DG FISMA Roundtable on pre-IPO SME Access to Finance, 20 March 2017, Brussels

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In the context of its preparations for the Capital Markets Union (CMU) Mid-Term Review in June 2017, DG FISMA is organising a half-day roundtable which will explore new actions to harness capital markets’ potential to finance growing businesses. ECN will actively participate in the round table.

The CMU Action Plan of September 2015 has laid great emphasis on fostering the development of alternative funding channels and broadening the range of financing options for SMEs across all EU Member States and all stages of the ‘funding escalator’. Several measures of the initial wave of CMU actions (EuVECA Regulation proposal, pan-European Venture Capital Fund-of-Funds) were motivated by this objective.

The goal of strengthening Europe’s pre-IPO financial ecosystem will remain central to the CMU as we take forward this agenda through the Mid-Term Review. The Review will draw on stakeholder input collected notably through an online public consultation, structured dialogues in existing fora and dedicated roundtable discussions. The aim is to seek feedback on how the current CMU Action Plan can be updated and completed so that it represents a strong policy framework for the development of capital markets, in the light of what the European Commission has presented so far.

The roundtable is being organised as part of this process. It will be an opportunity to explore possible new EU-level initiatives in these areas with key stakeholders and policymakers. The round table will be an open discussion on ways in which the CMU programme can be developed in order to provide useful responses to Europe’s persistent deficit in pre-IPO financing.

The focus of the roundtable on 20 March 2017 in Brussels, will be on pre-IPO funding – both debt and equity. Start-ups, scale-ups, high-growth and innovative companies are critical to creating jobs and fostering growth in the EU, making the European economy more competitive and resilient. But to add value and realise their full potential, they need to secure financing on attractive terms. Currently, they face important financing constraints, especially with regard to obtaining debt capital from the banking system, due to their highly uncertain income generation and lack of collateral. Thus, they need alternative funding channels to grow, invest and create jobs. However, such funding channels continue to be underdeveloped in the EU, particularly for SMEs. To respond to this market failure, the Capital Markets Union (CMU) project aims at developing alternative sources of funding for SMEs, in particular start-ups, scale-ups, high-growth and innovative companies. A range of financing opportunities should exist and be available to companies across all EU Member States and all stages of the ‘funding escalator’.

Non-bank funding channels, including alternative investment funds, have started to fill up the SME financing gap. Their strong growth has been spurred by factors such as financial technology developments and investment by retail and institutional investors. Moreover, these funding sources have been gradually accepted as genuine alternatives to traditional forms of finance, with their risks, advantages and disadvantages. Yet in spite of this growth their share of SME financing remains small as they face a number of barriers to their development, uptake and effectiveness. This roundtable aims at discussing such barriers and the ways to overcome them at national and European level. The outcome of the discussions will contribute to the ongoing CMU mid-term review. The objective is to review whether the CMU Action Plan needs to be complemented with new policy measures supporting SME access to finance.

The discussions will be structured in three sessions covering the following themes:

  • Session I – Equity investment into SMEs: How to increase its supply and diversify its sources?
  • Session II – Debt provision to SMEs: How to increase its supply and diversify its sources?
  • Session III – Information barriers between SMEs and prospective investors / lenders: How to facilitate SME access to finance by overcoming such information barriers, including through the use of FinTech solutions?
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