Commission Implementing Regulation (EU) No 964/2014 of 11 September 2014 laying down rules for the application of Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards standard terms and conditions for financial instruments

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[F1[F2ANNEX VU.K. CO-INVESTMENT FACILITY

Textual Amendments

F1Inserted by Commission Implementing Regulation (EU) 2016/1157 of 11 July 2016 amending Implementing Regulation (EU) No 964/2014 as regards standard terms and conditions for financial instruments for a co-investment facility and for an urban development fund.

F2Annexes I-V omitted (W.) (26.3.2021 in so far as it relates to domestic support for rural development) by virtue of The Agricultural Support (Miscellaneous Amendments) (Wales) (EU Exit) Regulations 2021 (S.I. 2021/400), regs. 1(2), 12(10)

Schematic representation of the Co-Investment Facility principle U.K.

Terms and conditions for the Co-Investment Facility U.K.

^a Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187, 26.6.2014, p. 1).
^b Commission Implementing Regulation (EU) No 821/2014 of 28 July 2014 laying down rules for the application of Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards detailed arrangements for the transfer and management of programme contributions, the reporting on financial instruments, technical characteristics of information and communication measures for operations and the system to record and store data (OJ L 223, 29.7.2014, p. 7).
^c Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund (OJ L 138, 13.5.2014, p. 5).
^d Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36). Enterprise with less than 250 employees and having a turnover of less than EUR 50 million or total assets less than EUR 43 million; also not belonging to a group exceeding such thresholds. According to the Commission Recommendation, ‘an enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form.’.
^e The following economic sectors are together referred to as the ‘restricted sectors’: (a) illegal economic activities: any production, trade or other activity, which is illegal under the laws or regulations of the home jurisdiction for such production, trade or activity; (b) tobacco and distilled alcoholic beverages. The production of and trade in tobacco and distilled alcoholic beverages and related products; (c) production of and trade in weapons and ammunition: the financing of the production of and trade in weapons and ammunition of any kind. This restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies; (d) casinos. Casinos and equivalent enterprises; (e) IT sector restrictions. Research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at: (a) supporting any activity included in the Restricted Sectors referred to a to (d) above; (b) internet gambling and online casinos; or (c) pornography, or which (ii) are intended to enable to illegally (a) enter into electronic data networks; or (b) download electronic data; (f) life science sector restrictions. When providing support to the financing of the research, development or technical applications relating to: (i) human cloning for research or therapeutic purposes; or (ii) Genetically Modified Organisms (‘GMOs’).
^f Regulation (EU) No 508/2014 of the European Parliament and of the Council of 15 May 2014 on the European Maritime and Fisheries Fund and repealing Council Regulations (EC) No 2328/2003, (EC) No 861/2006, (EC) No 1198/2006 and (EC) No 791/2007 and Regulation (EU) No 1255/2011 of the European Parliament and of the Council (OJ L 149, 20.5.2014, p. 1).]]
Structure of the financial instrument	The Co-Investment Facility shall invest in the equity of SMEs with the contributions of the [F3ESIF][F3[F4ESIF]] programme, the financial intermediary's own resources and private co-investors. The financial intermediary shall be a private entity that takes all investment and divestment decisions with the diligence of a professional manager in good faith. The financial intermediary shall be economically and legally independent from the managing authority and from fund of funds. Private co-investors shall be private bodies and shall be legally independent from the financial intermediary. The Co-Investment Facility shall be made available in the framework of an operation which is part of the priority axis defined in the programme [F5funded by the ESI Funds] and specified in the context of the ex ante assessment required under Article 37 of Regulation (EU) No 1303/2013.
Aims of the instrument	The aims of the instrument shall be to: (1) Invest in SMEs at seed, start-up, and expansion stage or for the realisation of new projects, penetration of new markets or new developments by existing enterprises through co-investment agreements (partnership approach) with co-investors on a deal by deal basis. Such investments shall be made within the scope of Commission Regulation (EU) No 651/2014^a. (2) Provide more capital to increase investment volumes for SMEs. The aims are linked with the following conditions. The [F6ESIF] programme contribution to the Co-Investment Facility shall not crowd out financing available from other public or private investors. The Co-Investment Facility amount and rates shall be set to fill the equity gap identified in the ex ante assessment of the financial instrument in accordance with Article 37 of Regulation (EU) No 1303/2013. The [F6ESIF] programme shall provide funding to the Co-Investment Facility to build up a portfolio of investments in SMEs. The Co-Investment Facility shall participate with the financial intermediary and co-investors on a deal by deal basis. In the case of fund of funds structure, the fund of funds shall transfer the contribution from the [F6ESIF] programme to the financial intermediary in charge of the Co-Investment Facility. In addition to the [F6ESIF] programme contribution, the fund of funds may provide its own resources. State aid rules apply where the resources provided by the fund of funds are State resources. Where fund of funds resources are combined with other State resources Article 21 of Regulation (EU) No 651/2014 also apply.
State aid implication	The investment of the Co-Investment Facility shall be implemented as an instrument entailing State aid. It shall be considered compatible with the internal market and not requiring an ad hoc notification, provided conditions for compatibility under Article 21 of Regulation (EU) No 651/2014 are satisfied. The presence of State aid shall be assessed at the levels of the fund of funds, financial intermediary, the private investors and final recipients. In particular, on a deal by deal basis the aggregate private participation rate at the level of the SME shall reach at least the following thresholds: (a) 10 % for risk finance provided to the eligible undertakings prior to their first commercial sale on any market; (b) 40 % for risk finance provided to eligible undertakings operating in any market for less than 7 years following their first commercial sale; (c) 60 % for risk finance provided either to eligible undertakings requiring an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographic market, is higher than 50 % of their average annual turnover in the preceding 5 years, or for follow-on investments in eligible undertakings after the 7-year period of the first commercial sale. Private participation is here considered as investments made by private bodies. For the purposes of the Co-Investment Facility there is allowable aid at the level of the final recipients if: (a) there is allowable aid to private co-investors; (b) the financial intermediary is managed on a commercial basis and its financing decisions are independent and profit-driven; (c) the ceiling of private participation as set out in Article 21(10) of Regulation (EU) No 651/2014 are satisfied. The costs associated with the development of the investment projects, for the due diligence and for accompanying the final recipients shall be covered by the management costs and fees of the financial intermediary managing the Co-Investment Facility. Activities [F7supported by the EAFRD][F7funded by support for rural development], are subject to general State aid rules.
Investment policy	(a) Disbursement from the managing authority or from the fund of funds to the Co-Investment Facility Following the signature of a funding agreement between the managing authority or fund of funds and the financial intermediary, the relevant managing authority or fund of funds shall transfer the contributions from the programme to the Co-Investment Facility. The amount of the transfer shall cover the needs in terms of investments and management costs and fees. The transfer shall be carried out in tranches. The target investment volume shall be confirmed within the ex ante assessment carried out in accordance with Article 37 of Regulation (EU) No 1303/2013. The investment policy of the Co-Investment Facility shall include a clear exit strategy. That strategy shall be described in the funding agreement. (b) Disbursements from the Co-Investment Facility to the eligible SMEs The Co-Investment Facility shall co-invest, within a pre-determined limited period of time, with the financial intermediary and other private investors. On a deal by deal basis, the selected financial intermediary shall leverage additional finance from the financial intermediary or a vehicle affiliated to the financial intermediary for at least 1 % for the purpose of alignment of interest; and from co-investors, i.e. private investors. Investments decisions shall be profit-driven. In order to be considered profit driven the investment shall comply with the following conditions: (i) the financial intermediary is established in accordance with the applicable laws and provides for a due diligence process ensuring a commercially sound investment policy, including an appropriate risk diversification policy aimed at achieving economic viability and efficient scale in terms of size and territorial scope of its portfolio of investments; (ii) investment in eligible SMEs is based on a viable business plan, containing details of product, sales and profitability development, establishing the ex ante viability of the investment; (iii) a clear and realistic exit strategy exists for each investment. The financial Intermediary shall implement a consistent investment policy that complies with the applicable industry standards and that is aligned with the financial interests and policy objectives of the managing authority. (c) Disbursements from the Co-Investors to the eligible SMEs The financial intermediary shall identify, screen and assess potential co-investments in final recipients as well as any co-investors. The financial intermediary shall carry out a due diligence assessment on a deal by deal basis. The due diligence shall assess key aspects such as the business plan, the viability of the investment and the exit strategy. The business plan shall contain details on product, sales and profitability development. The private participation rate of eligible SMEs shall reach the minimum threshold set in Article 21 of Regulation (EU) No 651/2014. The co-investment agreement between the financial intermediary and co-investors shall establish the terms and conditions for investment in the final recipients and shall comply with Article 1(3) of Commission Implementing Regulation (EU) No 821/2014^b, where that Article is applicable.
Fund Contribution to financial instrument: amount and rate (product details)	The Co-Investment Facility shall provide capital to unlisted SMEs which fulfil at least one of the following conditions: (a) the SMEs have not been operating in any market; (b) the SMEs have been operating in any market for less than 7 years following their first commercial sale; (c) the SMEs require an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographic market, is higher than 50 % of their average annual turnover in the preceding 5 years; (d) the SMEs require follow-on investments in eligible undertakings, including after the 7-year period of the first commercial sale. The co-investment amount and rate per deal shall be determined by applying at least the following factors: (a) the size and focus of the Co-Investment Facility; (b) the participation of co-investors; (c) the expected catalytic effect of the Co-Investment Facility; remaining within the ceilings set out in Article 21(10) of Regulation (EU) No 651/2014. Amounts returned to the Co-Investment Facility from the investments within the timeframe for investments as set out in the funding agreement shall be re-used as provided for under Articles 44 and 45 of Regulation (EU) No 1303/2013. [F8Differentiated treatment of investors operating under the market economy principle, aimed solely at asymmetric profit-sharing, shall be set in line with Article 43a of Regulation (EU) No 1303/2013 and Article 21(13)(b) of Regulation (EU) No 651/2014.]
Programme contribution to financial instrument (activities)	The underlying transactions portfolio funded by the Co-Investment Facility shall include investments provided for the benefit of final recipients. The eligibility criteria for inclusion in the portfolio are determined in accordance with [F9Union][F9national] law, the [F10ESIF] programme, national eligibility rules, and with the financial intermediary. The financial intermediary shall have a reasonable estimation of the portfolio risk profile. The co-investment shall be made in final recipients for the required period before an exit in line with the investment policy.
Managing authority's liability	The managing authority's liability in relation to the financial instrument shall be as set out in Article 6 of Commission Delegated Regulation (EU) No 480/2014^c. On liquidation of the Co-Investment Facility, the financial intermediary shall make a thorough assessment of the risk of claims against the Co-Investment Facility and ensure suitable sums are held in escrow accounts to meet such claims.
Duration	The Co-Investment Facility has an indicative duration of 10 years and may be extended with the consent of the managing authority. The investment period of the financial instrument shall be set to ensure that the programme contribution referred to in Article 42 of Regulation (EU) No 1303/2013 is used for investments to final recipients at the latest by 31 December 2023. Investments made after 31 December 2020 shall be assessed for compliance with the State aid rules which enter into force after that date.
Investment and risk-sharing at financial intermediary level (alignment of interest)	Alignment of interest between the managing authority and the financial intermediary shall be achieved through: performance fees as provided for under Articles 12 and 13 of Delegated Regulation (EU) No 480/2014, the remuneration of the financial intermediary that shall reflect the current market remuneration in comparable situations, including carried interest, if any, a co-financing by the private co-investors that shall be at the minimum level in accordance with Article 21(10) of Regulation (EU) No 651/2014, a co-financing with own resources by the financial intermediary of a minimum of 1 % on each deal under the same conditions as the Co-Investment Facility; additional co-investment by the financial intermediary shall be subject to the same conditions as the Co-Investment Facility, the co-financing by other co-investors which shall be made on identical terms and conditions as those applicable to the Co-Investment Facility except if the ex ante assessment referred to in Article 37(2)(c) of Regulation (EU) No 1303/2013 estimates that an asymmetric profit-sharing shall be set between the public and private investors; such arrangements shall be in line with Article 21(13)(b) of Regulation (EU) No 651/2014, the financial intermediary shall not engage in investment activities under a new investment vehicle targeting the same type of final recipients until either such a time as 75 % of the Co-Investment Facility commitments have been invested and the remaining 25 % are committed to be invested, or, the end of the investment period of the Co-Investment Facility, if earlier. Procedures aimed at avoiding conflict of interest between the financial intermediary, co-investors and investees shall be laid down before any investment made in a final recipient by the financial intermediary selected.
Eligible Financial Intermediary and Co-investors	The selected financial intermediary (fund manager of the Co-Investment Facility) shall be a private body established at international, national or regional levels [F11in the Member States]. Such body shall be legally authorised to provide equity to enterprises [F12established in the Member States], such as financial institutions, or any other institution authorised to provide financial instruments. Private bodies shall be considered as private legal entities owned by private or public investors investing at their own risk and from their own resources. [F8The managing authority and fund of funds shall comply with [F13Union][F13national] law when selecting financial intermediaries. The selection of financial intermediaries shall be open, transparent, proportionate and non-discriminatory, avoiding conflict of interests. The selection of the financial intermediaries shall establish appropriate risk-sharing arrangements in the case of differentiated treatment and determine possible carried interest.] The financial intermediary shall specify, in the context of its selection, the conditions and criteria for the evaluation of co-investors. Those shall be understandable and available to potential co-investors. The financial intermediary shall demonstrate a non-discriminatory approach to find and invest with co-investors. The evaluation of co-investors may be controlled ex post . Financial intermediaries shall be managed on a commercial basis. This requirement is considered to be fulfilled if the conditions laid down in Article 21(15) of Regulation (EU) No 651/2014 are fulfilled. The Co-Investment Facility shall seek to mobilise Co-investors implementing best practice. The co-investors shall be long-term private investors investing own resources including venture capital funds, business angels, high net worth individuals, family offices, or companies with proven know-how and operational capacity. Co-investors shall be deemed to be any investors which, in the reasonable determination of the financial intermediary are investors operating in circumstances corresponding to the market economy investor principle in a free market economy, irrespective of their legal nature and ownership. Co-investors and the financial intermediary shall be independent from the final recipients of the investment except in the case of follow-on investment in final recipients that are already part of the Co-Investment Facility.
Final recipient eligibility	The final recipients shall be eligible under [F14Union and] national law, the relevant [F15ESIF] programme, funding agreement and with the condition referred to in Article 21(5) of Regulation (EU) No 651/2014. The following eligibility criteria shall be met by the final recipients at the date of the signature of the investment: (a) they shall be a micro, small and medium enterprise (‘SMEs’ (including individual entrepreneurs/self-employed persons) as defined in Commission Recommendation 2003/361/EC^d; (b) they shall not be excluded by Article 1(2) to (5) of the Regulation (EU) No 651/2014. (c) they shall not be part of one or more restricted sectors^e; (d) they shall not be an undertaking in difficulty as defined by Article 2(18) of the Regulation (EU) No 651/2014: (e) they shall not be in default in respect of any other loan or lease either granted by a financial intermediary or by another financial institution pursuant to checks made in accordance with the financial intermediary internal guidelines and standard credit policy; (f) they shall be established and operating in the relevant region/jurisdiction under the ESIF programme; (g) for reasons related to State aid considerations, investment shall not be made in listed companies (SMEs listed on an alternative trading platform shall not be considered listed for the purposes of this instrument); (h) they shall not receive investment as replacement capital (including management buyout or buy-in); (i) they shall comply with Articles 10 and 11 of Regulation (EU) No 508/2014 of the European Parliament and of the Council^f, if they are SMEs active in the fisheries and aquaculture sector.
Characteristics of the product for the final recipients	The Co-Investment Facility amount and rates shall be aligned with the results of the ex ante assessment referred to in Article 37(2) of Regulation (EU) No 1303/2013 and shall comply with Regulation (EU) No 651/2014. The financial intermediary shall invest in SMEs in the form of equity or quasi-equity investment co-financed by the programme public contribution, the financial intermediary's own contributions and the co-investors contributions (the private contribution may be included for co-financing [F16of the ESI Funds] as a programme private contribution) under a co-investment agreement signed between the financial intermediary and the co-investors. Such investment of the Co-Investment Facility shall contribute to the [F16ESIF] programme objective. The total investment (i.e. one or more investment rounds including follow-on) combining public and private resources provided shall not exceed EUR 15 000 000 per eligible final recipient as set in Article 21(9) of Regulation (EU) No 651/2014. The total investment allowed per eligible final recipient shall be verified by including risk finance investments made under other risk finance measures.
Reporting and targeted results	The financial intermediary shall provide the managing authority or fund of funds with at least quarterly information in a standardised form and scope. The report shall include all the relevant elements for the managing authority to comply with Article 46 of Regulation (EU) No 1303/2013. [F17Member States][F17The relevant authority] shall also fulfil their reporting and transparency obligations pursuant to Regulation (EU) No 651/2014. Indicators shall be aligned with the specific objectives of the relevant priority of the ESIF programme financing the financial instrument and with the expected results specified in the ex ante assessment. They shall be measured and reported at least quarterly for the Co-Investment Facility and aligned as a minimum with the requirements of Regulation (EU) No 1303/2013. In addition to the common indicators of the priority axis of the [F18ESIF] programme other indicators are: (a) amount invested into SMEs (with breakdown); (b) number of SMEs financed; (c) value of the investments financed; (d) gain or loss generated by the investment (if applicable); (e) number of employees at ‘investment’ and ‘number of employees’ at ‘exit’ in SMEs supported.
Evaluation of the economic benefit of the programme Contribution	The financial support of the programme public contribution to the instrument shall be transferred to the final recipients. This principle shall be reflected in the funding agreement between the managing authority or fund of funds and the financial intermediary.