By Editor
US-Europe Economic Policy for Small and Medium-sized Enterprises Part 2: 2-day Brussels Symposium, July 10-11, 2012
The U.S. Commerce Department Delegation conducted a workshop and symposium in Brussels July 10, 2012. It gathered experts from the United States and EU to discuss the topic of increasing small and medium-sized enterprise access to capital formation, reduction in non-tariff costs and removal of red tape in a more competitive landscape. The U.S. delegation was 10 strong with Mr. Drake joining as as an expert on the JOBS Act (Jumpstart Our Business Startups Act) plus 10 European representatives attended with an additional 10 EU Commission members. These members included the European Commission head, Daniel Crespo, Director General of the DG Enterprise and Industry at the European Commission (one of 27 pan-European industry focused Director General divisions – soon to be 28 member countries in August).
The meeting acknowledged the potential for significant growth in European venture capital (VC) projects and angel networks. Current estimates place VC investments in Europe at about $5 billion, essentially equal to the value of current angel network investments across the continent. Place these estimates in the context of an economic block of 27 (soon to be 28) member states with some 500 million inhabitants, and the potential for growth in investment partnerships becomes more clear. As a point of comparison, the US has a similar population but US Angels and US VCs spend $20 billion a year each on investments.
David Drake, founder of The Soho Loft Capital Creation Event Series, attended as a delegate at the symposium’s focus on Transatlantic cooperation of the US and European Transatlantic Economic Council (TEC) to assist Small and Medium-Sized Enterprises (SMEs) access finance, access markets and reduce red tape. Emphasizing that currently 85% of EU jobs originate within the 23 million EU SMEs existing today, Mr Drake asserted, “Finance is the biggest challenge to SMEs right now. In addition, this challenge is accentuated as there is little history of consumer credit card debt [in the EU]….philanthropy is more commonplace in the US and credit is more embraced and understood in the US.”
Other finance experts attending agreed with these comments, adding that tax credits like the UK’s Enterprise Investment Act also bring challenges and create friction for investors and VCs as they do not give firms enough incentive to perform. Conversely, the matching fund programs in the UK have encouraged the investment community in the local market and attracted international co-investments.
Mr. Drake also stressed the value of education, claiming that different angel networks in the US approach due diligence and valuation processes in very diverse ways. “It is important that European angels are trained and that we have cross Atlantic exchanges of knowledge through forums, conferences and expos,” stated Mr. Drake. A report from the OECD on angel networks has claimed that the average retired executive lacks an entrepreneurial history and rarely engages in angel work. “Such key figures need to be trained about how such investment networks work and on how to be an angel,” said David Drake. Unfortunately, the European Business Angels Network was not represented at the Rome event to comment on its experience in this regard.
Also discussed on the day were corporate Venture programs that the US has successfully run through firms such as Intel and TVentures. Speakers stressed that access to international capital creates a competitive advantage and can lead to longevity in an enterprise’s global market leadership. Vincent Molinari, CEO and founder of Gate Technologies reinforced this concept recently in his comments on Cisco, claiming the company’s “$35 billion (and other sources of capital) allows corporate ventures to create and isolate disruptive technologies as spin offs or integrate core technologies and enhance the position of existing company divisions. Intel has been successful doing this for decades.”
All participants in Rome agreed that a key issue for co-investment funds for angels is that evaluations have not been done yet. “The key to evaluating any project is to establish criteria before start-up and then to strategically assess progress against these criteria over time,” says Douglas Ellenoff, a partner at US law firm Ellenoff, Grossman & Schole.
The meeting acknowledged the work of some European groups such as GoBeyond and Serafin UK Fund in promoting cross border Angel co-investments. “The challenge faced is that angel networks are a local phenomena,” says David Drake. “There needs to be education for angels and networks in Europe to see how angels can be encouraged and can leverage their knowledge across both borders and cultural boundaries.”
Drake claims that multinational executives are advantaged in this regard as they have the experience and skill sets needed to review and manage accounting discrepancies between countries and cultures. This, he says, allows them to adapt to angel financing more quickly than other business leaders. “We clearly appreciate that the challenges are both physical, cross border and cross cultural,” he says. “In some places, the lack of infrastructure is an impediment to faster business evolution and in such circumstances we need to bring the knowledge in.
Drake concludes that “Education is one key and access to start up capital is another, and we [the US – EU TEC summit] make each of these fundamentals accessible to entrepreneurial companies and individuals. Events such as the Rome symposium build networks that can produce synergies of passion, knowledge and capital that allow fledgling business concepts to flourish and succeed.”
