The original aim of the European venture capital funds (EuVECA) regulation was to create new opportunities for venture capitalists to raise and invest capital in innovative SMEs throughout Europe. By registering as a EuVECA manager, firms benefit from a marketing passport which allows them to market qualifying funds throughout the EU. One of the requirements for a fund to be designated as a EuVECA fund is that it must intend to invest at least 70% of its aggregate capital contributions and uncalled committed capital in "qualifying investments". These are defined as equity (or quasi-equity) instruments, secured or unsecured loans granted to a “qualifying portfolio undertaking” (or shares in it).
The EuVECA regulation has recently been reviewed and the definition of "qualifying portfolio undertaking" was expanded. This is now a company established in the EU that
- is either not admitted to trading on a regulated market, or is a SME listed on a SME growth market;
- employs up to 499 people;
- has an annual turnover that does not exceed €50m or an annual balance sheet total not exceeding €43m; and
- is not a collective investment undertaking, a credit institution, an investment firm or an insurer.
To register as a EuVECA manager, the manager must be established in the EU and be regulated by their home state regulator. The recent reforms have also extended the range of managers who are eligible to market EuVECA funds to larger fund managers (those who manage assets of more than €500m). It is clear from these reforms that the EU is keen to improve access to finance for European SMEs.