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.
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