Capital markets union: Venture capital rules agreed by Council
The Council has agreed its negotiating stance on amendments to EU rules aimed at boosting investment in venture capital and social enterprises.
On 16 December 2016, the Permanent Representatives Committee, on behalf of the Council, asked the incoming presidency to start talks with the European Parliament, once the Parliament has agreed its stance.
The proposed regulation is part of the EU's plan to develop a fully functioning capital markets union, diversifying funding sources for Europe's businesses and long-term projects. It is also linked to the EU's investment plan for Europe.
"We need to develop new possibilities for financing European start-ups, innovative SMEs and social enterprises. Access to venture capital and social entrepreneurship capital is key for this segment of the economy."Peter Kažimír, Slovak minister for finance and president of the Council
Two types of funds
The proposal sets out to make European venture capital funds (EuVECA) and European social entrepreneurship funds (EuSEF) available to fund managers of all sizes. Amending regulations 345/2013 and 346/2013, it expands the range of companies that EuVECA and EuSEF funds can invest in. It also makes the cross-border marketing of such funds cheaper and easier.
EuVECA and EuSEF fund structures were created in 2013 to offer new opportunities for raising capital to, respectively:
- young and innovative companies;
- enterprises whose aim is to achieve a positive social impact.
Regulations 345/2013 and 346/2013 lay down requirements for managers of collective investment undertakings that wish to use the EuVECA and EuSEF designations for the marketing of their funds.
The funding gap
The availability of financing for SMEs is an important factor behind their growth and development, yet banks are not always able to support their financing needs. The funding gap has been repeatedly cited as an obstacle to economic growth.
The EU is falling further behind the United States as concerns the venture capital market. According to the Commission, if EU venture capital markets had been as developed as in the US, €90 billion would have been available for financing companies between 2009 and 2014.
As agreed by the Council, the main amendments to regulations 345/2013 and 346/2013 involve:
- enabling larger fund managers, i.e. those with assets under management of more than €500 million, to market and manage EuVECA and EuSEF funds;
- expanding the range of companies in which EuVECA funds can invest, including unlisted companies with up to 499 employees (small mid-caps) and SMEs listed on SME growth markets.
The regulation requires a qualified majority for adoption by the Council, in agreement with the Parliament. (Legal basis: article 114 of the Treaty on the Functioning of the European Union.)
Regulations 345/2013 and 346/2013 were normally due for review in 2017, but the Commission decided to bring forward that review. It identified a number of factors holding back the development of EuVECA and EuSEF funds that are addressed in its proposal.