The Regulation for European venture capital funds (“EVCF”) and Regulation for European social entrepreneurship funds (“EuSEFs”) were published in the Official Journal on 25 April 2013 and will apply from 22 July 2013, coinciding with the effective date of the Alternative Investment Fund Managers Directive (“AIFMD”).  These Regulations aim to make it easier for venture capitalists and social entrepreneurs that are exempt from the requirement to seek authorisation under AIFMD (see further detail below), to raise funds across Europe without the requirement to comply with the full AIFMD regime.  The key elements of the Regulations provide for an EU brand for EVCFs and EuSEFs and the introduction of a European marketing passport.  The Regulations are complementary although the range of eligible financing tools/investments under the EuSEF Regulation is wider than those available for venture capital funds under the EVCF Regulation.

As indicated above, a manager of alternative investment funds (“AIFs”), whose assets under management do not exceed the following thresholds is exempt from the requirement to seek authorisation under AIFMD and is exempt from many of the provisions of AIFMD:

  • AIFs with assets under management, including those acquired through the use of leverage, of less than €100m
  • AIFs with assets under management of less than €500m, provided that the AIFs are unleveraged and are subject to redemption lock up periods of at least 5 years from the date of initial investment in each AIF

Managers choosing to avail of this exemption are required under AIFMD to comply with certain minimum registration and reporting requirements such as registration with the relevant State’s competent authority, notification of the investment strategies employed, periodic updates with regard to main instruments and notification of any breaches of the de minimis thresholds. 

The manager of a EVCF or EuSEF must be a legal person whose regular business is managing at least a “qualifying” European fund, established in the EU and subject to registration under AIFMD.  Managers registered under the EVCF or EuSEF Regulations will have passporting rights to raise capital throughout Europe into qualifying funds and to invest freely in SMEs situated throughout the EU.  EVCFs and EuSEFs may not use leverage and may only be marketed to professional type investors.  All EVCFs and EuSEFs must abide by uniform rules and standards (including disclosure standards to investors and operational requirements).  It is anticipated that, although voluntary, regulation under these Regulations will become standard throughout the venture capital and social entrepreneurship industries in Europe.