In welcome news for start-ups, the EU Commission has agreed in principle to extend the scope of its temporary framework for the relaxation of state aid rules to include micro and small businesses, including start-up companies. The temporary framework, introduced in March this year, was designed to provide targeted support to otherwise viable companies that have entered into financial difficulty as result of the Covid-19 pandemic. However, under the initial guidance, companies that were already in financial difficulty before 31 December 2019 are not eligible for state aid under the framework. As many start-up companies are run at a loss in their high-growth phase (often by design), this proviso effectively excludes many start-ups from benefitting from state support under the framework.

The proposed extension of the temporary framework to all micro and small companies (even those deemed to have been in financial difficulty prior to 31 December 2019), has been welcomed by start-up organisations and tech trade groups across Europe.

The proposal is also potentially significant for some private equity-backed companies which, as a result of having leveraged balance sheets, have been unable to participate in government support schemes designed to assist businesses adversely affected by Covid-19. Whether the proposals will extend to PE-backed companies is not yet clear.

Whilst the exact scope of the proposals remains subject to consultation with member states, it is clear that the EU is seeking to address the very real liquidity shortage faced by many across the innovation sector. Indeed, with the UK Government’s £250million Future Fund hugely oversubscribed, the need for state support has arguably never been greater.

Written by Alex Lloyd and Mark Devlin