Foreword by Roberto Gualtieri
Foreword by Roberto Gualtieri
In fact, how properly a small or medium-sized enterprise is capitalized influences whether it succeeds or fails.
Forewords by Roberto Gualtieri, Chair of the Economic and Monetary Affairs Committee of the European Parliament
The new edition of the LSEG’s Report on ‘inspiring companies’ refers for the first time to all 28 European Member States and fully mirrors the wealth of cultures and experiences feeding our small and medium-sized enterprises (SMEs).
SMEs are key players in the EU economy in terms of share in employment and value added. Furthermore, through their close relations with employees, the local community and their business partners, SMEs often have a naturally responsible approach to business.
The LSEG’s Report draws up a list of success stories and best practices of the most dynamic European SMEs. Relying on a rigorous methodology which considers not only the growing revenues awarded by the companies but also their ability to outperform the respective sectors, it highlights the contribution of both traditional and innovative sectors to foster growth.
I see several merits in this initiative: first of all, it provides investors with encouraging evidence that high returns do still exist beyond highly speculative investments. Secondly, it increases policy makers’ awareness of the importance of taking actions to support these businesses.
Facilitating SMEs access to financing is the staple issue. In fact, how properly a small or medium-sized enterprise is capitalized influences whether it succeeds or fails.
Bank financing (overdrafts and loans) is the most used and relevant source of working capital for micro and small European firms. In order to support the lending ability of banks, a favorable treatment for loans to SMEs was introduced in the recent prudential framework: the European Parliament is actively working to keep such support on a permanent basis and possibly expanded. But this is not enough.
Equity is the most suitable form of finance for start-up businesses or existing businesses with significant expansion plans, however equity instruments are not as widely used yet. Venture capital and private equity tools, for example, are still underdeveloped in Europe, due to both structural and cultural factors. Encouraging this alternative potential investors is important not only in order to diversify the sources of capital, but also for the positive contribution to business they could give thanks to their management skills and networks. Venture capital tools have proven to be effective startup accelerators and incubators, bringing the most promising companies to list. That way, they contribute to develop specialist markets catering for the needs of smaller and medium sized issuers, such as the SME Growth Markets set out under MiFID2. Those markets will also benefit from a simpler and cheaper prospectus regime.
The ELITE Innovation Hub under development by LSEG offers an example of a virtuous model of corporate ventures, encouraging the ELITE companies themselves to invest in start-ups with innovative patents, projects or businesses. Such flagship initiatives can benefit from synergies with public schemes. In this vein, within the framework of the Capital Markets Union, the existing EU venture capital legislation is going to be reviewed, to expand scale and diversity of funds, and the establishment of pan-European funds-of-funds is also being considered, so as to catalyze investment into the most promising new enterprises combining EU resources with national facilities.
Enabling more companies to access market-based sources of capital will also expand the investment opportunities for different asset management instruments, such as AIFs or UCITS, which play a steadily increasing role in connecting savings to productive use.
A comprehensive view is required to cater for all the trade-offs and the synergies entailed in the various policy measures, as well as a strong interplay between public and private institutions, with the overall goal of creating an environment where ‘inspiring companies’ can increase in scale and number and other companies can prosper too. That is a precondition to secure a long-lasting sustainable growth for the EU.