Austria: Venture Capital Funds

Venture Capital Funds

Venture capital funds are companies whose purpose is to invest in, promote and develop other corporate entities (provided those entities are not involved in the provision of financial services). This is usually achieved through the venture capital fund taking a participating shareholding in the target company.

The venture capital sector in Austria is relatively undeveloped. Funds created under the existing tax-privileged mutual fund structure (known as 'participation funds') are - at the time of writing - only allowed to acquire shares or other instruments which are quoted or traded on a generally recognised securities market, and securities of any one issuer may be purchased only to the extent of 10% of the fund’s assets.

Such venture capital activity as has taken place has primarily used the Mittelstandsfinanzierungs-gesellschaft, or MFAG. It is a stock company structure, which is subject to corporate tax relief and some additional but minor tax reliefs, and it has various restrictions on investment activity. For example, just 30% of funds raised can be invested in foreign companies, no investment in financial services nor power generation is permitted and just 49% of a company can be bought by a single MFAG.

The FGG (Finanzierungsgarantie-Gesellschaft) is a financial institution owned by the Republic of Austria which assumes business risks on the basis of its appraisal of the potential of the company or project in question.

The aim of the programme is to facilitate the start-up and expansion of technology–orientated SMEs by offering guarantees to venture capital funds who are investing in these firms. The FGG enters into a general guarantee agreement with a venture capital fund over a certain amount of equity capital if the fund meets certain requirements (long-term investment, quality of management ...).

Criteria for approval of equity investments are the future earning potential and the management capabilities of the enterprise in question. If the FGG agrees to a new investment, the FGG secures 50% of the paid-in capital. The guarantee can be drawn by the venture capital provider at any time. Additionally the FGG offers sureties for a loan up to the paid-in capital.