The Romanian Government has entrusted the European Investment Fund (EIF) with the creation of a EUR 106.7 million fund, aiming to provide financing in the form of venture capital for innovative companies at local level, according to a decision adopted in Wednesday’s meeting.
The problem of venture capital financing is a very big one not only in Romania, but also in the entire European Union: it is among the critical points that the Draghi Report draws attention to – banks do not finance innovation because of the risk – this falling into the „task” of specific investment funds. In the US, 80% of innovative companies are financed through venture capital funds.
„The Government of Romania, through the Ministry of European Projects and Investments (MEPI), entrusted the EIF, through the Financing Agreement signed on 12/04/2024, respectively on 12/12/2024, with the creation of the INNOVATION ROMANIA holding FUND (called the „Participation Fund” or „PF”) as per art. 2 paragraph (20) of the CPR, aiming to remedy the market failure mentioned above, by facilitating access to financing for final beneficiaries identified by selected financial intermediaries, active in or relevant to the achievement of the objectives of the Program, through the implementation of one or more Financial Instruments”, states the Government decision explanatory memorandum.
The PF is financed with the amount of EUR 106,738,824, consisting of:
(a) resources from the European Union Funds implemented under shared management from the „Smart Growth, Digitalization and Financial Instruments” Program 2021-2027, action 1.5.2. „Smart development of enterprises through new models for business development and re-technologization” amounting to EUR 80,000,000 ERDF and
(b) co-financing from the national budget of Romania in the amount of EUR 26,738,824.
The parties agreed that any amounts paid by the PF for investments and management costs and fees before December 31, 2029 will be financed by the Smart Growth, Digitalization and Financial Instruments Program (PoClDlF), while any amounts paid for the same purposes after this date will be paid from the national budget and resources.
Romania requires EUR 2 bln venture capital by 2027
According to an assessment carried out last year, “there is a market failure in terms of securing venture capital financing in Romania, for an amount of EUR 2 billion for the period ending in 2027.”
The ex-ante assessment shows that Romanian venture capital investments as percentage of GDP are well below the level of other comparable countries in the region, and Romanian firms innovate to a much lower extent than the EU average. Subsequently, a venture capital instrument with the objective of financing innovation would cover a real financing gap in the market.
The proposed final recipients are Microenterprises/SMEs (including start-ups) and small mid-cap companies.
„This instrument aims to finance Romanian enterprises in their early stages, start-ups, through capital inflows: financing granted to an enterprise to begin the production/distribution of a product; often used in a broad sense for a newly established enterprise and spin-offs: a newly established enterprise based on a result obtained from a research project, with the possibility of supporting the best performers up to the mid-cap stage,” claim the initiators.
Types of financing the new fund will provide
Within PoCIDIF, the Participation Fund (PF) comprises, for indicative purposes, three instrument components (types of Specific Funds), without a specific allocation (in order to benefit from maximum flexibility in current market conditions):
a. Co-Investment Fund
- This instrument is intended to support early-stage funds, focusing primarily on financing rounds in the preliminary and initial stages (‘proof of concept – the preliminary stage’, ‘start-up – financing granted to a business to begin production/distribution of a product; often used in a broad sense for newly established enterprises’ and ‘seed – investment for product development’).
- The PF will be the main investor, and the Financial Intermediary is tasked with obtaining a minimum percentage of private investors for each entity in which it invests, at the same time usually heading the financing round (targeting „Providential Investors” – „Business Angels”, but also Venture Capital Funds and other non-institutional investors).
- The PF will be flexible regarding the percentage of participation in the share capital of the company in which it invests (for example, both minority co-investments with other investors and the acquisition of a majority stake of amounts not held by the founders).
b. Acceleration fund
- Funds financed under the Competitiveness OP 2014-2020 included successful acceleration sub-components; however, these investments ended with the previous programming period due to a different revenue model and the need for a specialized team.
- To continue the development of the ecosystem from the previous initiative, this instrument will select a financial intermediary (or several), with core investments in early-stage companies (e.g., (‘proof of concept – the preliminary stage’, ‘start-up – financing granted to a business to begin production/distribution of a product; often used in a broad sense for newly established enterprises’ and ‘seed – investment for product development’).
- In order to attract a significant number of eligible applications for funding, the Financial Intermediary may consider organizing competitive application sessions. Upon completion of any such procedures, approved applicants (in accordance with the eligibility and quality assessment criteria predefined by the Financial Intermediary) may receive initial funding.
- The Financial Intermediary will also consider an amount for follow-on investments according to the investment strategy of the Specific Fund.
- A specific feature of this Specific Fund for the initial stage consists in the mentoring and counseling structure and in the potential collaboration with similar structures abroad, thus catalyzing product development, managerial training and the creation of market networks.
c. Technology Transfer Fund
- It is expected that the Specific Fund will be connected to a consortium of universities/research institutes (without geographical limitation) and that it will primarily target projects and spin-offs (newly established enterprise based on a result obtained from a research project).
- The special objective of this Specific Fund is to address a technology transfer deficit in the country, with the fund and the respective Financial Intermediary(s) to be deeply involved in this process and to help solve the current problems of universities regarding issues related to intellectual property transfer or evaluation, among others.
The EIF will hold one or more calls for expressing interest – in accordance with its internal policies and procedures, taking into account market needs.
Each call will include specific selection criteria for Financial Intermediaries and will be approved for publication by the PF Investment Committee, to be designated by ministerial order. „The EIF will use the calls to identify, assess and select Financial Intermediaries to implement the Financial Instruments of the PF. The EIF will conclude operational agreements with them, and the Intermediaries will make investments in final beneficiaries (small and medium-sized enterprises – SMEs and small mid-cap companies – „midcaps”), in compliance with state aid rules,” the explanatory memorandum adds.
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