EUROPEAN COMMISSION 
Brussels, 7.12.2011 
SEC(2011) 1516 final 
  
COMMISSION STAFF WORKING PAPER 
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 
Accompanying the document 
Proposal for a  
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
European Venture Capital Funds 
{COM(2011) 860 final} 
{SEC(2011) 1515 final}  
 
EN 2   EN 1. INTRODUCTION  
Venture capital funds are operators that pr ovide mostly equity financ e to companies that are 
generally very small, in the initial stages of their corporate development. These firms are often 
innovative and demonstrate a strong potential for growth and expansi on. In the EU, venture capital 
funding has high, but largely unexploited, potential for the development of small- and medium-
sized enterprises (SMEs)1. SMEs that rely on venture capital fi nancing fare better than those that 
receive no venture capital backing. SMEs backed by ve nture capital can create high-quality jobs, as 
venture capital supports the creat ion of innovative businesses whos e growth exceeds growth in 
more traditional sectors. According to recent resear ch, an increase in venture capital investments is 
associated with an increase in GDP, and the imp act of early-stage funding of SMEs has an even 
more pronounced impact. Supporting venture cap ital can thereby drive the real economy.  
In Europe, raising funds for ventur e capital finance remains at sub-op timal levels. The small size of 
an average European venture capital fund (€ 60 m illion) has negative repercussions on the optimal 
allocation of resources. The relatively small sizes of European venture capital funds prevents the 
emergence of economies of scale, a prerequsite for the specialisation n ecessary to operate a 
successful venture capital fund.  
The focus of the impact assessment is on the appr opriate regulatory measur es to provide deeper 
capital pools for venture capital funds and allow European ventur e capital funds to expand assets 
under management. The underlying policy aim is to  make such funds into a more important 
financing tool for innovative start-up companies.  In pursuing this aim, the impact assessment 
focused on rules govering the 'private placement' of  venture capital funds to potential investors.  
2. PROBLEM DEFINITION  
Driver 1: Regulatory fragmentation . Compared with competing glob al centres of high-tech and 
innovation, most notably the United States, the rule s that govern the market ing of venture capital 
investments are fragment ed and dispersed. Nine  out of 27 Member States  have adopted specific 
rules on the operation of venture capital funds, the composition of their investment portfolio, 
qualifying investment instruments, qualifying i nvestment targets, the geographic location of 
investment targets, the types of i nvestors that are eligible  in such funds. All of these rules diverge in 
their substance on some or all of the above menti oned points. This has prevented the emergence of 
a uniform concept of what constitutes a venture capital fund. Ei ghteen Member States  have not 
adopted specific rules on the fundraising activities conducted by ve nture capital operators. They 
apply general rules on company law and prospectus obl igations to funds that wi sh to market 'private 
placements'2 of venture capital. Compliance with this heterogeneous set of rules causes additional 
cost and complications.  
Driver 2: Raising venture capital funds abroad involves several procedur al steps that are not 
necessary when raisi ng capital domestically . As a consequence of regulatory fragmentation and the 
need to comply with several se ts of rules governing the marketi ng of venture capital funds, the 
                                                 
1 SMEs are defined in the Commission Recommendation of 6 May 2003 concerning the definition of micro, small and 
medium-sized enterprise s (OJ L 124/36, 20.5.2003)  
2 Private placement is widely understood as marketing/sale of (in this case) units or shares in investment funds 
to a small or limited number of usually professional investors. Private placement is the opposite to raising 
capital from public/issuing shares on public markets. 
 
EN 3   EN procedural and preparatory steps (i dentification or local rules, seeking of legal advice, cost/benefit 
analysis prior to targeting the market) necessary to raise venture capital become more complex as 
the number of targeted jurisdictions increases.  
Driver 3: Raising venture capita l funds abroad involves costs that  are not incurred  when raising 
capital domestically . In order to ensure compliance with the various legal requirements that apply to 
the marketing of venture capital funds, the f und manager needs to undertake 'due diligence' 
ensuring proper identification of all applicable rules and requirements. Costs related to adapt legal 
documentation to the requirements of different national private placement rules may amount to € 
500 to € 1,000 for each jurisdiction. If the venture capital fund s ponsor wanted to raise capital 
across the EU, these costs would rise from € 13,500 to € 27,000.  
Driver 4: Several jurisdic tions apply prospectus rule s to venture capital offerings . Major costs are 
associated with national prospectus  requirements. For example, Member States and their regulatory 
authorities take different views on  whether interests in limited part nerships (which is the typical 
structure use for venture capital funds) qualify as securities or not and hence are covered by the 
Prospectus Directive. A prospect us registration for one host Memb er State alone (Germany) would 
cost around € 40.000 . Prospectus requirements and prior approva ls have been identified for Austria, 
Belgium, the Netherlands, France,  Sweden and the United Kingdom.  
Driver 5: Several jurisdictions require local registration and a local distribution presence . Many 
Member States require that a local and licensed marketing agent (i.e. a financial institution) is 
employed when a venture capital fund is marketed in their territories. A lternatively, the venture 
capital manager itself has to obtain a license qua lifying him as a marketing agent. The costs for 
obtaining a distribution li cense range from € 20.000  to € 40.0003. The annual costs for maintaining 
a regulated “local presence”, e.g., in th e United Kingdom, would be at least € 25.000  per year. This 
figure does not including costs for personnel.  
The 2007 Expert group report on removing obsta cles to cross-border investments by venture 
capital funds estimated that the cost managing four  parallel fund structures necessary to raise funds 
in four different jurisdictions exceeded 0.4% of the total capital committed to this fund.  
3. ANALYSIS OF SUBSIDIARITY  
A solution based on action by Member  States has already been tested, and failed to achieve the 
intended goal. The Commission, in 2007, proposed mutu al recognition of venture capital funds that 
are legally marketed in another Member Stat e. However, in a report of December 2009 the 
Commission concluded that mutual  recognition in itself has not  contributed to opening host 
Member States markets to venture capital fund ma ngers legally established in one jurisdiction. 
Therefore, only targeted harmoni sation of key requirements applicab le to enture capital funds at 
European level will allo w cross-border marketing.  
4. OBJECTIVES  
General objective – make European SMEs mo re competitive in a global marketplace  
                                                 
3 Estimates provided by an EVCA legal advisor on 25 October 2011.  
 
EN 4   EN The overarching objective is to make European SM Es more competitive in a global marketplace. 
Europe is not short of ideas and innovators. It  is in the area of st art-up financing and 
entrepreneurship where Eu rope is lagging behind.  
Specific objective – Create a European system for the cross-border fundraising of venture capital 
funds  
Venture capital is the tool of c hoice for start-up companies. Ea rly-stage entrepreneurs need the 
stability of equity finance in preference over loan s or other debt instruments. The proposed course 
of action therefore focuses on the development of deeper capital markets for venture capital funds.  
Operational objectives  
Establish a notion of what constitutes a 'qualifying venture capital fund' . In order to enhance the 
practical operation of cross-border fundraising, a common understandin g of the concept of 'venture 
capital' is necessary. It is therefore pr oposed to harmonise the essential features  of a venture capital 
fund.  
Create a common regulatory approach governing 'qualifying venture c apital funds' and their 
managers. Once the notion of 'venture capital fund' is  delineated with the requisite level of 
precision, the second operational objective will cons ist in providing a uniform framework that 
applies when qualifying venture capital f unds are marketed in the Community.  
Create a network of administrative cooperation fo r the effective introduction and supervision of 
managers of qualifying ven ture capital funds. An essential operational plank for the practical 
enforcement of cross-border fundraising is th e institution of a framew ork of administrative 
cooperation in overseeing and enfo rcing the uniform rules that a pply to venture capital funds.  
5. POLICY OPTIONS  
With respect to substantive policy options , the impact assessment consid ers how best to define the 
essential features, in terms of portfolio investme nt thresholds, target u ndertakings and qualifying 
investment instruments, which characterise a venture capital fund. Optio ns assessed ranged from 
instituting an investment threshold of 50%, 70% or up to 90% of committed capital in favour of 
eligible target unde rtakings (unlisted SMEs). Instruments assessed includ e equity and quasi-equity 
instruments. In terms of eligible investors, options assessed included fu nds open to professional 
investors (as defined in Mifid) , funds open to the larger popula tion of family offices, angel 
investors, management teams and wealthy individuals or funds ope n to all retail investors.  
Several options on legal form  are assessed. These included options  whereby special venture capital 
fund rules should be embedded into the direc tive on alternative inve stment fund managers 
(AIFMD), be promulgated as 'level 2' when impl ementing the AIFMD, be achieved with a targeted 
stand-alone legal instrument or be achieved by a legal instrument detailing the conditions of 'mutual 
recognition' between national appr oaches governing venture capita l or, in the absence thereof, 
'private placements'.  
6. ASSESSMENT OF IMPACTS  
The assessment of impacts revealed the merits of an intermediate approach. An approach whereby 
an intermediate target of 70% of committed capita l has to be invested in equity or quasi-equity 
 
EN 5   EN issued by the eligible SME, offers the highest like lihood that a distinct European brand for 'venture 
capital funds' would emerge without the risk of dilution of the new brand. With respec t to eligible 
investors, the favored approach is to create a scheme limited to  professional investors that, upon 
certain conditions, is also open to investments by family offices, angel investors, management 
teams and wealthy individuals, but not to retail investors. This a pproach would capture the typical 
venture capital investor ba se without requiring a fully fledged retail framework.  
In respect of the legal instrument, the impact a ssessment favours the stand-alone approach. Options 
creating uniform rules on venture capital funds within the existing AIFMD framework are 
considered as causing friction within the AIFM D framework, a directive which would have to 
accommodate a strict supervisory approach vis-à- vis a heterogeneous population of alternative fund 
managers. Also, in the absence of a higher level of regulatory convergence between Member States, 
an option based on 'mutual recognition' of lawfully marketed venture capital funds is not considered 
effective in reaching the first operational aim (a common understanding of what constitutes a 
venture capital funds and th e creation of uniform conditions for their marketing).  
7. COMPARISON OF OPTIONS AND POLICY CHOICE  
The final comparative analysis of all substan tive and procedural options concludes that the 
preferred option is a stand-alone harmonisation in strument that would create uniform conditions 
under which a fund manager may market of qualify ing venture capital funds in the Community.  
The chosen approach appears the most efficient because, in practical te rms, a fund manager who 
complies with all of the uniform re quirements set forth in the proposed  instrument would be able to 
market uniform funds in the entire Community without : (i) having to opt into the regulatory 
framework provided in Directiv e 2011/61/EC or (ii) comply with the residual – and very 
heterogeneous - national rules on either venture cap ital funds, private placements, prospectuses or 
requirements on local distribution.  
8. COSTS AND BENEFITS  
Compliance with the uniform criteria is not expect ed to result in significant compliance costs or 
administrative burden. The harmonization of quality  requirements that apply to venture capital 
funds would considerably reduce existing costs li nked with having to comp ly with different and 
very heterogeneous national rules that w ould apply in the abse nce of harmonization.  
While a venture capital fund is likely to incur some costs linked to adapt its reporting and disclosure 
standards to align with the uniform rules, these costs are likely to be a fraction of the operating 
expenses that arise under the 'business as usual' s cenario where funds have to comply with a variety 
of national provisions governi ng reporting and disclosure.  
It is not expected that the cost of supervisi ng compliance with the uniform framework would be 
significant, as all al ternative investment funds are, if they were not re gistered under the proposed 
framework, subject to the general re gistration and disclosure requireme nts stipulated in Article 3(3) 
of the Alternative Investment F und Managers Directive (AIFMD).  
Certain requirements could increase costs for po rtfolio companies targeted by qualifying venture 
capital funds. These costs may arise in particular as a result of funds' oblig ation to provide regular 
annual reports. However, it is un likely that these costs would be significantly higher than those 
 
EN 6   EN borne under business as usual, as it is a precondition for portfolio companies that seek venture 
capital financing to be 'investment ready'.  
Creating a European venture capital framework, ba sed on a common notion of  what constitutes a 
qualifying venture capital fund, is e xpected to improve efficiency in cross-border fundraising, 
promote competition among venture capital fund managers and increase opportunities for 
specialization. From the perspective of investors, uniform rules governing vent ure capital funds 
would create more trust in this particular asset class and -- in combination with improved access to 
funds -- would aid investors in  allocating their capital more efficiently. Finally, a uniform 
framework for venture capital funds will channe l more capital to innovative and high-growth 
potential companies. 
9. MONITORING AND EVALUATION  
In line with the objectives underpinning the Commission's policy choice, the post-adoption 
monitoring and evaluation will focus on three issues: (1) has th e new framework established a 
notion of what constitutes a 'qualifying vent ure capital fund', (2) has the new framework 
contributed to a common regulator y approach governing qualifyi ng venture capital funds and, and 
(3) has the new framework contributed toward the creation of a network of administrative 
cooperation for the effective introduction and supe rvision of the managers of European venture 
capital funds.  
Monitoring of these issues will be done in close cooperation with ESMA who will be tasked with 
maintaining a central register, publicly accessible by internet, whic h lists all qualifying venture 
capital fund managers registered in the Uni on in accordance with the proposed Regulation.