The EuVECA and EuSEF Regulations were introduced in 2013 to promote investment in qualifying funds supporting young and innovative companies/social impact companies respectively. However, as of April 2016 there were only 70 EuVECA and 4 EuSEF funds. Following several consultations, on 14 July 2016 the EU Commission published a proposal for changes to the existing Regulations to stimulate further support for these types of funds, given the need for access to capital raising throughout the EU for venture capital and social enterprises.

The Commission proposes the following changes:

  • To expand the range of managers eligible to manage and market EuVECA and EuSEF funds to include managers with a full AIFMD authorisation (the current Regulations explicitly permit only small "sub-threshold" AIFMD managers registered in accordance with AIFMD to use the EuVECA and EuSEF labels).
  • (EuVECA Regulations only) To expand qualifying portfolios to include unlisted undertakings which employ up to 499 persons and also small and medium enterprises listed on a SME growth market.
  • To require ESMA to draft regulatory standards to determine what constitutes "sufficient own funds" for a EuVECA/EuSEF fund manager. Currently, managers of EuVECA and EuSEF funds are subject to registration processes under AIFMD in their home member state which includes that the manager have "sufficient own funds". Different member states have imposed different standards of "own fund requirements" ranging from €6,500 to €125,000, the upper threshold being in line with the full capital requirements for AIFMD authorised managers, thus creating a lack of consistency for manager capital requirements across member states.
  • A prohibition on the imposition of requirements (including fees) or administrative procedures in relation to the cross-border marketing of EuVECA and EuSEF funds in host member states and to streamline the cross-border registration process (under the current regime, certain host member states have been charging fees for the marketing of funds in their territories, some at the same level for the cross-border marketing of AIFMD funds, which is an obvious disincentive and barrier to cross-border marketing of EuVECA/EuSEF funds).

These proposals represent a welcome shot in the arm for the venture capital and social entrepreneurship industries. The revised Regulations will come into force on the day after their publication in the Official Journal.