Growth plan gets under way

Date: 17/07/1997

By Leyla Linton

ELEVEN venture capital operators are negotiating with the European Commission to take part in a scheme to stimulate investment at the cutting-edge of high technology.

The move is the first concrete outcome of last month's Amsterdam summit and its declared aim of creating jobs in Europe.

Under the programme, the European Investment Fund (EIF) - a loan-guarantee specialist founded two years ago - was asked to establish a special facility to help fund the first risky moments of high-technology investment.

By September, five or six venture capitalists are expected to be selected to take part in 'I-TEC', a pilot project which aims to put young companies in the Union on a level playing-field with their US counterparts.

Traditionally, European venture capital operators have been reluctant to invest in this sector because the innovative nature of the technology involved makes it difficult for them to assess the prospects for the companies.

Venture capitalists are also put off by the high levels of management attention demanded by new, smaller companies.

The scheme seeks to approach this problem by contributing 7.5 million ecu towards the costs of initial appraisal and the management of projects.

The EIF believes that by taking some of the sting out of this initial investment period, the plan could generate 750 million ecu of investment as a knock-on effect. Each individual project will have a spending cap of 500,000 ecu.

Research Commissioner Edith Cresson believes that Europe is lagging behind the US when it comes to investment in technology for SMEs.

In the growing biotechnology sector, around 400 specialist companies exist in Europe while the US boasts 3,000 with 150 in Pennsylvania alone. The same story is repeated in software design and information services.

Compared with old manufacturing industries, these thrusting young sectors are where the new jobs are going to be generated to absorb some of the 18 million jobless in Europe.

Cresson's staff point out that, by the turn of the century, the market for biotechological products will have doubled in value to around 20 billion ecu measured by annual sales revenue.

In information services, commercial subscriptions to get online are growing at a rate of 100&percent; a year; a rate which would produce 200 million users of the Internet by 2002.

“A young SME does not get as much venture capital here as in the US,” said Cresson recently. “It is a cultural obstacle. Europe has a tradition of investing, but not investing venture capital. Two-thirds of new jobs in the US are created in technology, and half of those are in SMEs. Most of these are skilled jobs; we are not talking about a lot of jobs created in fast-food outlets.”

Investing in classical technology is not enough, according to Cresson. “We have to embark on the conquest of future markets, for example biotechnology or information technology,” she explained.

I-TEC is open to European venture capital fund management companies which have been pre-selected by the EIF. Each will agree to dedicate at least 25&percent; of its newly-raised capital to early stage investment in technologically innovative SMEs. The pilot project will also train SMEs in the art of applying for public funds.

The scheme has been welcomed by both venture capitalists and SMEs. “We have made the point that there is a big lack of finance for SMEs so this initiative comes at the right moment. Madame Cresson has put her money where her mouth is,” said Jan te Bos of UEAPME, the SMEs' lobby group.

“Venture capital investors are not really interested in people like us because it requires knowledge and know-how,” he added.

Serge Raicher, secretary-general of the European Venture Capital Association, also heralded the scheme as a significant step forward. “We are very positive about this. The pilot project could serve as a base for more general projects which could be larger and not just be restricted to early-stage SMEs,” he said.