European Commission Publishes Proposal for New European Union Venture Capital Fund
Following consultations in 2011, the European Commission has published proposals to create a new investment vehicle, to be called European Venture Capital Funds, as part of its strategy to promote better access to finance for small and medium-sized enterprises ("SMEs").
Under the proposals, a "European Venture Capital Fund" will be defined by three essential requirements, it must: (i) invest at least 70% of the capital committed by its sponsors in SMEs; (ii) provide equity or quasi-equity finance to these SMEs; and (iii) not use leverage. An enterprise qualifies as an SME if it has fewer than 250 employees and its annual turnover does not exceed €50 million and its annual balance sheet value does not exceed €43 million. All funds that operate under this designation must abide by uniform rules and quality standards when they raise funds across the EU.
The categories of eligible investors who can commit capital to a "European Venture Capital Fund" will be professional investors and certain other traditional venture capital investors, such as high net-worth individuals or business "angels". The proposed implementing Regulation will provide all managers of qualifying venture capital funds with a European marketing passport, allowing access to eligible investors across the EU. These proposals will now pass to the European Parliament and the Council (Member States) for negotiation and adoption.