Analytics, EU – Baltic States, Financial Services, Modern EU

New proposal (Brussels, 14 July 2016) aims to boost investment into venture capital and social projects and make it easier for investors to reach small and medium-sized innovative companies. In particular, the Commission is proposing to open up the European Venture Capital Fund (EuVECA) and European Social Entrepreneurship Fund (EuSEF) to support managers of all sizes, and to expand the range of companies that can be invested in.

Background

The European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) regulations set up two new types of collective investment funds to make it easier and more attractive for investors to invest in unlisted SMEs. Both Regulations were adopted on 17 April 2013 and came into force on 22 July 2013.

The EuVECA and EuSEF label allows fund managers to market these funds across the EU to professional investors and to non-professional investors able to commit a minimum of €100,000.

Given the importance of making progress towards the Capital Markets Union, the Commission decided to bring forward the general review originally planned for July 2017.

The European Commission launched a consultation on 30 September 2015 to ask whether targeted changes to the Regulations could boost the take-up of these investment funds. The review identified a number of factors holding back the development of these funds.

Towards EU capital market “union”

Present Commission’s reforms and measures are aimed at stimulating venture capital in Europe. They include the use of EU budgetary support to attract capital from major institutional investors through pan-European venture capital funds, as well as promoting best practices in national tax incentives for venture capital to foster investment in SMEs and start-ups. The European Commission will also provide technical assistance to the EU states wishing to develop market-based finance, such as venture capital.

The new measures form part of the Capital Markets Union (CMU) Action Plan, which aims to unlock market-based investments by increasing and diversifying funding sources for Europe’s businesses and long-term projects. The proposal is also linked to the Investment Plan for Europe, which provides a comprehensive strategy to tackle the lack of finance which is holding back Europe's potential to grow and provide jobs for its citizens.

Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness said: "Today we are removing another barrier to investment at EU level which is a key objective of the Investment Plan for Europe. The three main changes we are proposing to the EuVECA and EuSEF regulations today – broadening the scope of eligible managers; expanding the list of EuVECA eligible assets; and prohibiting fees imposed by competent authorities – will result in a greater number of SMEs getting access to the vital finance they need to grow their businesses."

The outgoing Commissioner Jonathan Hill (a day before his resignation; he is followed by Julian King) underlined that this was his last act as Commissioner to announce measures that would strengthen European venture capital markets. European businesses will have more choice of funding and be able to attract the investment they need in the EU.

The proposal has been submitted to the European Parliament and the European Council for adoption under the co-decision procedure.

Main proposal’s features

Building on the outcome of this consultation, the Commission proposes to:

·         extend the range of managers eligible to market and manage EuVECA and EuSEF funds to include larger fund managers, i.e. those with assets under management of more than €500 million. Large managers can provide economies of scale and trusted brands, offering benefits for investors who in turn can invest more for the ultimate benefit of venture capital and social enterprises;

·        expand EuVECA eligible assets, to allow investment in small mid-caps, and SMEs listed on SME growth markets. This is expected to allow more companies to benefit from EuVECA investments and make investments more attractive through greater diversification of risk;

·        decrease the costs explicitly prohibiting fees imposed by competent authorities of host Member States, simplifying registration processes and determining the minimum capital to become manager.

As part of the wider CMU package to stimulate venture capital investments in the EU, a pan-European venture capital fund of funds will combine EU financial sources with greater volumes of private capital. This pan-European fund of funds should help to overcome market fragmentation and attract private investors to the EU venture capital asset class.

More information is in the Commission’s web sites:

= Q&A; and = DG FISMA's page on venture capital:

http://ec.europa.eu/finance/investment/venture_capital/index_en.htm;