EUROPEAN COMMISSION Brussels, 14.7.2016 SWD(2016) 228 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds

{COM(2016) 461 final}

{SWD(2016) 229 final}



Contents 1.Introduction 2.Procedural issues and consultation of interested parties 2.1.Background 2.2.Related EU initiatives 2.3.Consultation of interested parties 2.4.Inter Service Steering Group 3.Problem definition 3.1.Introduction 3.1.1.Venture Capital 3.1.2.EU social impact capital 3.2.Initial objectives of the EuVECA and EuSEF Regulations 3.3.Problem drivers 3.3.1.Limitations on managers 3.3.2.Fund rules 3.3.3.Different application in Member States 3.4.Problems 3.4.1.Low take-up and assets under management below expectations 3.4.2.Lack of cross-border business

3.5.Consequences 4.Subsidiarity 5.Objectives 6.Options 6.1.Number of EuVECA and EuSEF managers, number of funds and size of assets under management 6.1.1.Description of the policy options 6.1.2.Analysis of impacts and comparison of options 6.2.EuVECA eligible assets – qualifying portfolio undertakings definition 6.2.1.Description of the policy options 6.2.2.Analysis of impacts and comparison of options 6.3.The investor base and related investor protection rules 6.3.1.Description of the policy options 6.3.2.Analysis of impacts and comparison of options 6.4.Differences in costs for launching and marketing EuVECA and EuSEF funds 6.4.1.Description of the policy options 6.4.2.Analysis of impacts and comparison of options 7.Monitoring and evaluation 8.Annex 1 (Procedural information concerning the process to prepare the impact assessment report and the related initiative) 9.ANNEX 2 (Stakeholder consultations) 10.ANNEX 3 (who is affected by the initiative and how)

11.Annex 4 (Review of the EuVECA and EuSEF Regulations) 12.ANNEX 5 (review clauses of the EuVECA and EuSEF Regulations) 13.ANNEX 6 (EU legal frameworks for investment funds) 14.ANNEX 7 (Results of the consultations) 15.ANNEX 8 (The SME life cycle and financing need) 16.ANNEX 9 (Key characteristics of venture capital and social venture market ) 17.ANNEX 10 (Venture capital business model) 18.ANNEX 11 (InvestEurope statistics) 19.ANNEX 12 (Stakeholders' Contribution to the Public Consultation) 20.ANNEX 13 (Anecdotal evidence on the EuVECA regime) 21.ANNEX 14 (Venture Capital in Europe) 22.ANNEX 15 (ESMA registered EuVECA and EuSEF as of April 2016)



1.Introduction The Commission is taking action to revive and reinvigorate the EU economy. Recognising the central role small and medium sized enterprises (SMEs) have in achieving this, a key element of this work is to deepen the range of funding opportunities available to them from non-traditional sources. This work is wide-ranging, encompassing actions to support SMEs in different ways. The Investment Plan for Europe provides a comprehensive strategy to tackle the lack of finance which is holding back Europe's potential to grow and provide jobs for its citizens. It plans to mobilise at least €315 billion of additional investment by 2018 via the European Fund for Strategic Investment, through maximising the impact of public resources and using these to unlock private investment. The Plan also aims to achieve this greater investment through improving the regulatory environment and eliminating related barriers, the issues captured by the Capital Markets Union (CMU) project. A key objective of CMU is to mobilise additional capital in Europe and to channel it to companies that need it, in particular SMEs. One of the measures announced under the CMU initiative is to revise the specialist EU venture capital and social impact investment fund frameworks - the European Venture Capital Funds (EuVECA) Regulation 345/2013 and European Social Entrepreneurship Funds (EuSEF) Regulation 346/2013 in order to increase their uptake. The EuVECA and EuSEF fund structures were created to offer new opportunities for market participants to raise and invest capital in small companies throughout Europe in a simplified way. The two frameworks have had some success, with a number of funds which have been established and intend to market mostly cross-border, so integration has improved. So while the frameworks have started to be accepted by the market, and the expectations of the initial Impact Assessment were partially met, there is nevertheless the need to push quickly for an even stronger support for venture capital. The Commission has therefore decided to anticipate reviews required under the EuVECA and EuSEF Regulations in 2017 by starting a legislative review as part of its 2016 REFIT work programme. For similar reasons, the Commission has decided not to use the possible option of combining this review with the broader review of the Alternative Investment Funds Manager Directive (AIFMD) planned to start in 2017: it is judged important to encourage take-up of these funds to boost the venture capital market as quickly as possible. The aim of the review (which is in Annex 4 to this impact assessment) is to assess how the two frameworks have performed so far, in particular whether they have been effective, efficient, coherent, relevant, and have brought added value to the EU. The review has identified a number of factors holding back the development of these funds, in particular the rules that govern the way the funds invest in assets, the way the managers run the funds, the way the EuVECA and EuSEF legislations interact with other existing investment fund legislation and the way the funds can be passported cross-border. The EuVECA and EuSEF frameworks share many similarities. There are, however some significant differences between the markets for venture capital and social impact investment. While venture capital is well established, the market for social impact investment is at a much earlier stage of development, which goes some way to explain the difference in take-up between the two frameworks. The review and subsequent impact assessment have identified where differences in the markets give rise to different challenges, with some policy responses consequently tailored in particular for EuVECA.

This impact assessment builds on the review, examining the problems and identifying a range of policy options with the potential to improve the ability of EuVECA and EuSEF to channel investment to SMEs while maintaining the level of protection that investors benefit from when investing in these funds. The process to prepare the impact assessment report and the related initiative is set out in Annex 1. This work should not be seen in isolation; there are a wide range of reasons why investors do and do not invest in start-ups and social enterprises across borders. Tax incentives play a major role. Culture towards non-bank financing also varies across Member States. And cross-border investment can be inhibited by the propensity for investors to be more closely involved in early stage businesses and social ventures than other types of investment, particularly for social ventures. These are out of scope of the EuVECA and EuSEF Regulations. 2.Procedural issues and consultation of interested parties 2.1.Background The Single Market Act I (SMA I) adopted by the Commission in April 2011 sets out twelve levers to boost growth and strengthen confidence in the economy. The SMA I underlined the importance of sustainable finance for SMEs and social entrepreneurs in tackling social exclusion and increasing employment. Adoption of the EuVECA and EuSEF Regulations was a practical means of supporting the provision of sustainable finance. The EuVECA Regulation introduced a “European Venture Capital Fund” label that qualifying funds supporting young and innovative companies were permitted to use – and enabled these funds to be marketed cross-border without additional barriers in order to meet their investment needs. Social impact capital is generally linked with investments made into companies or organizations with the intention to generate positive social impact alongside a financial return. The EuSEF Regulation introduced a “European Social Entrepreneurship Fund” label analogous to the EuVECA label, and with the same cross-border marketing benefits, but that was restricted to funds investing in underlying enterprises that have a positive social impact as their primary objective. An important subsequent workstream has been to support the measurement of social impact. Work has been carried out by the Commission expert group on social entrepreneurship (GECES) to develop a methodology which would be appropriate for the specific social impact measurement needs of EuSEF funds. This work has also informed the output of the report of the Social Impact Investment Taskforce established under the UK's presidency of the G8, published in September 2014. The EuSEF Regulation also forms part of the Commission's Social Business Initiative, 8th pillar of the SMA I. 2.2.Related EU initiatives A number of steps are being taken by the Commission to improve financing channels for SMEs. The first and second pillars of the Investment Plan for Europe focus on providing, and facilitating take-up of additional EU funding to SMEs. These new tools come on top of programmes that the EU has established over a number of years. In this respect, the equity financial instruments proposed under the Programme for the Competitiveness of Enterprises and SMEs (COSME), as well as under Horizon 2020, play a significant role as drivers of SME financing. COSME in particular plays a key part in attracting institutional investors back to the venture capital industry. An equity facility is also under discussion under the EU Programme for Employment and Social Innovation (EaSI), targeting social enterprises to promote a high level of quality and sustainable employment, guaranteeing adequate and decent social protection, combating social exclusion and poverty and improving working conditions. The Commission is planning, together with the European Investment Fund, to launch by this summer a call to create a Pan-European venture capital Fund of Funds. The venture capital Fund of Funds, which would invest in a combination of early-stage, later stage and expansion stage venture capital funds - including possibly EuVECA and EuSEF funds would be attractive to major investors. The envisaged size of the VC Fund of Funds is at least €500 million and would bring much needed additional private investment to the European venture capital market. As part of the third pillar of the Investment Plan to improve the business environment, the CMU Action Plan contains a range of measures that aim to facilitate the financing of SMEs. These include, in particular, actions to strengthen feedback given by banks declining SME credit applications, to reinforce credit information on SMEs, to review the fiscal incentives and tax reliefs Member States offer to SMEs and investors in SMEs, and to review the regulatory barriers to SME admission to public and SME growth markets. Moreover, in the context of the Single Market Strategy the Commission will also push for high quality, online public services to reduce administrative burden and make Europe a more attractive destination for innovators from both inside and outside the EU. In particular, the Commission will launch a Start-up initiative, to initiate a broad assessment of requirements for start-ups and ways to reduce such requirements and, where this is not possible, to facilitate compliance. Work is ongoing to develop and implement all these measures. The review of the EuVECA and EuSEF frameworks should therefore be seen in this broader perspective of Commission work to facilitate access to finance. 2.3.Consultation of interested parties On 18 February 2015 the Commission launched a Green Paper consulting on its overall approach to building a CMU. This included asking whether changes should be made to the EuVECA and EuSEF Regulations to improve the attractiveness of EuVECA and EuSEF funds. Almost 60% of respondents to these questions agreed that specific changes should be made. On 30 September 2015, the Commission services launched a public consultation on the review of the EuVECA and EuSEF Regulations. 46 responses have been received: 30 from private organisations or companies; 13 from public authorities or international organisations and three from private individuals (the summary of responses received is included in Annex 7). On the same date, the Commission services also launched a Call for evidence inviting feedback and empirical evidence on the benefits, unintended effects, consistency and coherence of the financial legislation adopted in response to the financial crisis. 29 out of the 287 responses received referred to the EuVECA or EuSEF Regulations. On 27 January 2016 DG FISMA organised a technical workshop aimed at managers of existing EuVECA and EuSEF funds, together with practitioners, supervisors and other stakeholders interested in offering these funds. The workshops concluded that it would be beneficial for larger managers to be able to run EuVECA and EuSEF funds; that EuVECA funds would benefit from being able to invest in a wider range of eligible assets, and that a more consistent approach to fees from regulators would be helpful (the minutes of the workshop are included in Annex 7). 2.4.Inter Service Steering Group

Work on the Impact Assessment started in January 2016 with the first meeting of the Steering group held on 28 January 2016, followed by three further meetings, on 10 March 2016, 6 April 2016 and 19 May 2016 The Inter Service Steering Group was formed by representatives of the Directorates General Competition, Economic and Financial Affairs, Internal Market Industry Entrepreneurship and SMEs, Justice, Employment, Social Affairs & Inclusion, Research and Innovation, Communications Networks Content and Technology, the Legal Service and the Secretariat General. The draft report was sent to the Regulatory Scrutiny Board on 13 April 2016. The Regulatory Scrutiny Board delivered a positive opinion with recommendations to further improve on the draft report on 13 May 2016, which has subsequently been modified. The main points raised by the Regulatory Scrutiny Board are as follows: 1) Context and timing: The report should provide more background on the challenges and potential of the EU venture capital market in general and situate the specific EuVECA/EuSEF labels in that context. It should explain why the regulation is considered as not delivering on the take up of the funds and what are the bottlenecks to a higher take up? In particular, it should also analyse to what extent the demand side is playing a role in the slow start of the funds. In addition, the report should justify the timing of the legislative revision: on which ground is the take up of the funds assessed to be low at this early stage? Why should the review take place now and why will it not be undertaken in the context of the subsequent review exercises like the review of the Alternative Investment Fund Managers Directive (AIFMD)? 2) Options: First, the report should better argue why enlarging the scope of the regulation to mid-caps would not dilute the original objectives of financing the smaller SMEs. Second, the report should "unbundle" option 2 for extending eligible assets under the EuVECA label and assess separately the impacts of the three sub-options. Third, while being very similar regulations, the important difference between the EuVECA and EuSEF labels should be better brought forward in the assessment of the options in the report. 3) REFIT: Being a REFIT initiative, the report should provide more insight on how the proposed revision will diminish regulatory burdens and quantify potential benefits and costs as far as possible. If this is not the case, it should be explained why. 3.Problem definition 3.1.Introduction 3.1.1.Venture Capital Venture capital is generally linked to the financing of young and newly established companies. In exchange for a direct cash injection into the company, the fund receives an equity stake in the company in the form of a common or preferred stock and becomes (part-) owner in the business. Venture capital can be supplied in many ways, for example, directly to selected portfolio companies (the investor will typically engage directly and remain a major investor in the companies as they expand), or through venture capital funds that pool capital from a number of investors. Collective investment in funds lowers risk through diversification so the failure of a single asset does not mean the entire value of an investment will be destroyed. Funds give access to markets which may be difficult for non-specialists to get exposure to. In addition, funds are run by managers who, in return for a management fee, provide expertise in picking and then managing suitable investments for the ultimate benefits of the investors of the funds they manage. Young and high risk companies in the EU lack access to finance - Annex 8 provides an explanation of this equity gap. Venture capital is a subset of the broad Private Equity sector which, even though limited in many Member States, is an important source of funding. This is especially the case for higher risk and innovative projects – even though Private Equity doesn’t have the same significance as traditional financing venues. Taking all types of private equity investments into consideration, private equity activity is the highest in the most developed capital markets, but with the exception of the UK, even in these countries it remains below 0.5% of GDP. Chart 1 - Private Equity as % of GDP (2015) Source: Invest Europe 3.1.2.EU social impact capital Investments in social enterprises aim to generate positive social or environmental impacts. These externalities can be characterised in a variety of ways – environmental, social, or ethical impacts, such as reduced use of pollutants or jobs for excluded sections of society. While a business activity produces a range of impacts on society, social enterprises specifically target positive social or environmental outcomes. These 'social enterprises ' offer a focal point for investors seeking social impact alongside a financial return. Social enterpises are often young, small and innovative companies which do not have to offer dividends but typically re-invest much or all of their financial surpluses. This does not, however, mean that there is automatically no financial return for investors. Like venture capital funds, social impact funds diversify their portfolio to balance risks and returns. However, not all investors anticipate or seek competitive returns. Social impact funds started over a decade ago and the market is growing. However, most of the funds are young and small, often without a track record and sometimes with high transaction costs, making it difficult to attract investors. 3.2.Initial objectives of the EuVECA and EuSEF Regulations The general objective of the EuVECA and EuSEF Regulations, as identified in their original 2011 Impact Assessments, was to make EU industry more competitive in a global marketplace. The 2011 Impact Assessments focused on the development of efficient capital markets for dedicated venture capital and social impact funds. The preferred policy choice for boosting venture capital and social impact funds was to increase the depth and liquidity of their capital base. In line with the underlying principles of the internal market, it was assessed that this choice could best be implemented by opening up cross-border fundraising opportunities for those funds that specialise in venture capital financing and social investment.

The EuVECA and EuSEF Regulations prescribe a set of items that must be reviewed by 22 July 2017. These items are listed in Annex 5. The review of whether the initial objectives of the Regulations have been met is both early, and as a result, partial. It therefore considers only limited evidence at this stage. The review can be found in Annex 4 and the main results and conclusions are summarised below. On the effectiveness of the EuVECA and EuSEF Regulations, the quantitative data shows that while take-up of the opportunities presented by the Regulations is satisfactorily increasing, it could still be further improved. This is because EU intervention is limited by a range of barriers which prevent more widespread take up of these funds. A particular concern is that managers whose portfolio exceeds €500 million may not apply for registration, set up and operate such funds, nor may they use these two designations to market them in the EU. Another specific concern relates to the funds rules which govern the EuVECA and EuSEF funds, in particular the definitions of qualifying portfolio undertaking and the €100,000 minimum entry ticket for non-professional investors. In respect of efficiency, different requirements in different jurisdictions, in particular at the level of setting-up fees, costs for the host registration and sufficient amounts of own funds, appear to constitute an impediment to the setting up of EuVECA or EuSEF funds and enabling cross-border investment. In terms of the EU added value, EuVECA and EuSEF Regulations addressed a gap that previously existed in legislation by introducing a new framework aiming to meet the need of small managers seeking to market funds cross-border and to increase the amount of non-bank capital available for investment in start-ups and social enterprises. Chart 2 - Problem tree

3.3.Problem drivers 3.1.3.Limitations on managers The EU’s regulatory framework is built on two complementary pillars: I.The Directive on Undertakings for Collective Investment in Transferable Securities (UCITS) regulates 'traditional' investment funds intended to be marketed to retail investors and marketed across borders, providing a strong consumer protection framework which ensures the funds are suitable for retail investors. Eligible funds are permitted to use the UCITS label and benefit from a cross-border marketing passport, allowing them to market without barriers to all investors throughout the EU. II.The AIFMD Directive regulates managers of alternative investment funds. Managers of venture capital and social impact funds are regulated by AIFMD, as well as other non-UCITS funds including hedge funds, private equity, and real estate funds. AIFMD managers are required to comply with a framework for consumer protection and management of prudential risk suitable for professional investors. In return, AIFMD managers benefit from a marketing passport allowing them to market across borders throughout the EU to professional investors. Marketing to retail investors remains only at Member State discretion. Venture capital and social impact fund managers typically benefit from an exemption under which AIFMD allows smaller managers (with aggregate assets under management below a threshold of €500 million for unleveraged funds – henceforth called sub-threshold managers) to be exempted from the vast majority of the Directive’s requirements. According to Invest Europe, 98% of European venture capital fund managers manage a portfolio of venture capital funds that are beneath the €500 million threshold. However, by opting for this exemption managers loose the automatic right to the marketing passport, while choosing to comply with the full AIFMD requirements is considered to be disproportionately expensive for many sub-threshold managers. The EuVECA and EuSEF Regulations recognise the importance of venture capital and social entrepreneurship investment by providing sub-threshold managers of venture capital and social entrepreneurship funds with the ability to market their funds across the EU without incurring all the regulatory cost of applying the full AIFMD requirements. This new ability to passport is combined with a specially created uniform approach to the categories of investors eligible to commit capital to such funds. The Regulations were the first EU legal instruments in the alternative asset management area which laid down uniform "single rule books" ensuring that investors know exactly what they get when they invest in the funds. Investment in such funds is also likely to be appropriate for high net worth retail investors, so the Regulations extend the marketing passport to investors able to commit €100,000 or more. They also establish labels intended to provide confidence that the funds are invested in appropriate venture capital or social impact initiatives, and that there is an appropriate level of consumer protection. The range of managers eligible to manage EuVECA and EuSEF funds is limited by the Regulations. Only sub-threshold managers of venture capital and social funds are eligible to benefit from the EuVECA and EuSEF Regulations, though managers which subsequently grow their total asset under management to more than €500 million may maintain use of the labels while complying with full AIFMD requirements. Therefore, large managers which are already fully AIFMD authorised cannot benefit. The rationale for this was that large managers already have access to a marketing passport. However, large managers do not benefit from the advantages of EuVECa and EuSEF, namely (i) the automatic right to market to high net worth retail investors across Europe, (ii) the use of the EuVECA and EuSEF labels to signify an effective regulated framework targeted at venture capital and social enterprises and (iii) favourable capital treatment for some professional investors, for example under Solvency II. The ability to market to high net worth retail investors is regarded as particularly attractive, while use of the EuVECa and EuSEF labels should, as they become established, become attractive to professional investors that value the assurance provided by a strong and reliable regulatory framework. Feedback to the consultations suggests this is a missed opportunity. Although larger managers have the experience and expertise to manage and market venture capital and social impact funds, they are prohibited from doing so under the EUVECA and EuSEF Regulations. There is a clear interest from large managers in gaining the benefits of the EuVECA Regulation in marketing their venture capital funds.

Moreover, sub-threshold managers of venture capital and social funds are obliged to register with National Competent Authorities (NCAs) both under AIFMD and under EuVECA or EuSEF Regulations. While the registration under EuVECA or EuSEF Regulations and the AIFMD would be possible under the same administrative process, some NCA require two separate registrations. This is further described in the review in Annex 4. The chart below illustrates the market average of the current EU fund regulatory landscape, including UCITS, AIFMD, EuVECA, EuSEF and ELTIF (a specialised European long-term investment fund framework) as further described in Annex 6. 3.1.4.Fund rules EuVECA and EuSEF Regulations regulate both the types of investor the funds may be marketed to and the eligible assets in which the funds can invest. They also contain rules that cover the way managers can act in their daily operations, mostly with the aim to protect investors. The bulk of the capital in the venture capital ecosystem comes from large institutions such as pension funds, endowments, charitable foundations, insurance undertakings and corporations. All these investor types fall under the category of professional investors, as defined under the Markets in Financial Instruments Directive (MiFID), and as such can invest in AIFs sold cross-border. However, EuVECA and EuSEF funds may be sold to non-professional investors as well, provided they invest at least €100,000 in one fund and that the investors state in writing that they are aware of the risks associated with the investment. This allows high net worth individuals to invest in these funds, while still safeguarding small retail investors from the relative risks of this type of investments. This is also intended to deepen the internal market by giving incentives to sub-threshold managers to offer funds across border to professional investors and high net worth individuals. The breakdown of the investor categories is presented in Annex 11. As set out in Annex 7, a significant number of respondents to the public consultation argued that the threshold is too high and should be reduced. This could naturally increase the number of retail investors. Other stakeholders, notably venture capital industry trade bodies, argue in favour of the current threshold, in order to avoid the likely additional costs of regulatory and administrative requirements necessary to sell to retail investors. EuVECA and EuSEF funds are subject to specific requirements on eligible assets and must invest a minimum of 70% of their committed capital in these assets. EuVECA funds are invested in SMEs, as based on the Commission Recommendation introduced in 2003, which include companies in the earliest stage of development, i.e. unlisted companies that employ fewer than 250 people, with annual turnover of no more than €50 million or annual balance sheet of not more than €43 million. The focus is on providing finance to companies that are generally very small, that are in the initial stages of their corporate existence and that display a strong potential for growth and expansion. This fits within the broader context of Commission policies and programs which support SMEs through the provision of venture capital and which generally exclude buyouts or replacement capital. Eligible EuSEF funds are invested in unlisted companies with the achievement of measurable, positive social impacts as their primary objective. A social enterprise qualifies for funding if it i) provides services or goods to vulnerable or marginalised, disadvantaged or excluded persons; ii) uses a method of production of goods or services that embodies a social objective; or iii) provides financial support exclusively to social businesses as described in i) and ii). Responses to the consultation suggested that the definitions could be too narrow, limiting the ability of such funds to channel investments to worthwhile SMEs and social ventures. For EuVECA it limits the ability of funds to support SMEs with further stage funding as they develop or are listed, limiting the attractiveness of the offer. For social enterprises, understanding of how these work – and how to best support them - has developed since EuSEF has been adopted, and it has been proposed that EuSEF should instead rely on the wider definition of a social enterprise, such as the one used in the Social Business Initiative of the European Commission [COM(2011)682]. 3.1.5.Different application in Member States Member States determine whether and at what level to set regulatory fees, which cover costs such as assessing registration and ongoing supervision of compliance with the regulations. Responses to the public consultations raised two issues around this: Initial registration costs and marketing fees vary considerably across Member States, with a number of respondents arguing that these may be prohibitive in some cases, especially for EuSEF funds. For instance, a EuSEF manager provided the following breakdown of the registration costs: €40,000 (external costs), €25,000 (legal advice), €14,000 (costs related to the NCA and ESMA), €50,000 (estimation of costs supported by the fund management internally) and €130,000 (internal and external arising from post-registration obligations (e.g. ESMA reporting via special interface)). Given the higher costs of running socially driven funds, where staff are usually highly engaged and spends a lot of “hands on” time on non-financial support to social enterprises (providing coaching, consulting, access to networks, fundraising capability, being part of their board, etc.), high registration costs are a considerable extra burden. Respondents also note that additional fees are charged for marketing by other host Member States' NCAs, even where the fund manager has already paid for the fund’s passport in its home Member State. Again, this approach varies across the EU. Moreover, while both Regulations require managers to hold 'sufficient own-funds' to be able to properly discharge their obligations on an on-going basis, neither the amount nor the methodology for the own-funds calculation are prescribed. It is up to the Member States to determine them and to charge what they consider appropriate. Such differences in national rules raise direct and indirect costs for EuVECA and EuSEF funds when they are marketed across borders.

More evidence on differences between Member States’ prescribed fees, registration costs and requirements for sufficient own funds for EuVECA and EuSEF funds and managers is available in Question 3, Section 7 of Annex 4 (Review of the EuVECA and EuSEF Regulations), and also in Annex 13. 3.4.Problems 3.1.6.Low take-up and assets under management below expectations Since the EuVECA and EuSEF designations became available in 2013, data from the European Securities and Markets Authority (ESMA) reported a total of 32 EuVECA funds intending to raise capital of €1.3 billion in the period between 2013 and May 2015. As of the beginning of April 2016 there are 70 EuVECA funds registered in the ESMA database and there is currently no publicly available data to confirm whether these fund raising targets have actually been achieved. Moreover, many of the EuVECA funds have been registered in the last six months. For EuSEF funds, it is clear that the current situation is disappointing, with only 4 funds registered in only 2 Member States: ESMA data suggests that in April 2016 there was 1 EuSEF fund registered in France and 3 EuSEF funds in Germany, with total assets under management of € 32 million. This can be compared with the expectations for EuVECA and EuSEF at the ouset. The original Impact Assessment assessed overall EU cross-border fundraising as low: in the period 2007-2010, funds raised outside a venture capital fund’s home jurisdiction accounted for just 12% of funds raised in the venture capital sector amounting to circa € 2.5 billion over that period. EuVECA was targeted with raising €4.2 billion. EuVECA and EuSEF fundraising should also be considered in the context of broader fundraising. According to Invest Europe (see Annex 10), in the period between 2011 and Q3 2015 (preliminary), there were 316 new venture capital funds which raised €15,971 million. Based on Invest Europe data the average size of EU based venture capital fund is relatively small - calculated at some €50 million and this should be compared with US, where the average US-based venture capital fund is estimated to around €120 million. Moreover, the EU venture capital market is still highly concentrated with up to 90% of venture capital firms concentrated in eight member states. According to Thomson ONE, since 2012, European venture capital fund-raising has fallen by 33 percent, while U.S. investment has increased by 45 percent to approach a ten-year high. In consequence, the gap between U.S. and European investment widened to about €21 billion. Furthermore, compared with their U.S. counterparts, European venture capital investments as a percentage of GDP are not gaining ground. In 2014, European VC investments were lower than to 0.05%, while the U.S. venture investments 0.29%. Despite the paucity of data it is reasonable to infer that the EuVECA framework is showing some potential at an early stage and expectations have been partly met. But more is needed, particularly in comparison with other markets such as the U.S. Moreover, the macroeconomic context has now changed, with EU growth much weaker than expected, and therefore there is the need to push quickly for an even more cross-border investment in small and growing firms, with EuVECA and EuSEF an important means of achieving this. The Commission's consultative exercises highlighted current limitations to the EuVECA and EuSEF frameworks, and the scope to improve them in order to make them more attractive to managers and investors: AIFMD-authorised managers are not allowed to manage and market EuVECA and EuSEF funds. Most of the respondents to the public consultations argued that authorised managers under AIFMD are already compliant with requirements that are more stringent than those under the EuVECA and EuSEF Regulations. They can manage and market other alternative investment funds including alternative investment funds having the same investment strategy and investment limit as EuVECA and EuSEF. According to the respondents, smaller asset managers have less marketing means and distribution channels opportunities than large asset managers. The large majority of respondents mentioned that the main disadvantage of the current situation for managers authorised under AIFMD is that they may not manage and market EuVECA and EuSEF to high net worth individuals on a cross-border basis. This, in turn, does not improve the cross-border distribution of alternative investment funds and does not allow investors to reap the benefits of competition (i.e. lower prices, more choice, and higher quality). This narrows the business opportunities for large venture capital funds, potentially making it less attractive to offer their funds EU-wide. The dual registration requirements are seen by some respondents to the public consultation as a hindrance to the development of EuVECA and EuSEF funds. Currently, a EuVECA or EuSEF manager must obtain an authorisation under the AIFMD as soon as its overall portfolio exceeds the AIFMD threshold of €500 million. In these circumstances, the EuVECA and EuSEF Regulations only provide for the continued use of the EuVECA or EuSEF labels, provided they comply with both the selected provisions of the EuVECA or EuSEF Regulation and the AIFMD (the so-called "limited grandfathering"). Moreover, the EuVECA label is permitted only for "pure" venture capital funds. The focus is on providing finance to undertakings that are generally very small, that are in the initial stages of their corporate existence and that display a strong potential for growth and expansion. This falls in the broad context of Commission policies and programmes which support SMEs through the provision of VC and exclude buyouts or replacement capital. Participants in the workshop noted that the EuVECA definition of eligible assets built on the standard SME definition does not encompass the entire landscape, i.e. larger companies are excluded. Respondents claimed that the entry ticket threshold of €100,000 is too high and it limits the number of retail investors. The respondents, in particular professional associations, also highlighted the definition of eligible assets as being too restrictive limiting the investment opportunities for EuVECA and also their development. A public authority in the reply to the call for evidence claims the eligible assets definition in the EuVECA Regulation excludes many businesses which would otherwise be eligible for investment, such as labour intensive companies, for example those in services, or businesses listed on a growth market such as the UK Alternative Investment Market (see Annex 2).

A participant in the workshop added that the EIF never required social funds to be EuSEF and venture capital funds to be EuVECA, which would have otherwise led to greater take-up. EuVECA and EuSEF are only part of the solution for revamping the venture capital funds market in Europe. Demand for Venture Capital fluctuates during the economic cycle, but has remained high during the economic and financial crisis (see Annex 15 for an overview of the European venture capital market). However, venture capital funds remain niche given their focus on riskiest stage of their development. It is often challenging for venture capital funds to create returns that would mobilise average investors’ interest. This Impact Assessment recognises that there are still many big factors outside scope of Regulation – e.g. approach to non-bank finance across MS, tax regimes, etc and a number of these others factors are being addressed through further initiatives – e.g. credit data sharing on SMEs. 3.1.7.Lack of cross-border business Some respondents to the consultation concluded that the combination of excessive registration and marketing fees may disincentivise managers from establishing EuVECA and EuSEF funds preferring national regimes, at the expense of marketing cross-border. A further challenge is lack of harmonisation in the interpretation of "sufficient own funds" requirements, leading to confusion and concerns over regulatory arbitrage. Venture capital, used for start-ups and more risky undertakings, constitutes a small fraction of private equity. This type of financing is most developed in Denmark (0.1% of GDP), Luxembourg, Finland and Ireland. Venture capital incremental investments into European companies reached with €5.3bn its highest level since 2008, following an 8% increase over the previous year. Chart 2 – Venture Capital as % of GDP (2015) Source: Invest Europe In 2014 around 90% of all venture capital investments were concentrated in eight Member States: UK, Germany Sweden, Denmark, Finland Netherlands, France and Spain all have VC assets under management in excess of €1,5 billion. At the least, this suggests that any additional cross-border marketing has not expanded significantly the maturity of markets across the EU. More evidence on venture capital cross-border investor base (i.e. where are the investors into European venture capital funds are coming from) and cross-border venture capital investments are available in the Section 5 and Section 6 of Annex 11. The EU venture capital sector remains a niche sector. Within the broad range of private equity investors, venture capitalists account for between 8.4% and 16%, depending on the chosen year of reference. As at the end of 2014 there were about 1,963 private equity managers headquartered, including 819 venture capital firms in the EU. In aggregate, these managers accounted for €548 billion of assets under management. Exactly 10.5% of this amount, approximately €57,7 billion, can be attributed to the venture capital funds. European venture capital industry is relatively small compared to European UCITS and non-UCITS assets under management that at the end of 2014 reached €11 trillion (€ 8 trillion UCITS and € 3 trillion non-UCITS). The average EU venture capital fund’s size decreased by 13 percent - from €85 million, an all-time high, to €70 million - from 2012 through 2014, widening the distance to the average U.S. fund’s size by 30 percent. Please refer to Annex 4 on the review of the EuVECA and EuSEF Regulations with the assessment of the presence of the cross-border activities among the Member States. As of April 2016, 70 EuVECA funds are registered with ESMA and 71% are marketed cross-border. While there is a paucity of data, it can at least be inferred that there is a potential from these frameworks for marketing EuVECA and EuSEF funds cross-border. So while the frameworks have started to be accepted by the market, and the expectations were partially met, there is nevertheless the need to push quickly for an even stronger support. The CMU initiative recognises this as it focuses on building cross-border capital framework with cross-border VC funds an essential part of it. 3.5.Consequences SMEs are of crucial importance to the EU economy as a sector that can provide real growth and returns. The source and the availability of financing for an SME are important factors behind its development, growth and success. In order to promote new areas of growth and move towards an innovation-led economy, there is a need to strengthen new avenues of financing to support start-ups, innovative SMEs and social enterprises. Since banks are typically in a less strong position to provide these types of financing, requiring as they do highly capital-intensive and specialised ongoing analysis and support, access to venture and social entrepreneurship capital is key to financing the growth of this segment of the EU economy. However, only a small number of managers are authorised to manage EuVECA and EuSEF funds and the funds are below the optimal size. This in real terms implies a lack of choice and financing opportunities for SMEs.

The restrictions on the size of managers under the EuVECA and EuSEF Regulations have not improved the access for SMEs to capital for growth. Management of investments in venture capital and social enterprises is a labour-intensive activity and can involve high operating costs (project evaluations, development of internal investment criteria, management of sizeable amount of diverse investments, support services to the ventures and social enterprises etc.). These factors are to some extent scalable, so precluding larger managers reduces the overall efficiency of EuVECA and EuSEF funds. As a consequence, SMEs, including social businesses, have fewer alternative sources of capital to draw on. Instead of being able to select from a larger pool of competing, sufficiently capitalised and highly specialised investment funds with economies of scale, SMEs have a narrower selection of more domestically oriented and therefore less specialised and less cost effective venture capital or social funds. This decreases the bargaining power of SMEs, makes them more dependent on local investment funds, which may lack both capital and expertise to make a significant impact both on equity endowment and business expertise provided to the target company. This leads to higher cost of finance, and lower value-added support for the commercial development of the funded target company. The relative scarcity of funding opportunities decreases the innovation capacity that SMEs can build on. 4.Subsidiarity The legal basis of the EuVECA and EuSEF Regulations is Article 114 of the Treaty on the Functioning of the European Union (TFEU). Under Article 4 TFEU EU action for completing the internal market has to be appraised in the light of the subsidiarity principle set out in Article 5(3) of the Treaty on European Union. Action on EU level should only be taken when the objectives of the proposed action cannot be sufficiently achieved by Member States alone. . First, it has to be assessed whether the objectives of the proposed action could not be sufficiently achieved by Member States in the framework of their national constitutional systems, the so-called “necessity test". In the case of the EuVECA and EuSEF Regulations, there is no scope for Member States to remove their limitations alone, as the Regulations do not allow Member States to modify the Regulations individually. Secondly, it has to be considered whether and how the objectives could be better achieved by action by the EU, the so-called "test of European added value". The problems identified above concern limitations in, and divergences of application of, the EuVECA and EuSEF Regulations across Member States. The EU level is the only appropriate level to address these problems in order to ensure uniform rules are applied consistently across all Member States. Leaving limitations of and divergences of application in, the EuVECA and EuSEF Regulations - or addressing them in an uncoordinated manner, risks generating more fragmentation and exacerbating the problems. Only coordinated EU intervention can resolve them. Therefore, it is necessary for the EU to intervene in order to address identified weaknesses in the EuVECA and EuSEF Regulations. 5.Objectives

In light of the analysis of the risks and problems above, the general objectives is to increase investments into venture capital and social enterprises via EuVECA and EuSEF. Reaching this general objective requires the attainment of the following more specific policy objectives: (1)make it easier for managers to run EuVECA and EuSEF and attract more investors; (2)facilitate operations and decrease the costs for funds operating in particular on cross-border basis. The specific objectives listed above require the attainment of the following operational objectives: (1)remove limitations for larger assets managers to manage EuVECA and EuSEF funds and dual registration requirements; (2)strike the right balance between the need to have flexible product rules and a sufficient level of investor protection; (3)streamline the rules for marketing and managing the funds. Identified options have been selected on the basis of their capacity to address these operational objectives, and will be assessed in the light of the specific and general objectives outlined here. 6.Options 6.1.Number of EuVECA and EuSEF managers, number of funds and size of assets under management

6.1.1.Description of the policy options To attain the operational objectives, the following options were considered Option 1 – No policy change Option 2 – Allow AIFMD-authorised managers to manage and market EuVECA and EuSEF funds Option 3 - Exempt EuVECA and EuSEF managers from the AIFMD authorisation requirement if they exceed the AIFMD threshold 6.1.2.Analysis of impacts and comparison of options Option 1: the prohibition on AIFMD authorised managers using the EuVECA and EuSEF labels will remain and the situation would not evolve without action at EU level. AIFMD authorised managers would still be prohibited from using the EuVECA and EuSEF wider marketing passport and labels. Option 2: the restriction on large managers whose assets under management exceed the AIFMD threshold of €500 million (henceforth referred to as large managers) managing EuVECA and EuSEF funds would be removed. Large managers would be free to set-up the EuVECA and EuSEF funds and to market the funds cross-border to high net worth individuals able to commit at least €100, 000 in a single investment and state in writing that they are aware of the risks associated with the investment. To avoid regulatory arbitrage over the application of fund rules between sub-threshold managers and large managers, the relevant fund rules and other fundamental provisions of the EuVECA and EuSEF Regulations would apply to large managers too. In addition, large managers would continue to be fully subject to the AIFMD requirements in particular capital obligations, organisational and governance requirements, remuneration rules, regular disclosure of information to investors and reporting to national supervisory authorities. Option 3: Under this option, EuVECA and EuSEF managers whose assets under management grow and subsequently exceed €500 million would no longer be required to comply with the full AIFMD requirements. This "carve-out" would allow them to continue to grow their funds with minimal additional regulatory burden. Impacts on stakeholders Option 2 Allowing AIFMD-authorised managers to market and manage EuVECA and EuSEF funds would have a number of impacts: It would bring economic benefits to large managers as they would be able to set up these funds, enabling them to market cross-border to high net worth individuals and use the funds' associated labels. Large managers could potentially provide economies of scale, lowering operational costs, which could foster the development of EuVECA and EuSEF funds. Venture capital and social impact capital screening processes are very labour intensive and large managers can leverage wider infrastructure in support of this - including expert staff, in-house information and IT tools. Investors would also benefit, having more investment opportunities and receiving a broader choice of investment offerings from managers with wider distribution channels, all this without undermining investor protection as large managers are already subject to the more stringent AIFMD rules. Investors might also be more willing to invest in EuVECA or EuSEF funds managed and marketed by large managers that are well known. Along the same lines, access to a greater range of EuVECA and EuSEF funds run by large managers could be seen as attractive vehicles for professional investors such as insurance companies compared to other venture and social impact funds managed by smaller subthreshold managers. Professional investors may benefit from the first EU legal instruments in the alternative asset management area which laid down uniform "single rule books" ensuring that investors know exactly what they get when they invest in the funds. Moreover, EuVECA and EuSEF funds benefit from favourable treatment under the Solvency II Directive where the capital charge is reduced from 49% to 39%. Sub-threshold managers may be subject to greater competition for investment in their funds. However, over time, with more take up of the EuVECA and EuSEF labels and wider recognition among investors, sub-threshold managers would also benefit from the increased trust in, and awareness of, these labels. The larger fund base is also likely to bring additional benefits for SMEs and social undertakings that will have access to financing provided by more venture and social risk investment sources. SMEs could benefit from a better functioning internal market through scale effects and lower transaction costs of larger EuVECA and EuSEF managers. This option has some impacts on national supervisory authorities such as registering and monitoring the funds and large managers, but these additional costs should be compensated by the additional fees charged on the new funds and managers. Option 3 would provide EuVECA and EuSEF managers whose total assets under management grew above the AIFMD threshold with a regulatory carve-out from the application of the full AIFMD rules.

This option would in theory bring benefits to managers of EuVECA and EuSEF funds whose assets grew above the €500 million threshold, as it would allow them to grow considerably without incurring the additional costs of full AIFMD compliance. This could put them at an economic advantage to larger managers, being able to offer their funds at lower costs. However, large managers could see this as an unfair advantage to (initially) sub-threshold managers. It could also be argued that this option diminishes and weakens the EU regulatory framework on systemic risks and introduces the potential for regulatory arbitrage. Current data shows that venture capital and social entrepreneurship funds have on average €70 million and €14 million of assets under management respectively. There is no indication of current EuVECA and EuSEF managers approaching the €500 million threshold of aggregate asset under management. As a consequence, there is no evidence that a carve-out of the AIFMD requirements for EuVECA and EuSEF managers growing above the threshold will foster the development and translate into more EuVECA and EuSEF funds. This option would, therefore, have currently no material impact on sub-threshold managers in deciding whether to set-up and market EuVECA or EuSEF funds, nor would it allow already AIFMD authorised managers to set-up EuVECA and EuSEF funds. It should also be noted that there is already capacity for managers to temporarily go above the €500 million threshold when managing their portfolios. EuVECA and EuSEF managers may already exceed the threshold of €500 million for up to three months, before being subject to AIFMD authorisation. Respondents to the public consultation, including Member States, strongly support allowing AIFMD authorised managers to manage and market EuVECA and EuSEF funds. They argue that opening-up of the two labels to large managers could further improve the take-up of the labels, increase their recognition among investors and lead to larger volumes of investment. There is no support for Option 3. Comparison of options: Option 2 may have positive economic impacts and would foster the use of the EuVECA and EuSEF labels. There would be no impact on investor protection. Both professional and non-professional investors would benefit from a broader choice and large managers from a larger EU-wide investor base. Option 3 would provide more flexibility to EuVECA and EuSEF managers when they grow above the €500 million threshold of asset under management. At the same time, this could have a fundamentally negative impact on investor protection as several managers with significant assets under management would not be subject to the full AIFMD – and would introduce possibilities for regulatory arbitrage. Preferred option Description Types of asset managers impacted Estimated impact Option 2 Allow AIFMD authorised manager to market and manage EuVECA and EuSEF funds. AIFMD authorised managers AIFMD authorised managers may want to set-up EuVECA and EuSEF funds to offer a more complete range of products to their clients. The preferred option is, therefore, Option 2 - to allow also AIFMD authorised managers to manage EuVECA and EuSEF funds. Option 2 provides considerably greater advantages for managers, investors and ultimately SMEs than the current EuVECA and EuSEF Regulations with no detriment to consumer protection. Table 3: Increase the number and size of EuVECA and EuSEF funds – Impact on Stakeholders and achievement of objectives relative to option 1 (‘do nothing’) Impact on Stakeholders Efficiency Effectiveness Option 1 0 0 0 Option 2 ++ Investors will benefit from broader choice and offer from AIFMD-authorised managers++ AIFMD-authorised managers will benefit from the marketing passport to high net worth individuals and attractiveness of the labels ++ AIFMD-authorised managers would be incentivised to offer EuVECA and EuSEF funds to insurance companies as those funds benefit from a favourable treatment compared to other alternative investment funds under Solvency II ++ No impact on investor protection ++ AIFMD-authorised managersare incentivised to run EuVECA and EuSEF funds ++ Increase the number of EuVECA and EuSEF funds ++ Low implementation costs ++ Positive impact on the EuVECA and EuSEF Labels Option 3 -- Negative impact on investor protection ++ Lower costs for EuVECA and EuSEF managers which grow above the €500 million AIFMD threshold -- no significant impact as EuVECA and EuSEF managers are far from the €500 million threshold -- Negative impact on systemic risk monitoring -- Will not have an impact on the take up of EuVECA and EuSEF funds. ++: major improvements; +: some improvements; 0: no or marginal impacts; - some deterioration; -- significant deterioration, 6.2.EuVECA eligible assets – qualifying portfolio undertakings definition 6.2.1.Description of the policy options To attain the operational objectives, the following options were considered Option 1: Do nothing i.e. keep the current definition of qualifying portfolio undertakings

Option 2: Permit investments in small mid-caps Option 3: Permit investment in SMEs listed on SME growth markets, as defined in MiFID 2 Option 4: Permit follow-on investments in firms that exceed the qualifying portfolio criteria. 6.2.2.Analysis of impacts and comparison of options Option 1 focuses the investment of EuVECA managers into smaller entities. If no action is taken, the eligible assets of EuVECA funds would remain limited to unlisted entities falling within the current criteria for SMEs, which are based on the Commission Recommendation introduced in 2003. The current criteria are highly inter-correlated, comprising non-listed companies, up to 250 employees and with an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million. Option 2 would base eligibility on the "small mid-cap" definition used in venture capital programmes managed by the European Investment Fund, supported by EU programmes (i.e. InnovFin) and the European Fund for Strategic Investments. Small mid-caps, are defined as non-listed companies with up to 499 employees. This option would raise the limit of the number of employees in qualifying non-listed investments from 250 to 499 and not consider the turnover and balance sheet restrictions, compared with Option 1. Option 3 would allow growth stage entities that have already access to financing such as SME growth markets to also receive capital from EuVECA and EuSEF funds. SME growth markets address an identified lack of capital available to SMEs by creating a new tailor-made framework. SMEs listed in SME growth markets must have a market capitalisation of less than €200 million. This option therefore also fosters investments into listed companies and would contribute to the development of the SME growth markets. In order to avoid EuVECA funds being diverted away from SMEs, only companies listed on an SME Growth Market with an average market capitalisation of less than €200 million at the point of investment would be eligible for investment by EuVECA funds. MiFID II permits SME growth markets to list companies with a capitalisation that exceeds this threshold provided they constitute less than 50% of the companies listed; larger companies would be excluded from investment by EuVECA funds. Growth stage entities that already have access to financing through listing but for which there is an identified gap in funding would become eligible for EuVECA investment. Option 4 deals with a limitation where at present follow-on investment is prohibited once the target entity exceeds the criteria. Impact on stakeholders Option 2 provides more net benefits than Option 1 for small and growing companies in need of greater investment, including small mid-caps, expanding eligible assets criteria will provide an additional attractive source of venture capital. This is expected to naturally open the number of eligible portfolio undertakings. Several respondents to the public consultation mentioned that the criteria on 250 employees is restrictive and should be increased or directly removed. This sub-option would allow EuVECA funds to finance companies (e.g. services companies) that need more workforces in order to develop and growth. Investors will benefit from a wider range of eligible assets in which their funds could invest. Widening the criteria of eligible entities will be beneficial to the EU economy, as it will allow investments in later stage companies for which other financing sources are still limited. Option 3 would allow growth stage entities that have already access to other sources of financing such as SME growth markets to also receive investment from EuVECA funds. Entities that are listed in market dedicated to SMEs do not have a large capitalisation, 89% of the entities listed in the AIM London Stock Exchange have a market capitalisation of less than €200 million. Consequently, this option would foster investments into listed companies and will contribute to the development of the SME growth markets. This will permit a less risky portfolio as it will be more diversified and invested in entities that are in more advanced stages of development. Option 4 refers to the fact that the current definition allows only for the initial investment in eligible entities and this may impede a manager’s ability to provide his portfolio companies with subsequent rounds of funding. Allowing managers to follow-on with investments into entities were they already invested, even when the companies grow beyond the thresholds of the definition, would increase investment opportunities. Moreover, many companies need to receive additional investments in order to continue to growth and reach a critical size to be able to attract others source of funding. According to statistics from Invest Europe, in 2014 the investments in later stage companies represented 44% of the amounts invested by venture capital funds. Venture capital funds have a clear interest in different stages of growth of the investee companies and they could be allowed to follow-on with investments in entities were already invested. Investors will also gain from funds that are able to retain equity in successful companies as they move up the funding ladder. However, the main drawbacks of Option 2, 3 and 4 are that SMEs would have to compete with a wider pool of eligible investments from EuVECA funds. This would be mitigated – and quite likely outweighed – by the larger pool of investment into the funds. Comparison of options Whether to expand the investment criteria beyond the SME definition currently applied is a trade-off. There are drawbacks in expanding the current definition of eligible assets: By focusing the scope of investment, the current definition ensures that all investment by EuVECA funds is directed at the smallest firms in need of venture capital and with limited access to other sources of equity. There is a risk that by diluting this focus, some EuVECA funds may well focus on larger entities, where the risk of investment may be lower.

Larger firms are less likely in need for EuVECA investment as they are more likely to have access to other sources of capital. A key aim of the EuVECA Regulation is over time to establish a strong brand. This should provide confidence to investors where their funds are being invested. If the eligible range of investments is expanded, this would complicate the understanding of the fund's investments. However, there are also strong arguments for expanding the definition. In determining whether to launch EuVECA funds, managers need to determine whether the benefits outweigh the costs and restrictions. Respondents suggest that the present restrictions on investment limit their appetite to set up new funds: this decreases the opportunity for cross-border investment to support SMEs. The arguments are as follows: There is already a strong identified need for capital for growing firms not currently eligible for investment by EuVECA funds. Firms listed on SME growth markets have been identified as needing greater access to capital in the MiFID 2 Impact Assessment. There is also a clear need for investment in small mid-caps identified by EU programmes such Horizon 2020. Expanding the eligible investment criteria would help to provide investment to these entities and also ensures a consistency of approach. There is also strong feedback in the consultation that some types of companies – for example service companies - quickly grow their workforces at a relatively early stage of investment. There is a need for these companies to benefit from venture capital. Permitting investment in small mid-caps by EuVECA funds would help support these companies. Preventing EuVECA funds from providing follow-on investment limits their longer-term participation in the funding ladder for SMEs and their potential for making returns from high-growth companies as well as the limit of ongoing support they can offer. Many companies need to receive additional investments in order to continue to grow and reach a critical size to be able to attract others source of funding. According to statistics from Invest Europe, in 2014 the investments in later stage companies represented 44% of the amounts invested by venture capital funds. Venture capital funds have a clear interest in different stages of growth of the investee companies. The current limit on EuVECA managers - which can no longer invest in entities once they cross one of the eligibility criteria - impairs the ability of venture capital funds to participate in the development of growing entities. This in turn makes investing in them less attractive. Removing this restriction would again make investing in these funds more attractive and support growth more widely. Although there is a risk of diluting investment by EuVECA funds by expanding the eligible assets, permitting investment in larger funds is likely to make the funds more attractive to investors and grow the overall pool of eligible venture capital including for SMEs. Options 2, 3 and 4 would widen the scope of eligible assets and would foster the development of the SME growth markets. Moreover, these options would allow EuVECA managers to invest in entities which have more employees (e.g. service companies that are more labour intensive) without having limits on balance sheet or turnover. Allowing investment follow-on would permit further opportunity for the funds to support the development of an entity as it grows to a larger size. In consultations, the definition of qualifying portfolio undertakings has been criticised for being too restrictive. Several respondents claimed that eligible entities may be difficult to find and some entities that do not fulfil all the criteria are excluded from the EuVECA investments despite the fact that they would still need additional investments to continue growing. Respondents suggested to remove or increase the number of employee limits and to remove the turnover and balance sheet limits. Preferred options Expansion of investment criteria Types of impacted managers/undertakings/ investors Estimated impact Option 2 Allow entities with up to 499 employees. EuVECA managers, undertakings and investors It can be expected that EuVECA managers will be able to finance a greater range of entities and in particular those that employ a larger labour force Option 3 Allow entities with market capitalisation < €200M listed on the SME growth market to be eligible portfolio undertaking EuVECA managers, small, undertakings and investors. It can be expected that EuVECA managers could play a crucial role in the development of the SME growth market. This will also reduce, to some extent, the risk for investors as they will be investing in a portfolio containing less risky entities. Option 4 Allow for subsequent investment in qualifying portfolio undertakings EuVECA managers, undertakings and investors. It can be expected that EuVECA managers will have more flexibility and less constraint in using the criteria. They will be able to follow-on and finance undertakings that are in other stage of development. The preferred options are, therefore, Options 2, 3 and 4 combined, i.e. to expand the EuVECA definition of qualifying portfolio undertakings in Option 2 and 3 and also to allow follow-on investments under Option 4 These combined options are most likely to increase the pool of cross-border capital available to small and growing companies. This would provide significant economic benefits to SMEs, small mid-caps and SME listed on SME growth markets. SMEs would receive a smaller proportion of funding from a considerably larger pool of investment in funds that are more attractive to investors. Table 4: Eligible assets of EuVECA– Impact on Stakeholders and achievement of objectives relative to option 1 (‘do nothing’) Impact on Stakeholders Efficiency Effectiveness Option 1 0 0 0 Option 2 ++ Investors will benefit from broader investment base - Unlisted SMEs may have reduced investment focus from EuVECA, albeit from a wider capital pool + SME labour intensive firms will benefit from additional investments 0 No impact on investors protection ++ More financing to more developed small mid-caps and SMEs - Potentially less financing to SMEs ++ More diversified portfolio ++ Increased the number of EuVECA funds. ++ Aligned with the investment approach of Horizon 2020 programs ++ Low implementation costs ++ Positive impact on the EuVECA label + Follows the market practice, i.e. how the market actually invests Option 3 ++ Investors will benefit from broader investment base ++ SME growth market will benefit from greater liquidity and capital - Unlisted SMEs may have reduced investment focus from EuVECA, albeit from a wider capital pool 0 No impact on investors protection - Potentially less financing to SMEs ++ More diversified portfolio ++ Increased the number of EuVECA funds. ++ Aligned with the investment approach of horizon 2020 programs ++ Low implementation costs ++ Positive impact on the EuVECA label Option 4 ++ Investors will benefit from broader investment base ++ SME growth market will benefit from greater liquidity and capital - Unlisted SMEs may have reduced investment focus from EuVECA, albeit from a wider capital pool + SME labour intensive firms will benefit from additional investments 0 No impact on investors protection - Potentially less financing to SMEs ++ More diversified portfolio ++ Increased the number of EuVECA funds. ++ Low implementation costs ++ Positive impact on the EuVECA label ++ Supports how the market actually invests ++: major improvements; +: some improvements; 0: no or marginal impacts; - some deterioration; -- significant deterioration, AIFM - AIFMD-authorised managers 6.3.The investor base and related investor protection rules

6.3.1.Description of the policy options To attain this operational objective, the following options were considered Option 1 – Do nothing, i.e. maintain the €100,000 minimum investment Option 2 – Reduce the €100,000 minimum investment without restrictions Option 3 – Reduce the €100,000 entry ticket and introduce investor protection safeguards 6.3.2.Analysis of impacts and comparison of options Under Option 1, the baseline scenario, the €100,000 minimum investment for non-professional investors, such as high net worth individuals, angel investors, entreprenuers would be maintained, together with the requirement that the investors state in writing that they are aware of the risks associated with the envisaged commitment or investment. Option 1 also means that EuVECA and EuSEF managers would not be required to introduce further retail investor safeguards. Consequently, a limited number of non-professional investors could potentially invest in EuVECA and EuSEF funds. Option 2: There is a relatively large pool of non-sophisticated savers who have investible assets equivalent to a small multiple of the €100,000 minimum investment. However, the current level of the minimum investment excludes investors for whom a EuVECA or EuSEF fund may still be appropriate. Option 3: Reducing the limit would permit EuVECA and EuSEF funds to be marketed to investor' with potentially lower financial literacy and less ability to absorb losses from funds. Under Option 3 the current safeguard - a statement in writing that the retail investor is aware of the risks associated with the investment in the EuVECA and EuSEF fund - would not be regarded as proportionate. Option 3 would therefore introduce additional safeguards to strengthen the retail investor protection. This could be based upon ELTIF, which imposes on the ELTIF fund manager diversification requirements and the appointment of a depositary. Moreover, the ELTIF manager has to ensure that a retail investor with a portfolio of up to €500,000 does not invest an aggregate amount exceeding 10% of his/her portfolio in ELTIFs, provided that the initial amount invested in one or more ELTIFs is not less than €10,000. These requirements would seem to fully serve the purpose of lowering the minimum investment. In the feedback received in the consultation there was a wide range of views around whether the investment threshold should be modified – with a considerable number of responses to the consultation supportive of reducing the minimum investment since this would require the inclusion of additional investor safeguards which would increase the costs for the funds. Three respondents, including EIB group, proposed €50,000 for the minimum investment. Another referred to "one-object funds" which are also permissible in Germany for “semi-professional investors” at a minimum investment amount of €20,000. Other proposals fell within the range of €20,000 to €30,000, with a philanthropic association proposing a €10,000 minimum investment for EuSEF only suggesting it is still sizeable for a normal retail investor. However, many respondents were in favour of the current €100,000 threshold in order to preserve investor confidence in social investments. Other respondents confirmed that the wider opening to less sophisticated investors should be coupled with the appointment of a depositary and some diversification criteria There was broad recognition amongst both those supportive and those more critical that greater investor protection would be needed – and this would a significant drawback from many respondents, including trade bodies. However, many respondents were in favour of the current €100,000 threshold in order to preserve investor confidence in social investments. Other respondents confirmed that the wider opening to less sophisticated investors should be coupled with the appointment of a depositary and some diversification criteria Criteria including an investor's income, net assets, experience, and understanding of the risks involved were also proposed. A Member State and other respondents preferred to set a relative threshold rather than an absolute number to reduce concentration risk in investors' portfolios. A Member State suggested 10% of net investible assets, several respondents referred to wealth tests, and, more particularly, the ELTIF test. In addition, several respondents and stakeholders in bilateral meetings also explained that non-professional investors investing in venture capital funds mainly come from groups of highly sophisticated, high-net-worth individuals able to commit more than €100,000 per investment. For smaller funds the minimum investment has been mentioned as a potential barrier, however smaller investments for non-professional investors are already available in social assets, through a number of alternative tools (e.g. crowdfunding, IPOs etc). EuSEF in particular is a different instrument for the longer term (e.g. these funds have a minimum lock-up period of 5 years) which requires higher thresholds and more investor protection. Impacts on stakeholders

Options 2 and 3: Both options would allow managers to market to a wider range of retail investors. This would give investors access to a greater range of investment opportunities and allow the managers to market their funds to a wider pool of investors. If retail investors with lower available capital were allowed to invest by decreasing the €100, 000 threshold, this would give them greater flexibility than at present to invest in start-ups and social enterprises. However, these retail investors may be less financially sophisticated than high net worth individuals and consequently not well placed to fully understand the risks associated with investing in EuVECA and EuSEF funds, nor afford the potential losses. This is the main reason why traditional safeguards would be needed to maintain an adequate level of investor protection and confidence in such products. There are some safeguards already in place to support retail investors. EuVECA and EuSEF require investors to state in writing that they are aware of the risks associated with their investment, which should at least push investors to reflect on the risk they are taking on. In addition, EuVECA and EuSEF funds are considered as complex products under MiFID II, so they must be sold with advice and retail investors are required to pass a suitability test. If the minimum investment is reduced, the current safeguards are unlikely to be sufficient. To be consistent with safeguards for products with similar levels of risk, the manager would need to undertake a full assessment of whether the investor is well-informed and understands what he is investing in, rather than simply whether he can afford the investment. A number of responses to the EuVECA and EuSEF consultation noted that it is likely that managers would therefore be subject to higher investor protection rules which imply higher compliance costs which are not likely to be mitigated by the increased take-up in volume by retail investors. Furthermore, the risks of the funds would need to be reduced, most likely along the lines of ELTIF, with greater diversification requirements and use of a depositary mandate. These measures would also increase costs for managers, and consequently for investors. Moreover, these requirements would impact the investment strategies of these managers and respondent to the consultations claimed that the potential benefit would not offset the drawbacks. The risks for retail investors would be greater. In fact, investors with lower overall capital typically can withstand smaller losses and may be less financially sophisticated to fully appreciate the financial risks. The investor should well-informed and understanding what he is investing in. This assessment is more needed rather than just an understanding of how much the investor can afford to invest. A number of responses to the EuVECA and EuSEF consultation noted that managers would therefore likely to be subject to greater compliance procedure and costs, which would not be mitigated by the increased take-up in volume by retail investors. Invest Europe statistics (see Table 30 in Annex 11) in 2015 report that the incremental amount raised by family offices and private individuals is lower than 15%.Indeed, it seems that managers tend to raise money from many different individual and non-professional investors and that the €100,000 minimum investment is not perceived as being restrictive so far. Comparison of options Options 2 and 3 would enlarge the eligible investor base. However, under Option 2 the reduced minimum investment would introduce significant investor protection risks and might hamper investor confidence in EuVECA and EuSEF funds. Option 3 would provide for suitable safeguards as would build on investor protection like under the ELTIF Regulation. Lowering the investment threshold would inevitably need to be coupled by additional retail investor protection measures which would only serve to detract from the ultimate benefit of more flexible EuVECA and EuSEF regimes. As the EuVECA and EuSEF are for the time being a niche market, it seems more appropriate to let this market develop with a light touch regime before introducing additional layers of investor protection requirements. Given the trade-off between the objectives of ensuring adequate consumer protection and to increase investments into the EuVECA and EuSEF funds, the preferred option is, therefore, Option 1. Table 5: Enlarge investor base – Impact on Stakeholders and achievement of objectives relative to option 1 (‘do nothing’) Impact on Stakeholders Efficiency Effectiveness Option 1 0 0 0 Option 2 ++ More investors will have access to EuVECA and EuSEF funds - - Lack of investor protection + Potentially more capital invested ++ larger investors base - - Investors in Venture capital are high net worth individuals - - Lack of investor protection Option 3 ++ Positive impact on investor protection - - More costs for costs EuVECA and EuSEF managers ++ larger investor base - - Will not have a positive impact on the take up of EuVECA and EuSEF funds. - - Negative impact on the light touch regime of the EuVECA and EuSEF Regulations -- Diversification rules and depositary requirements will hinder the development of EuVECA and EuSEF funds. ++: major improvements; +: some improvements; 0: no or marginal impacts; - some deterioration; -- significant deterioration, AIFM - AIFMD-authorised managers 6.4.Differences in costs for launching and marketing EuVECA and EuSEF funds 6.4.1.Description of the policy options To attain this operational objective, the following options were considered Option 1 – No policy change: leave Member States flexibility to interpret EuVECA and EuSEF requirements (e.g. sufficient own funds, administrative requirements and registration processes) . Option 2 – Guidelines or recommendations for more consistent application of the EuVECA and EuSEF Regulations.

Option 3 – Explicit clarifications in the EuVECA and EuSEF Regulations to avoid burdensome administrative processes and additional measures (including fees imposed by host Member States) and non-proportionate requirements imposed by home Member States. 6.4.2.Analysis of impacts and comparison of options Under Option 1, the baseline scenario, the EuVECA and EuSEF Regulations leave flexibility in their implementation to Member States, which is corollary to the Regulations' light touch features. The EuVECA and EuSEF registration process remains parallel to the AIFMD registration. Some competent authorities would continue to rely on their interpretation of the Regulations and would still impose fees on in-bound EuVECA and EuSEF funds and add other requirements and would disproportionately apply own fund rules. As a consequence, under Option 1 the patchwork of different approaches by competent authorities will be maintained and the dual registration process will remain in place. Option 2: Guidelines or recommendations could be adopted by the Commission under Article 288 of the Treaty on the functioning of the European Union (TFEU). Alternatively guidelines or recommendations to competent authorities could be issued by ESMA under Article 16 of the ESMA Regulation. Guidelines or recommendations would clarify the level of sufficient own funds the prohibition on competent authorities of host Member States to add other requirements and in particular impose fees on in-bound EuVECA and EuSEF funds. Option 3 would specify in the EuVECA and EuSEF Regulations that Member States shall not impose requirements other than those foreseen in the Regulations and state clearly that fees may not be charged by competent authorities of host Member States. This Option would also combine the EuVECA and EuSEF registration process with the registration process under the AIFMD. Moreover, this Option would introduce more certainty as to the sufficient own funds through the modification of the EuVECA and EuSEF Regulations, accompanied by level-2 measures, to ensure that EuVECA and EuSEF managers are not subject to the same level of requirements foreseen for large managers authorised under the AIFMD. Respondents to the consultation explain that several Member States have not taken into account the size of the EuVECA and EuSEF managers when interpreting and applying the EuVECA and EuSEF Regulations. It is also claimed that other requirements have been added. Examples are provided in the review in Annex 4. Impact per stakeholders Option 2 would present some benefits for EuVECA and EuSEF managers. Guidelines or recommendations may only promote common and proportionate approaches by supervisors. However, they are not legally binding. There is no guarantee that the lack of clarity among supervisors could be resolved by non-binding guidelines or recommendations. Competent authorities may be also reluctant to adopt the changes. Option 3 would present significant benefits for all EuVECA and EuSEF managers in particular by keeping competent authorities of host Member States from charging fees and from imposing additional requirements or the same level of requirements as foreseen for large managers authorised under the AIFMD. Despite the fact that there is no evidence that the cost saved by the EuVECA and EuSEF managers will be passed to investors, Option 3 offers the opportunity for managers to market funds with lower costs. Comparison of options Option 2 provides more flexibility to competent authorities, but may not succeed in avoiding gold-plating in the application of the two Regulations or in simplifying the registration process. Option 3 may better achieve the objective targeted by prohibiting additional measures and fees charged by competent authorities of host Member States and by promoting proportionate measures. The indirect costs on managers for registering EuVECA and EuSEF funds include capital requirements. Respondents stressed that competent authorities vary in their interpretation of "sufficient own funds", with some competent authorities even applying the full requirements for authorised managers under AIFMD. For the same size of fund, these can range across Member States from € 6,500 to €125,000, the upper threshold is in line with the full capital requirements levied on AIMD authorised entities. Some Member States charge fees for marketing EuVECA and EuSEF funds on a cross-border basis in their Member State. In these cases, the annual fee levied are the same as for other AIFs being marketing in these Member States – and range from €300 to € 3,000. In addition, there are one-off fees charged by host NCAs when marketing commences, which also range from €300 to € 3,000. Preferred option is, therefore, Option 3. Preferred option Description Types of asset impacted managers/undertakings Estimated impact Option 3 Explicit clarification in the EuVECA and EuSEF Regulations that host Member States may not impose fees EuVECA and EuSEF managers This can have a positive impact on EuVECA and EuSEF managers as it can reduce the cross-border marketing costs. Streamlined EuVECA and EuSEF registrations with the AIFMD EuVECA and EuSEF managers and AIFMD-authorised managers Reduce the registration costs and administrative burden. Explicit clarification of sufficient own funds through modifications of the EuVECA and EuSEF Regulations and level 2 EuVECA and EuSEF managers Reduce the compliance costs for EuVECA and EuSEF managers, fostered competition. Table 6: Decrease costs for EuVECA and EuSEF managers – Impact on Stakeholders and achievement of objectives relative to option 1 (‘do nothing’) Impact on Stakeholders Efficiency Effectiveness Option 1 0 0 0 Option 2 ++ Less costs for EuVECA and EuSEF managers ++ No impact on investors - Not Legally binding - - Room for interpretations - Less probability to achieve the goal - Low implementing costs but low results Option 3 ++ Less costs for EuVECA and EuSEF managers ++ Legally Binding ++ Will avoid duplication of costs and non-proportionate requirements + Clearer rules for EuVECA and EuSEF funds managers ++: major improvements; +: some improvements; 0: no or marginal impacts; - some deterioration; -- significant deterioration, AIFM - AIFMD-authorised managers

6.1.Overall impact of the proposed options, compliance costs and proportionality The EuVECA Regulation Preferred policy options Cost impacts Benefits for managers managing EuVECA funds, investors and portfolio undertakings Proportionality Allow large AIFMD-authorised managers to manage and market EuVECA funds Expand the definition of qualifying portfolio undertakings Maintain the €100,000 minimum investment Explicit clarifications in the EuVECA Regulation to avoid burdensome administrative processes and additional measures (including fees imposed by host Member States) and non-proportionate requirements imposed by home Member States. As the main features of the regime have been preserved, there will be no additional costs for asset managers. The costs are likely to be lower than it is in the current situation as the adapted rules will explicitely specificy proportionality of the requirements. Allowing large AIFMD-authorised managers to manage and market EuVECA funds is likely to have a positive impact on fees paid by investors to managers. Large AIFMD-authorised managers rely on more economy of scale that in turn are beneficial for investors. Maintaining the €100,000 threshold is also limiting the introduction of new requirements such as depositary or diversification rules that will have an impact on the costs for the asset managers and indirectly to the fees paid by investors. No impact on the EU budget. The main featureof the regime have been preserved for small asset managers and will be further reinforced. The balanced approach between investor protection and attractiveness of the regime is preserved. There are no additional risks for investors. Large AIFMD-authorised managers will benefit from the EuVECA funds framework and will be able to market EuVECA funds to non-retail investors. They may aslo target institutional investors such as insurance companies that are already incentivised to invest in this fund framework. As more asset managers will be able to use EuVECA label, this in turn will have a positive impact on SMEs and small mid-caps. The brodened definition of qualifying portfolio undertaking with larger entities will diversify the portfolio of EuVECA funds and allow small mid-caps entities to have access to the EuVECA financing. Expanding the definition of qualifying portfolio undertaking by allowing investment in SME growth market will foster the development of those markets. Investors will have access to more diversified portfolio and in some extent less risky investment. The administrative for EuVECA managers burden will be reduced. The preferred options are coherent with other legislation and initiatives, in particular AIFMD, MiFID SME Growth Market, CMU, and reinforce EU financing programmes, includingHorizon 2020 and EFSI. The preferred options take account of the principle of proportionality, as enshrined in Article 5(4) of the Treaty on European Union, being adequate to reach the objectives and not going beyond what is necessary in doing so. The selected policy options seek to strike the right balance between public interest, protection of investors, safety and trust considerations as well as related costs. Unnecessary burdens are avoided. Given the underlying objective, the success of this initiative will to a large degree depend on achieving the right balance between proposed rights and obligations. The envisaged rules will, therefore, not go beyond what is necessary to achieve a common legal framework for EuVECA funds. They have been carefully considered and tailored to support the specific features, growth potential and innovativeness of the EuVECA sector. The EuSEF Regulation Preferred policy options Cost impacts Benefits for managers managing EuSEF funds and investors Proportionality Allow large AIFMD-authorised managers to manage and market EuSEF funds Maintain the €100,000 minimum investment Explicit clarifications in the EuSEF Regulation to avoid burdensome administrative processes and additional measures (including fees imposed by host Member States) and non-proportionate requirements imposed by home Member States. As the main features of the regime have been preserved, there will be no additional costs for asset managers. The costs are likely to be lower than it is in the current situation as the adapted rules will explicitely specificy proportionality of the requirements. Allowing large AIFMD-authorised managers to manage and market EuSEF funds is likely to have a positive impact on fees paid by investors to managers. Large AIFMD-authorised managers have more economy of scale that in turn are beneficial for investors. Maintaining the €100,000 threshold is also limiting the introduction of new requirements such as depositary or diversification rules that will have an impact on the costs for the asset managers and indirectly to the fees paid by investors. No impact on the EU budget. The main features of the regime have been preserved for small asset managers and will be further reinforced. The balanced approach between investor protection and attractiveness of the regime is preserved. There are no additional risks for investors. Large AIFMD-authorised managers will benefit from the EuSEF funds framework and will be able to market EuSEF funds to non-retail investors. They may aslo target institutional investors such as insurance companies that are already incentivised to invest in this fund framework. As more asset managers will be able to use the EuSEF label this in turn will have a positive impact on social undertakings financing. Investors will have access to more diversified portfolio and in some extent less risky investment. The administrative burden for EuSEF managers will be reduced. The preferred options are coherent with other legislation and initiatives, in particular AIFMD and CMU, and reinforce EU financing programmes, including COSME, Horizon 2020 and EFSI. The preferred options take account of the principle of proportionality, as enshrined in Article 5(4) of the Treaty on European Union, being adequate to reach the objectives and not going beyond what is necessary in doing so. The selected policy options seek to strike the right balance between public interest, protection of investors, safety and trust considerations as well as related costs. Unnecessary burdens are avoided. Given the underlying objective, the success of this initiative will to a large degree depend on achieving the right balance between proposed rights and obligations. The envisaged rules will, therefore, not go beyond what is necessary to achieve a common legal framework for EuSEF funds. They have been carefully considered and tailored to support the specific features, growth potential and innovativeness of the EuSEF sector. Considering an average fee for marketing AIFs cross-border of €1,500 per Member State per year, the cost saving would be € 40,500 per year per fund marketing in 27 Member States. This would be applicable to both EuVECA and EuSEF funds. Using the data from InvesEurope which reported that there were 316 venture capital funds in the period 2011 – 2015 which raised almost € 16 bn in EU, and assuming in the next 5 years there will be the same number of new venture capital funds and that 50% will be EuVECA, the total cost saving of cross-border marketing fees would be € 31,995,000. Moreover, it could be estimated a cost saving from the single registration process of € 10,000, from legal and administrative cost reductions applicable to EuVECA and EuSEF funds. Using the same assumptions as above, namely that in the next 5 years there will be the same number of new venture capital funds and that 50% will be EuVECA, the total cost saving would be € 1,580,000. 7.Monitoring and evaluation The Commission will monitor how Member States apply the changes to the two Regulations. Providing for a robust monitoring and evaluation mechanism is crucial to ensure that the rights and obligations envisaged in the EuVECA and EuSEF Regulations are complied with. In line with the objectives underpinning the Commission's policy choice, the post-adoption monitoring and evaluation will focus on four issues: (1) whether the amended framework provides sufficient incentive for large managers to manage and market EuVECA and EuSEF funds, i.e. whether are large managers managing EuVECA and EuSEF funds; (2) whether the modified framework has contributed to an increase in assets under management in EuVECA and EuSEF funds; (3) whether modification of the qualifying portfolio undertaking criteria has increased the capital raised, and investments undertaken, by EuVECA funds; and (4) whether the modifications including the prohibition on host Member State marketing fees and clarification of the meaning of sufficient funds have led to decreased administration and marketing costs for EuVECA and EuSEF funds. (i) whether the modified framework is attractive for AIFMD-authorised managers to manage and market EuVECA and EuSEF funds, (ii) whether the framework has contributed to an increase in assets under management in EuVECA and EuSEF funds, and more broadly to assets invested in venture capital and social impact projects, (iii) whether the modified qualifying portfolio undertaking criteria increased the capital raised, and investments undertaken, by EuVECA funds, and (iv) whether the clarifications including the prohibition on host Member State to impose fees and sufficient own funds have decreased administration and marketing costs for EuVECA and EuSEF funds. The revised EuVECA and EuSEF Regulations should be evaluated 4 years after their entry into application, and potentially reviewed earlier, in order to determine whether the