching of innovative firms with suitable investors.
To set up the expert group invitations to the following categories of European-wide stakeholder organisations and networks were made: 1) Demand side for innovative projects and ideas. 2) Supply side of innovative ideas and projects. 3) Intermediaries organising the matching of supply and demand. Selection criteria for European organisations and networks invited to nominate members: Expertise and understanding of common interest in the field of financing innovation, organisations must represent a broad group of relevant stakeholders.
The expert group was chaired by the leading figure. The task of this expert groups was to: a) discuss current industry practices and activities which help to identify innovative ideas and businesses on a cross-border basis; b) discuss what can be done to support entrepreneurs in attracting the right sources of risk capital; c) identify best practices and suitable tools; d) define policy options and assess these under the aspects of feasability, European added value as well as budgetary requirements.
The chair of the expert group has submitted the final report which contains all of the expert group's recommendations to the Commission. The report is published in the Register of Commission Expert Groups and Other Similar Entities
(Expert group N° E02695): http://ec.europa.eu/transparency/regexpert/detailGroup.cfm?groupID=2695