A number of changes to the EU regulations covering European venture capital funds (EuVECA funds) and European social entrepreneurship funds (EuSEF funds) will be in force from 1 March 2018. The text of the regulation amending the EuVECA Regulation and the EuSEF Regulation (Regulation (EU) 2017/1991) was published on 10 November 2017.

The changes are intended to encourage a greater uptake in these fund types, which are designed to raise capital for SMEs and social undertakings throughout Europe.

What are EuVECA and EuSEF funds?

For a brief recap on EuVECA and EuSEF funds, see our previous article here.

Changes coming into force on 1 March 2018

The updated regulations:

  • widen the range of managers eligible to market and manage EuVECA and EuSEF funds to include larger fund managers. Fund managers that are authorised under AIFMD are now entitled to use the “EuVECA” and “EuSEF” designations where appropriate to the fund they are intending to market. This will allow them access to high net worth individuals investing over €100,000, as well as the professional investors they can target with their AIFMD marketing passport;
  • expand the ability of EuVECA funds to invest in unlisted companies with up to 499 employees or SMEs on an SME growth market;
  • explicitly prohibit fees imposed by competent authorities of host member states where no supervisory activity is performed (this is a practice that has been widely questioned since the introduction of EU passporting);
  • simplify the registration process (there is now a guaranteed turnaround time of two months for new manager registrations);
  • determine the minimum capital necessary to become a manager (which will give certainty, as previously this was a matter for local regulators to set). From 1 March 2018, the manager of a EuVECA or EuSEF fund must have minimum initial capital of €50,000, plus own funds which at all times amount to at least one-eighth of the fixed overheads incurred by the manager in the preceding year. Where the value of the EuVECA or EuSEF funds managed by the manager exceeds €250 million, the manager must have an additional amount of own funds equal to 0.02% of the amount by which the total value of the EuVECA or EuSEF funds exceeds €250 million; and
  • ensure that ESMA’s central database includes information concerning all EuVECA and EuSEF managers and their funds.

Comment

Fund managers considering launching a venture capital or social enterprise fund should be aware of the benefits of EuVECA and EuSEF and speak to one of our experts if further advice is required.

There are now a number of UK firms with EuVECA licences offering third party host-AIFM solutions to first time funds. To date the uptake of this regime has been significantly higher in the UK than elsewhere, but we are watching with interest to see if similar firms will start to establish in jurisdictions such as Luxembourg in the run up to the UK leaving the EU in March 2019.