Young Innovative Enterprise Scheme
€50million Young Innovative Enterprise Scheme
NESTA has successfully applied to the EU under new legislation that allows it to co-invest its public funds with other State Aid funding, becoming the first UK organisation to benefit from the Young Innovative Enterprise legislation.
The ruling allows NESTA to invest up to €50 million in total and up to €1 million per company whilst co-investing with other public funds such as Enterprise Capital Funds. David Hunter explains: "Early stage investment is heavily supported by public funding and up until now we have been unable to co-invest with public funds unless there was an equal or greater amount of private funding in the round. This new ruling opens NESTA to new opportunities for investment and will allow us to pick the best deals from some extremely effective funds."
NESTA is one of the UK’s largest seed-stage investors.
As part of its mission to transform the UK’s capacity for innovation, NESTA has developed an exceptional investment team and programme focused on the challenges and potential of the UK’s seed-stage innovative companies. We combine capital investment with non-financial support to help them turn their innovative ideas into commercial successes.
The scheme
- An award allocation of up to €1 million, drawn down over time in several tranches. The funds from the allocation may be distributed to the investee over time, through a series of separate investment tranches to account for the firm’s growth, investment readiness, continued potential, and other objectives established for the investee as appropriate. The criteria for follow-on tranche investment may vary between investees, and follow-on tranches from the allocation are not guaranteed.
- Each potential investee will be assessed in a rigorous due diligence process. This could include an evaluation of: the business plan, intellectual property, technology demonstrations (including prototypes), management team, market or audience, issue or need being addressed, financial and other resource requirements, overall risk of the venture, social or commercial potential, and suitability with NESTA investment objectives[1]
- Investments are reviewed and approved by NESTA's Investments team and an independent Investment Committee comprised of noted entrepreneurs and experts from the venture capital, technology, and innovation communities.
- Investees receive ‘more than just money'. As a major component of its seed-stage investment model, NESTA has established the largest mentorship network for innovative entrepreneurs in Europe, and will use this to provide investees with ‘soft capital' - the strategic and tactical business support that can be as critical to their development as hard finance.
- NESTA will actively co-invest with other funds, including angel investors, private institutional funds, or publically-supported funds such as the Enterprise Capital Funds (ECFs).[2]
The requirements
To qualify for consideration under the Young Innovative Enterprise Scheme, applicant organisations must meet NESTA Investments normal investment criteria (outlined here) and according to EU rules must also be:
- Young: defined as ‘small' (with 50 or fewer employees), and less than six years old at the time of the investment allocation.
- Innovative: Investees must demonstrate, through a business plan or other documentation, that they will develop products, services, or processes which are technologically new or substantially improved compared to the state of the art in its industry, and which carry a risk of technological risk or failure. Alternatively, they must demonstrate that a minimum of 15% of their spend is on research and development.
- Enterprises: defined as "any entity engaged in an economic activity, irrespective of its legal form".[3]
- Unencumbered: Investees must not have received other public aid that does not comply with State Aid guidelines. [4]
If you are interested in being considered for a NESTA YIE investment, please apply here.
[1] At a minimum, in compliance with Sec 5.4 guidelines, the due diligence process will demonstrate that (i) the beneficiary will in the foreseeable future develop products, services or processes which are technologically new or substantially improved compared to the state of the art in its industry in the Community, and which carry a risk of technological or industrial failure, or (ii) the R&D expenses of the beneficiary represent at least 15 % of its total operating expenses in at least one of the three years preceding the granting of the aid or in the case of a start-up enterprise without any financial history, in the audit of its current fiscal period, as certified by an external auditor.
[2] European Commission (2006) ‘Community Framework for State Aid for Research and Development and Innovation (R&D&I)'. Sec 5.4 - State Aid guidelines for Young Innovative Enterprises guidelines allows for investment to be "cumulated with other aid under this framework, with aid for research and development and innovation exempted by Regulation (EC) No 364/2004 or any successor regulation and with aid approved by the Commission under the risk capital guidelines."
[3] European Commission (2003) ‘The new SME definition. User guide and model declaration', Enterprise and Industry Publications, Brussels. Sec 5.4.
[4] Investees can only receive a single YIE investment during the period in which it qualifies as a young innovative enterprise. This funding can be combined with other funding which complies with the European Commission's R&D&I framework, or with funding for research and development and innovation exempted by Regulation (EC) No 364/2004 or any successor regulation, or with funding approved by the Commission under its risk capital guidelines. Forms of publically-supported funding other than those mentioned can be received only 3 years after the granting of the YIE investment.