The European Commission recently published its proposal for a new EU venture capital framework as part of its action plan to improve access to finance for small and medium-sized enterprises (SMEs).  If adopted, the new regime would make it easier for managers of EU venture capital funds to market their funds and raise capital across the EU.

The proposed venture capital regime intends to address what are perceived to be the main weaknesses of the European venture capital industry, particularly when compared to the thriving US venture capital market:

– Difficulties in raising capital from institutional investors;
– the quality of available investment opportunities; and
– the fragmentation of the market along national lines.

Who would the proposed new regime apply to?

The regime is proposed to apply to EU-established managers of ‘qualifying venture capital funds’ with assets under management not exceeding €500

A ‘qualifying venture capital fund’ is a fund that invests at least 70% of its capital in SMEs, i.e., undertakings which:

– are not listed on a regulated market (note that self-regulated markets such as the LSE’s AIM are not regulated markets; an AIM company could therefore fall within the definition of ‘qualifying portfolio undertaking’ provided it meets the other criteria listed below);
– are not itself funds;
– employ fewer than 250 persons; and
– have an annual turnover of no more than €50 million or an annual balance sheet total of no more than €43 million.

The new marketing passport

Managers of qualifying venture capital funds can apply for the use of the designation ‘European venture capital fund’ when marketing such funds in the EU provided they comply with certain conditions relating to, among others, portfolio composition, leverage, and eligible investors. Once registered in their home Member State, qualifying venture capital funds can be marketed across the EU without further registration.

Relationship to the AIFM Directive

The Alternative Investment Fund Managers Directive (AIFM Directive) and the proposed European venture capital regime, if adopted, will co-exist as autonomous legal acts and complement each other. Investment managers with assets under management below the AIFM Directive threshold will therefore have the option to either opt-in to the more restrictive regime of the AIFM Directive or register under the ‘lighter’ regime of the proposed European venture capital funds regulation.

What next?

The proposed regulation has been passed to the European Parliament and the EU Council for negotiation and is scheduled to be adopted by June 2012. It was made in the form of a regulation rather than a directive and will therefore, once adopted, be immediately binding for Member States on a par with national law. The proposed regulation provides that it shall apply from 22 July 2013.


The EC proposal to create an internal market for venture capital is a welcome step in closing the finance gap left by the 2008 and 2009 financial crisis and improving SMEs’ access to finance. However, further steps will need to be taken, in particular in relation to removing existing tax obstacles to cross-border venture capital investment, to breathe life into the underdeveloped European venture capital industry and make it more attractive for both SMEs and venture capitalists.

Marlies Braun