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September 30, 2016
Start-ups and their financing in Europe
EU Monitor
Even established start-ups are seldom listed on public stock markets these days which may to a large extent be due to cost considerations. To enhance participation in equity markets, the CMU should aim to relax one-size-fits-all issuance rules that are particularly burdensome for small firms.
In addition, preferential risk weights could spur demand by incentivising institutional investors to invest more in start-up equity.
Following years when the focus was primarily on reforming banks, European policymakers finally also set their sights on something else: the capital markets. With the Capital Markets Union project, they aim to ensure sufficient financing for start-ups and innovative firms, among other objectives.
To boost bank lending to start-ups, measures that link banks’ credit risk to capital markets are necessary. The CMU should for instance ease regulations that have stymied investor demand for securitisations and allow small loans to serve as collateral for covered bonds. Banks meanwhile should focus on innovative ways to evaluate the credit risk of start-ups.
To reduce imbalances in VC investments within Europe, creating a pan-European VC fund of funds would also be useful.
Platform consolidation is a crucial step in order to expand crowd funding in Europe. To facilitate this, the CMU should introduce a common legal approach at EU level to act as catalyst for cross-border mergers.
Similarly, the CMU should establish union-wide rules to avoid contradictions and inconsistencies in the national treatment of crowd-funding platforms.
Further links on the topic
Deutsche Bank and Start-ups Research on Banking, Financial Markets & Regulation
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