EU set to ease restrictions on tech start-ups accessing state aid

European Commission executive vice-president Margrethe Vestager has put forward a proposal for the easing of restrictions on what type of companies can access state aid under the temporary framework adopted in March in response to the Covid-19 pandemic.

While many businesses have suffered a severe financial downturn as a result of the pandemic, tech start-ups argued that they could likely lose their businesses without state support that they were prohibited from accessing. Industry group Scale Ireland estimated last month that around 80pc of Irish start-ups could run out of cash within six months if they could not avail of State aid.

The group’s CEO, Liz McCarthy, said it was “unfortunate that the Irish companies with the greatest potential to boost employment and contribute to a more sustainable, regionally balanced model of economic growth post-crisis are the ones being overlooked by the existing emergency provisions”.

Under these existing EU rules, many of the tech start-ups are classified as being “in financial difficulty” because of the nature of start-ups where many operate at a loss or have significant investor stakes. This limits their access to state support because limits were put in place to prevent nation states from propping up state-funded companies.

However, under the amended temporary framework, Vestager said that it would allow for micro and small enterprises, including start-ups, to now receive state aid.

Post-Covid support

“Micro, small and start-up companies face specific challenges as a result of the coronavirus crisis,” she said.

“They are crucial for the economic recovery of the union. Furthermore, we propose to introduce conditions that provide incentives for private investors to participate alongside the state in recapitalisations. This is welcome as it reduces the need for state aid and the risk of distortions to competition.”

Speaking to the Financial Times, McCarthy said: “Until now, the [EU] state aid rules have been cited as a reason for restricting a large number of homegrown start-ups from accessing liquidity support.

“The removal of this impediment will enable the [Irish] Government and its agencies to urgently channel funds to viable innovation-driven companies that can provide an important source of economic growth post-Covid.”

Scale Ireland was one of the signatories to an open letter put forward by the group Allied for Startups in May, whose director of EU policy, Benedickt Blomeyer, welcomed the easing of restrictions.

“We strongly welcome the commission’s proposal to further extend the scope of the temporary framework with regard to ensuring that start-up ecosystems are receiving the same liquidity support that other economic players are during the Covid-19 epidemic,” he said.