monday, 18 may of 2020

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EU state aid rules hinder tech bailouts, say industry groups

Tech start-ups across Europe are struggling to access coronavirus support schemes because of EU state aid rules, industry groups from several countries say, threatening to undermine Brussels’ attempts to stimulate local rivals to Silicon Valley.

More than a dozen tech trade groups, including industry associations in France, Germany, the UK and Ireland, have together written to EU commissioner Margrethe Vestager calling for “more flexibility” in member states’ ability to provide “vital” support to lossmaking but innovative small businesses.

National governments in several countries have offered schemes to support R&D or encourage venture capital investment. However, several of these programmes have hit roadblocks in Brussels owing to the EU’s determination that they fall foul of the “undertakings in difficulty” test — a part of European competition law designed to prevent member states from propping up failing businesses with state aid.

Many venture-backed tech start-ups operate at a loss in order to drive faster growth, or have sold a large portion of the company to venture investors in recent years, putting them in technical breach of the rules if they take government support.

“Only taking the current cash flow into account belittles the economic potential of these start-ups and prevents them from receiving much-needed support,” said the letter to Ms Vestager. “In doing so it can undermine the post-Covid-19 recovery, as it is today’s loss making start-ups which will be the driver for economic and job growth in the future.”

Since the coronavirus crisis hit the continent, the EU has rushed through measures to cushion the impact on businesses. At the start of March, Ursula von der Leyen, European Commission president, promised the flexing of state aid rules during these “exceptional circumstances”.

The EU is seeking to avoid mass bankruptcies and a further increase in unemployment in the bloc through the relaxation of state aid rules in place to prevent unfair handouts to companies.

Last month the EU implemented a so-called temporary framework that has led to state aid rules being relaxed to help ailing companies. EU officials have recently loosened rules further by allowing countries to inject equity and debt into businesses suffering as a result of the health emergency. But the tech community wants the EU to go further.

“Start-up ecosystems need liquidity support to survive now, and state aid frameworks should not stand in the way of start-ups getting the support that other industry sectors are also receiving,” said Benedikt Blomeyer, director of EU policy at Allied for Startups, the advocacy group that convened the campaign.

Mr Blomeyer acknowledged that many tech investors expected a large portion of their portfolio to fail, even in normal times. “Today’s failed start-up entrepreneur might be the founder of a unicorn tomorrow,” he added.


(Published by Reuters, May 18, 2020)

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