European Commission to ease VC investments

The European Commission aims at increasing investments in small, medium and entrepreneurial companies. Doing so, the Commission proposes a change to venture capital regulations.

The European Commission aims at increasing investments in small and medium-sized innovative companies. Thereby, it proposes to amend the European Venture Capital and Social Entrepreneurship Funds Regulations to make venture capital investments easier and cheaper. The proposed change will make it simpler to establish VC funds and expand the range of companies these funds can invest in. The Commission’s proposal has been submitted to the parliament and the Council for adoption.

According to the current European Venture Capital Funds Regulation, EU-domiciled “sub-threshold” alternative investment fund managers (AIFMs) need to register with their national authorities to market their VC funds across the EU to mostly professional investors. Similarly, the European Entrepreneurship Funds Regulation creates provisions for social entrepreneurship funds.

However, only few funds use the rule to market their fund across EU member states and rather operate within their home member state. This indicates that the burden of complying to EU regulation is disproportionate to the benefit of the EU passport. The proposal of the EU Commission first eliminated the “sub-threshold” so that all AIFMs can participate from the passport and not just those with no more than €500 million in assets under management. Second, more companies can benefit from funding and investment funds can diversify further because the range of eligible assets is expanded into investments in small mid-caps and SME companies listed on SME growth markets. Finally, the registration process will be simplified and member state fees are prohibited.