Decisions taken without prior impact assessments of market needs, selection criteria generating investment concentrations, a European venture capital market with too low a return and too dependent on public procurement, lack of rationalisation between the various European instruments... The European Court of Auditors' special report entitled “EU venture capital instruments under centralised management..: a better framework is needed”, published on Thursday 24 October, takes a very critical look at the EU’s action over the past 20 years to support investments through venture capital funds, particularly in the direction of start-ups.
“The Commission needs a comprehensive investment strategy which aims to support less developed venture capital markets and decrease dependence on the public sector”, summarised Mr Baudilio Tomé, Member of the European Court of Auditors, in a few words.
The audit covers the six centrally managed instruments put in place since 1998 to support innovation, research, business and industry, namely: ESU 1998, ESU 2001, MIC, the EFG scheme, the 1st and 2nd sub-component of the equity product of the SME component of the EFSI.
Decisions on the size of financial envelopes would, in the auditors’ view, be “insufficiently substantiated” due to the lack or absence of ex-ante evaluation, impact assessment or, quite simply, because evaluations only arrived once the budget envelope had been decided. In the auditors’ opinion, the Commission should also put in place more appropriate interim and ex-post evaluations. They found, for example, that evaluations often came far too late in the process.
The selection criteria is another grievance. According to the report, the Commission focuses too much on the quality of projects, without taking into account a distribution key between investment sectors and the geographical location of venture capital funds. As a result, “this demand-driven approach clearly favours the most developed venture capital markets, leading to a concentration of investments in the largest EU economies, while underdeveloped markets and sectors of activity may receive less”.
In general, auditors point to the low profitability of the European venture capital market, which remains far too reliant on public demand. As a result, private investors are not very attracted. Above all, according to the Court, better use must be made of the European Investment Fund (EIF) by shortening the procedure for approving applications for assistance. Finally, they regret the lack of capacity of investment funds to manage the so-called “disinvestment” phase.
The Court therefore makes three main recommendations: – carry out in-depth analyses to improve the assessment of different instruments (including market failures and underperforming investments); – develop a horizontal investment strategy to develop investments in venture capital markets and least developed sectors of activity; – finally, streamline the management of instruments by the EIF (reduce the project approval process, ensure complementarity between instruments, provide sufficient disengagement solutions).
To consult the report: http://bit.ly/33WjsmC (Original version in French by Pascal Hansens)