Statement: A major step forward for equity-backed scale-ups

On May 21, the European Commission published its Strategy for making the Single Market simple, seamless and strong and the Recommendation on the definition of small mid-cap enterprises (SMCs). The new definition represents a landmark moment for Europe’s equity-backed businesses, recognising that private equity and venture capital (PE/VC) investments do not undermine the independence of growing companies.

A long-awaited fix for Europe’s innovation financing model

Invest Europe welcomes the Commission’s decision to explicitly exempt equity-backed enterprises from being automatically classified as “linked” to their investors. For years, the private capital industry has called attention to the disproportionate impact of the existing SME definition, which often disqualified innovative businesses from support due to the way ownership thresholds were interpreted.

With this new definition of SMCs, the Commission acknowledges that companies receiving equity capital from PE or VC funds remain autonomous and should not be penalised for their financing model. The SMC definition includes clear conditions – such as the presence of a predefined exit strategy and separate accounting – that reflect real-world investment practices.

This is a critical development for the future of European innovation. By removing a structural barrier to scale, the EU is supporting a more dynamic ecosystem where high-potential businesses can grow.

The road ahead – redefining the SME definitions and getting the startup, scaleup and innovative criteria right

While this is an important milestone, the work is not finished. The Commission has opened the door to revisiting the SME definition in line with the principles now embedded in the SMC developments. This is essential to ensure consistency and to avoid penalising early-stage companies that receive equity funding.

Looking forward, the upcoming work on a dedicated definitions for startups, scaleups and innovative companies – expected in 2026 – must also take into account the realities of PE/VC financing. These companies need policies that enable, not hinder, their growth journeys.

Invest Europe stands ready to support the Commission in these efforts and will continue to advocate for frameworks that reflect the way Europe’s most innovative companies are funded and scaled: now, the focus must remain on building a coherent set of definitions that empower innovation at every stage.