State aid: Practical guidance on how to assess the existence of aid for risk finance measures

Today, the European Commission’s Directorate-General for Competition has issued practical guidance for Member States to assess whether or not public measures to facilitate certain companies’ access to finance, constitute State aid.

Risk finance is important for the financing of the economy, in particular for start-ups, small and medium-sized enterprises (‘SMEs’) and middle-capitalisation firms (‘mid-caps’).

In its Notice on the notion of State aid (‘Notice’), the Commission clarifies that, if a Member State intervenes as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept under market conditions, such an intervention can be considered free of State aid. This is the so-called market economy operator principle (‘MEOP’), which has been developed by the Court of Justice of the European Union.

Member States can design risk finance measures that do not entail aid within the meaning of EU State aid rules. The document issued today aims at providing non-binding practical guidance for Member States on when and how the MEOP can apply to risk finance measures. In particular, it (i) describes how to assess the existence of aid at the level of investors, target companies, and financial intermediaries or managers; (ii) clarifies which investors can be considered private investors for the purpose of the MEOP; and (iii) sets out how the MEOP can be met in different circumstances, such as where public authorities co-invest alongside private investors.

Risk finance aid is also an important instrument that Member States can use to support in particular innovative and growth-oriented start-ups, SMEs and certain types of mid-caps in the early stages of their development. Such risk finance aid can be deemed compatible with the internal market, notably under: (i) the General Block Exemption Regulation, which exempts aid to SMEs and start-ups from the requirement of prior notification to the Commission under certain conditions; or (ii) the Risk Finance Guidelines which allow aid to SMEs and innovative or small mid-caps under certain conditions.