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07 March 2017

AFME publishes new report on the challenges of raising pre-IPO finance

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AFME has published a new report examining the specific challenges associated with raising risk capital for small and mid-size high-growth companies in the EU. The report aims to inform policymakers about the challenges facing Europe’s high growth companies in obtaining crucial early stage financing.

“The Shortage of Risk Capital for Europe’s High Growth Businesses” was authored by AFME with the support of 12 other European organisations representing all the different stakeholders involved in pre-IPO finance. These include the European Investment Fund (EIF), seven other European trade associations representing business angels (BAE, EBAN), venture capital (Invest Europe), accountants (Accountancy Europe) and crowdfunding (ECN), as well as stock exchanges (FESE, Deutsche Bӧrse, LSE, Euronext, Nasdaq).

The report identifies the main barriers preventing the creation and growth of businesses in Europe and makes the following recommendations to address them:

  • Fragmented start-up market
  • Lack of awareness of risk capital benefits among businesses
  • Under-developed business angel and crowdfunder capacity
  • Insufficient business angel exit opportunities
  • Insufficient venture capital funding
  • Small venture debt market
  • Unfavourable environment for businesses to access public markets
  • Sluggish primary equity market

There is a need to tackle the decline in IPOs, which play a crucial role in Europe’s economy. Theproposed Prospectus Regulation is a great opportunity and further initiatives should be undertaken,such as supporting new categories of investors to invest in high-growth companies.

The report outlines the various sources of EU financing available to Europe’s high-growth businesses, (including family and friends, accelerators, equity crowdfunding, business angels, venture capital, venture debt, public markets and public funding), but highlights that many of these are underused:

  • Europe could invest more in risk capital: three million EU citizens hold non-real estate assets in excess of €1m – if even a small part of this were used for business angel investing, it would make a huge difference;
  • European companies received €1.3m on average from venture capital compared to €6.4m in the US;
  • Venture debt is underused: only 5% of VC-backed EU companies obtain venture debt financing compared to 15-20% in the US

The report also includes an analysis of the main providers of risk capital for small innovative companies in Europe, showing that there is room for improvement in the European risk capital landscape.

Press release

Full report


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