The Council of the EU and the European Parliament reached political agreement on a proposed Regulation for European Venture Capital Funds (“EVCF”) on 7 December 2012.
This was preceded by a period of consultation in relation to the best means of encouraging and promoting small and medium sized enterprises (“SMEs”). In 2011 it was estimated that Europe’s 23 million SMEs provided 80% of all new jobs in Europe in the past 5 years and contributed significantly to European growth.
The proposed Regulation must be examined in the context of the impact of AIFMD on the venture capital industry. AIFMD applies to all EU-based managers of non-UCITS funds i.e. alternative investment funds (“AIFs”). Most venture capital funds would fall within the definition of AIFs.
Managers of an AIF, whose assets under management do not exceed the following thresholds is exempt from the requirement to seek authorisation 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 or
- 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
AIFMs choosing to avail of the exemption are required under MiFID to comply with certain minimum registration and reporting requirements such as registration with the relevant state 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. Such managers cannot avail of the passporting provisions of AIFMD.
The proposed EVCF Regulation is a direct recognition of the fact that many venture capital fund managers would fall within the “de minimis” thresholds set out above and the importance of the venture capital industry within Europe.
The manager of a EVCF 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 Regulation will have passporting rights to raise capital throughout Europe into qualifying funds and to invest freely in SMEs situated throughout the EU. EVCFs may not use leverage and may only be marketed to professional-type investors. All EVCFs must abide by uniform rules and quality standards (including disclosure standards to investors and operational requirements). It is anticipated that, although voluntary, regulation under the proposed EVCF Regulation will become standard throughout the venture capital industry, in Europe. The intention is for the EVCF Regulation and AIFMD to be implemented at the same time (by 22 July 2013).
One of the measures announced by the Minister for Finance in Budget 2013 was a €175 million funding for Irish venture capital firms provided through Enterprise Ireland, which is intended to boost indigenous jobs in the science, ICT, clean tech and other technology sectors.