PART II: Ex Ante Assessment and Ex Post Evaluation of Risk Finance Measures

PART II: Ex Ante Assessment and Ex Post Evaluation of Risk Finance Measures - 21.11.State resources State control

A well-designed State aid measure is preceded by a rigorous ex ante study that identifies market failure. The objectives of a well-designed measure address directly the nature and magnitude of the identified market failure.

Read PART I: Ex Ante Assessment and Ex Post Evaluation of Risk Finance Measures from 7 March 2017.

Ex Post Evaluation Plan

Ex post evaluation focuses on i) the effectiveness of the aid, given its objectives and indicators and ii) the impact on markets and competition.

Evaluation questions and result indicators

The evaluation questions will aim at assessing:

  1. the impact of the scheme on incentivising private investment [impact on investors]
  2. the development of eligible undertakings [impact on investees]
  3. the impact on the equity funding gap and the development of a VC market [impact on business finance markets]
  4. the impact on competition in the sectors targeted by the EIS/VCT [impact on competition and trade].

The evaluation questions will be considered separately for EIS and VCT to allow the two to be compared.

Impact on investors

The evaluation will consider whether there has been a change in the investors’ attitude caused by the provision of risk finance.

Result indicators:

  1. average investment size provided under EIS & VCT
  2. total investment provided under EIS &VCT
  3. number of investments provided under the EIS & VCT
  4. number of investors
  5. investor demographics/types of investors benefiting from EIS & VCT
  6. level of additional investment due to the scheme
  7. willingness to invest in small businesses.


Impact on investees

The evaluation will investigate whether the EIS & VCT support SMEs access to finance, how it has supported this, how the risk position of the recipient has changed, whether the EIS & VCT have had the expected impact, to what extent they have had an impact on investments and what changes to the aid instruments would have increased their effectiveness.

Result indicators:

  1. number and size of eligible undertakings
  2. amount of funds raised and investments made as a result of the EIS & VCT
  3. amount of investments sought and planned outside the EIS & VCT scheme
  4. changes in turnover, profits and gross assets
  5. return on investments
  6. time taken to raise investments
  7. business demography (births and deaths of enterprises)
  8. labour productivity
  9. spread of firms by industry sector, number of firms and investments raised by firms in knowledge-intensive sectors (defined by the proportion of R&D and innovation expenditure relative to turnover for knowledge-intensive companies, number of issued patents, proportion of skilled employees engaging in the R&D)
  10. level of additional investments due to the measures.

In addition, specific questions will consider the differences between EIS & VCT in terms of access to finance [e.g. additional investment provided under the EIS & VCT] and will compare the effectiveness of EIS & VCT by distinguishing between SMEs, knowledge-intensive SMEs and knowledge-intensive mid-caps.

Impact on business finance markets

The evaluation will aim at identifying whether the equity gap experienced by firms changed in size among the targeted population of businesses, whether the scheme had an impact on the underlying market failure, whether the scheme had the expected impact on the development of the market for risk finance and whether further intervention is needed.

Result indicators:

  1. investment needed by SMEs
  2. investment obtained by SMEs
  3. availability of further rounds of investment
  4. availability of bank or alternative finance
  5. number of investee companies benefiting from the scheme
  6. current equity gap experienced by companies in the targeted population
  7. level of additional investment from the private sector induced by the measures.

The evaluation will also aim at assessing the impact of the measure on financial intermediaries. The result indicators are:

  1. change in the activities of VCTs and the VC market in terms of total volume
  2. frequency and type of funding rounds
  3. diversification of portfolio
  4. the degree of the internationalisation of the VC market in the UK.

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Impact on competition and trade

The evaluation will focus on the top three downstream markets, corresponding to the sectors where the EIS & VCT interventions have been the most frequent or involving the highest volume of investments.

Result indicators:

  1. the relative level of support in each sector
  2. degree of market power enjoyed by the supported firm [measured by the Herfindahl-Hirschman index of market concentration]
  3. the age distribution of firms in the selected sectors (supported and unsupported)
  4. changes in employment.

Evaluation method

The effectiveness of the measures will be determined by comparison with investors who did not invest in the EIS & VCT and with companies which were not invested in. The evaluation will rely on the statistical method of the Difference-in-Differences linear regression.

Impact on investors

A key objective of the evaluation will be to assess whether the measures increase the amount of investment in the targeted companies. This will require comparison with a counterfactual situation based on the performance of investors who did not invest in the EIS & VCT. A Difference-in-Differences linear regression will compare three investor groups: single time EIS/VCT investors, multiple EIS/VCT investors and non EIS/VCT investors. In addition, descriptive statistics will be used to provide supporting information on the characteristics of those investing in the EIS & VCT.

Impact on investees

A Difference-in-Differences approach will be carried out to compare companies supported by EIS/VCT investments with a matched sample of companies not supported. There will be separate comparisons of knowledge-intensive and non-knowledge intensive firm (based on R&D intensity).

In order to implement the Difference-in-Differences approach, a control group will be identified through matching on available variables. The variables for matching will include assets, turnover, capital allowances claimed, industry sector, receipt of other government support (e.g. grants) and the holding of patents.

The matching exercise will aim to reduce the selection bias induced by the unobserved quality of a company’s management, the novelty of the product or service, the degree of competition in the market, and the methods that are used to grow a business to a larger scale.

In order to assess the  impact on the equity gap experienced by targeted firms, the evaluation will compare VC financed firms to similar non-VC backed firms, identified by using propensity score matching, before and after the injection of VC.

Impact on business finance markets

The evaluation will use descriptive statistics on the profile of the investments made by UK venture capital funds and will compare them with those made by VCTs [e.g. the size of the investment, and number of follow-on investments].

The evaluation will also explore how the investment strategies of the VC funds have changed over time using data that will be gathered from published reports and accounts of other non-assisted venture capital funds.

Impact on competition and trade

The evaluation plan foresees the selection of the main three sectors in which investee companies are active and, on this basis, will carry out a regression analysis to compare the performance of different groups within these industries. The evaluation will also compare those who made use of the scheme with a control group that is matched on firm characteristics (for example, turnover, location, age, growth rate), and the wider group of firms in the sector.

The evaluation report will also include a discussion on the robustness of the study’s results and possible bias due to unobservable characteristics. Matching techniques will be used only as an auxiliary tool for the purpose of establishing suitable control groups in a Difference-in-Differences approach.

Data collection

A combination of existing data sources and additional data collection will be used. Data will be collected through self-assessments of tax returns, EIS and VCT applications and company tax returns and through the UK’s company registrar.

Where necessary, the above data will be complemented with data collected through ad-hoc surveys covered by the evaluation plan. In each of the ad hoc surveys implemented as part of the evaluation, a minimum of 1000 individuals will be interviewed. Each survey will cover two groups: a treatment group of investors or investees who have used the schemes, and a counterfactual group of those who have not used them. The survey will be a combination of written responses and phone interviews, with the latter including the opportunity for detailed follow-up. The characteristics of non-respondents will be noted and compared with those of respondents to provide insight on the extent of selection bias.

Independent body to conduct the evaluation

The choice of evaluator will be made on the basis of an open, competitive and non-discriminatory tender procedure. The body conducting the evaluation is likely to be an independent research agency or an academic institution. Any conflict of interest will be considered and resolved. The evaluator will have the required experience and competence in the field of evaluation and will be responsible for the final sound evaluation of the EIS & VCT in the form of a written report.

Proposed timeline of the evaluation

Regular monitoring of the EIS & VCT will be undertaken periodically throughout its implementation, with national statistics published each year and consultations undertaken on average every two years. Interim findings on the evaluation will be presented in July 2018. The final evaluation report will be prepared by January 2019 to be submitted to the Commission by March 2019.

Publicity of the evaluation

The evaluation report will be published in full on the relevant UK Government website, which is:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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