EU Rule Change Allows Start-Ups To Access State Aid

The EU has agreed to temporarily bring more flexibility into state aid rules that tech start-ups had argued were delaying their ability to participate in pandemic liquidity programmes.

Margrethe Vestager, the European Commission’s executive vice president lead on competition policy, said start-ups were “crucial for the economic recovery of the Union”.

Private investors are to be able to invest along with government funds under the proposed changes, Vestager said.

The change is an expansion to rules brought in in March that allow states to provide businesses with grants or to guarantee loans.

‘Financial difficulty’

Start-ups often intentionally run at a loss in order to build up market share or have sold a large portion of the company to investors.

Such factors that class them as being in “financial difficulty” under existing EU state aid rules, which are designed to prevent countries from propping up failing national companies.

But the classification has meant that start-ups are often unable to benefit from liquidity programmes brought by EU member states to support companies during the coronavirus lockdown.

The rules currently apply to the UK, which, while no longer a member of the EU, has agreed to abide by EU regulations until the end of this year.

Liquidity

The EU’s March rule change did not do enough to ensure start-ups could participate in liquidity programmes, industry associations have argued.

In May more than a dozen start-up associations, including the UK’s Coadec, France Digitale, Bundesverband Deutsche Startups in Germany, Startup Poland and others, wrote to Vestager calling for the rules to be modified.

“Start-ups across Europe report that the Temporary Framework for State Aid is not yet giving enough flexibility to Member States to support start-up ecosystems,” they wrote.

“Only taking the current cash flow into account belittles the economic potential of these startups and prevents them from receiving much-needed support.

‘Devil in the detail’

“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.”

The bodies argued that they wanted start-ups to “receive the support that other economic actors are also receiving”.

Allied for Startups, the Brussels-based body that coordinated the group letter, said its members “strongly welcome” the Commission’s proposal, and that it was awaiting full details of the plans.

The UK’s Coadec start-up group said the change “could allow British start-ups much better access to the government’s liquidity package”, adding that “the devil will be in the detail”.