Capital Markets Union: new rules to support investment in venture capital and social enterprises
The European Commission has yesterday proposed amendments to the European Venture Capital Funds (EuVECA) and the European Social Entrepreneurship Funds (EuSEF) regulations, marking another step towards the creation of the Capital Markets Union.
Yesterday's proposal aims to boost investment into venture capital and social projects and make it easier for investors to invest in small and medium-sized innovative companies. In particular, the Commission is proposing to open up the EuVECA and EuSEF fund labels to fund managers of all sizes, and to expand the range of companies that can be invested in. The Commission also aims to make the cross border marketing of EuVECA and EuSEF funds cheaper and easier by explicitly prohibiting fees levied by Member States and simplifying registration processes.
These reforms are a part of a range of measures the European Commission is taking to stimulate venture capital in Europe. They include the use of EU budgetary support to attract capital from major institutional investors through a pan-European venture capital fund of 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 those Member States who wish to develop market-based finance, such as venture capital.
These measures, including yesterday’s proposal, 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 theInvestment 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 yesterday: "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."
Commissioner Jonathan Hill said: "I am delighted as my last act as Commissioner to be announcing measures that will help strengthen European venture capital markets. We need European businesses to have more choice of funding and to be able to attract the investment they need here in the EU. This is another step in building the Capital Markets Union."
Yesterday's proposal has been submitted to the European Parliament and the Council (Member States) for adoption under the co-decision procedure.
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.
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.
See our Q&A
DG FISMA's page on venture capital: http://ec.europa.eu/finance/investment/venture_capital/index_en.htm
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