Entrepreneurs set to find salvation in EU's €4.2bn risk-capital fund

The European Commission is about to inject "serious levels" of risk capital into start-up companies that are normally denied financing and typically need between £135,000 and £1.7m. These investment levels are too small for venture capitalists and too large for high- street banks.

British entrepreneurs will soon be in line for cash grants or gilt-edged guarantees for loans from the EU's own venture capital fund in Luxembourg, according to a new EU blueprint obtained by The Independent on Sunday.

Recently, Günter Verheugen, the German vice-president of the European Commission and an industry mandarin, unveiled the plans to colleagues that will allow entrepreneurs to draw from a €4.2bn (£2.9bn) fund aimed at backing small ventures, particularly those which are IT-based.

A new seven-year project - "The Competitiveness and Innovative Framework Programme" - which the European Investment Fund (EIF) will support, will start in 2007. It will "ease the supply of seed and early-stage capital for innovative start-ups and young companies", according to the confidential draft.

"This is a risk strategy by the Commission," said the Labour MEP Arlene McCarthy, "but it's the right move as in the past there was nowhere near enough investment in small businesses. The €4.2bn will act as a catalyst to attract more VC."

The programme, which has the "full support" of the Government, will help new companies with an environmental or IT basis to their productivity to get off the ground. Start-ups will be singled out by the Luxembourg bank for either grants of up to €2.5m each or, alternatively, guarantees to satisfy "business angels" who will only provide funding if there is a visible safety net. A third category, "seed capital", will be granted through the European Bank for Reconstruction and Development (EBRD) and is aimed at helping firms provide "deposits" against loans secured from banks.

Business gurus are also expected to capitalise on the new initiatives from Brussels, drafted in a belated bid to salvage the EU's own beleaguered "Lisbon Agenda" - designed to sharpen up the economies of EU countries before 2010.