Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Venture Capital Funds
Date: 2011-12-07
Institutions: European Commission
Subjects: aid to undertakings, entrepreneurship, innovation, investment, investment company, new technology, product designation, small and medium-sized enterprises, venture capital

EUROPEAN COMMISSION 

Brussels, 7.12.2011 
COM(2011) 860 final 

2011/0417 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on European Venture Capital Funds  

(Text with EEA relevance) 

{SEC(2011) 1515 final} 
{SEC(2011) 1516 final} 

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Compared  with  competing  global  centres  of  high-tech  and  innovation,  most  notably  the 
United  States,  the  European  venture  capital  industry  is  fragmented  and  dispersed.  This 
fragmentation and dispersion leads to a statistically significant investor's reluctance to invest 
in  venture  capital  fund:  Some  Member  States  have  dedicated  venture  capital  fund  regimes 
with  rules  on  portfolio  composition,  investment  techniques  and  eligible  investment  target. 
However, most Member States do not have such specific venture capital fund regimes, they 
rather apply general rules on company law and prospectus obligations to the activities of all 
fund managers who wish to offer 'private placements' of venture capital in their jurisdictions.  

As  a  consequence  of  regulatory  fragmentation,  potential  'venture  capital'  investors  such  as 
wealthy  individuals,  pension  funds  or  insurance  companies  find  it  difficult  and  costly  to 
embark  on  channelling  some  of  their  investments  toward  venture  capital.  Regulatory 
fragmentation also impedes specialised venture capital funds from raising significant amount 
of capital from abroad.  

Closely  linked  to  the  problem  described  above  is  the  issue  whether  Europe  dedicates 
insufficient  funds  toward  the  financing  of  innovative  start-up  industries.  While  the  United 
States,  in  the  period  from  2003-2010,  channelled  approximately  €  131  billion  into  VCFs, 
European VCFs only managed to raise € 28 billion in this period.  

Potential  investor's  current  preference  is  to  prefer  private  equity  over  venture  capital 
investments. In the reference period 2003-2010, funds dedicated to venture capital amounted 
to  €  64  billion  out  of  a  total  of  €  437  billion  i nvested  in  the  wider  field  of  private  equity. 
Venture  capital  thus  accounted  for  only  14.6%  of  the  joint  pool  –  with  private  equity 
accounting  for  85.4%.  Looking  at  this  reference  period  on  a  yearly  basis,  monies  raised  by 
private equity every single year by far exceed those raised by venture capital.  

As long as this bias in favour of private equity -- a sector that invests in mature companies 
and  organises  leveraged  buy-outs  --  persists,  available  funds  are  not  channelled  to  equity 
finance  to  seed  and  start-up  ventures  that  are  at  the  make-or-break  phase  in  their  corporate 
development.  The  lack  of  financial  resources  that  are  currently  directed  towards  venture 
capital is directly responsible for the sub-optimal size of the average European VCF.  

The average size of a European venture capital fund is significantly beneath the optimal size 
for  this  type  of  funding  instrument.  While  the  average  United  States  venture  capital  fund 
(VCF) assembles € 130 million of assets under ma nagement, the average European VCF size 
is around € 60 million.  

In  consequence,  venture  capital,  at  this  stage,  plays  a  minor  role  in  the  financing  of  SMEs. 
SMEs  depend  primarily  on  bank  loans.  Bank  loans  account  for  more  than  80%  of  their 
finance,  while  only  2%  of  their  finance  is  supplied  by  venture  capital  specialists.  The 
corresponding figure for the United States is 14%.  

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These findings are particularly striking in light of the fact that many SMEs, since the financial 
crisis of 2008 and 2009, had to pay much higher interest rates for bank loans.1 Moreover, as a 
consequence  of  the  financial  crisis  of  2008  and  2009,  the  provision  and  extension  of  credit 
lines  by  banks  to  SMEs  has  decreased  significantly,  so  SMEs'  search  and  demand  for  other 
alternative  sources  of  finance  has  become  pressing.2  Still,  venture  capital,  for  want  of 
sufficient capital resources, has not been able to step into this obvious gap.  

The absence of an efficient venture capital sector leads to European innovators and innovative 
business  ventures  punching  below  their  commercial  potential.  This,  in  turn,  is  negative  for 
Europe's  global  competitiveness.  This  point  can  be  illustrated  by  comparing  the  relative 
importance  of  venture  capital  investments  as  a  financing  tool  (expressed  as  a  percentage  of 
GDP)  in  a  highly  innovative  market,  such  as  the  United  States  (0.14%),  with  the  European 
average (0.03%).  

This situation is also borne out when assessed from the perspective of the overall portfolio of 
venture capital funds managed by a particular fund manager. According to the latest figures 
available from the European Private Equity and Venture Capital Association (EVCA), 98% of 
European venture capital fund managers manage a portfolio of funds that would be beneath 
the  €  500  million  threshold  of  the  Directive  on  Alternative  Investment  Fund  Managers 
(AIFMD).3  

Tackling these problems and supporting European entrepeneurs is therefore vital. A thriving 
European venture capital market is an objective of the overall Europe 2020 Strategy,4 while 
the  European  Council  of  February  2011  called  for  the  removal  of  remaining  regulatory 
obstacles  to  cross  border  venture  capital.  As  a  follow  up,  the  European  Commission 
committed  in  the  Single  Market  Act5  (SMA)  to  ensure  that  by  2012  venture  capital  funds 
established in any Member State can raise capital and invest freely throughout the EU. A new 
framework for venture capital funds is also one of the key priorities of the SME action plan 
[insert  reference]  which  aims  at  fostering the  growth  of  SMEs  by  improving  their  access  to 
finance. The communication of the Commission "A roadmap to stability and growth" adopted 
on 12 October 2011 also identified facilitating the access to venture capital  as an  important 
tool  to  boost  growth  within  the  EU  and  therefore  calls  for  a  fast  track  adoption  of  relevant 
proposals by the European Parliament and Council.6  

The  proposed  Regulation  addresses  these  problems.  It  introduced  uniform  requirements  for 
the  managers  of  collective  investment  undertakings  that  operate  under  the  designation 
"European Venture Capital Fund". It introduces requirements as to the investment portfolio, 
investment  techniques  and  eligible  undertakings  that  a  qualifying  venture  capital  fund  may 

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6 

According to the latest European Central Bank (ECB) survey where more than 50% of the sampled euro area SMEs 
reported  increases  in  interest  rates  charged  by  banks  and  overall  tightening  of  credit  standards  for  bank  loans  to 
SMEs. 
In the latest survey (09/2010 – 02/2011) carried out by the European Central Bank (ECB) and developed together 
with the European Commission on the access to finance of SMEs in the Euro area, around 15% of SMEs surveyed 
quoted "access to finance" as their most pressing problem and this has not changed compared to previous surveys. 
http://www.ecb.europa.eu/pub/pdf/other/accesstofinancesmallmediumsizedenterprises201104en.pdf?b704f6b228e0
71bea9507d7569412805 
Source: European Private Equity and Venture Capital Association (EVCA) estimates 2011. 
http://ec.europa.eu/europe2020/index_en.htm,  3  March  2010,  and  also  recognised  within  the  Innovation  Union, 
http://ec.europa.eu/research/innovation-union/index_en.cfm?pg=keydocs 6 October 2010. 
http://ec.europa.eu/internal_market/smact/docs/20110413-communication_en.pdf 13 April 2011 
http://ec.europa.eu/commission_2010-2014/president/news/speeches-
statements/pdf/20111012communication_roadmap_en.pdf 

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target. It also introduces uniform rules on which categories of investors a qualifying venture 
capital  fund  may  target  and  on  the  internal  organisation  of  the  managers  that  market  such 
qualifying  funds.  As  managers  of  collective  investment  undertakings  that  operate  under  the 
designation  "European  Venture  Capital  Fund"  will  be  subject  to  identical  substantive  rules 
across the EU, they will benefit from uniform requirements for registration and an EU-wide 
passport, which will help create a level playing field for all participants in the venture capital 
market.  

Uniform  rules  for  venture  capital  funds  can  also  give  an  important  impulse  for  the 
development  of  other  areas  of  the  regulation  of  venture  capital  investments.  Prudential 
frameworks  for  insurance  companies  (Solvency  II)  and  banks  (Capital  Requirements 
Regulation  and  Directive)  treat  venture  capital  investments  as  high  risk  for  the  purposes  of 
calculating  capital  requirements.  The  Commission  will  assess  the  impacts  of  such 
requirements,  in  order  to  identify  whether  these  capital  requirements  need  changing  in  the 
medium  or  long  term.  Establishing  an  EU-wide  framework  for  venture  capital  funds  with  a 
uniform  set  of  rules  on  portfolio  composition  and  operating  conditions  as  envisaged  by  this 
Regulation may facilitate such an assessment.  

As also highlighted in the SME action plan a common notion of a venture capital fund will be 
a good starting point for further exploring with Member States solutions to the tax problems 
which  may  hinder  cross-border  investments  by  such  funds.  The  Commission  will  in  2012 
complete its examination of the tax obstacles to cross-border venture capital investment with a 
view to presenting solutions in 2013 aimed at eliminating the obstacles while at the same time 
preventing  tax  avoidance  and  evasion.  Such  solutions  –  though  independent  from  this 
Regulation – are an important compliment to it, in order to develop a fully functional market 
for  venture  capital  funds  and  for  SMEs  within  the  EU.  They  would  ensure  efficient  capital 
flows to qualifying venture capital funds and ultimately the qualifying portfolio undertakings 
in which the funds invest.  

The  proposed  Regulation  is  complementary  to  the  proposed  Regulation  on  European  Social 
Entrepreneurship  Funds  (EuSEFs).  Both  proposals  aim  to  achieve  different  goals  and  both 
proposals, if adopted, will coexist as autonomous legal acts in mutual independence.  

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

2.1. 

Consultation with interested parties 

Work  on  venture  capital  dates  back  to  1998  when  the  importance  of  creating  a  well 
functioning  risk  capital  market,7  with  venture  capital  as  an  essential  part,  was  already 
recognised  in  the  Commission  Communication  on  the  Risk  Capital  Action  Plan  (RCAP).8 
Since  then  the  Commission  gathered  further  evidence  through  dedicated  workshops, 
consultations and expert groups, addressing the existing legal, regulatory and tax barriers that 
prevent an optimal functioning of venture capital markets.  

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8 

Risk capital cover three types of financing: (i) informal investment by business angels, (ii) venture capital and (iii) 
stock markets specialized in SMEs and high growth companies. 
RCAP Final report 2003: http://ec.europa.eu/internal_market/securities/riskcapital/index_en.htm 

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On  15  June  2011,  the  Commission  services  launched  a  public  consultation9  on  the  core 
elements  of  a  possible  European  framework  for  venture  capital  funds,  which  closed  on  10 
August  2011.  Forty  eight  answers  have  been  received  which  can  be  consulted  on  the 
following 
website 
http://ec.europa.eu/internal_market/consultations/2011/venture_capital_en.htm. 

2.2. 

Impact assessment 

In line with its policy on "better regulation", the Commission conducted an impact assessment 
of policy alternatives. These alternatives contain a wide range of possible options: 

• 

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• 

Introduce a new venture capital passport within Directive 2011/61/EC (AIFMD)  

Lower or abolish the thresholds of the AIFMD 

Create  special  rules  for  venture  capital  as  part  of  the  implementing  provisions  of 
AIFM-D ('level 2') 

Create a venture capital passport as a stand-alone legal instrument 

Create  an  administrative  network  to  enforce  mutual  recognition  of  national  rules 
governing venture capital or 'private placements'.  

All  these  options  were  analysed  against  the  general  objectives,  namely  to  make  European 
SMEs  more  competitive  in  a  global  market  place,  but  also  against  the  more  specific  and 
operational objectives of this initiative: (i) to establish a European notion of "venture capital 
fund"  (ii)  to  create  a  European  system  promoting  the  cross  border  fund  raising  of  venture 
capital funds, (iii) to create a common regulatory approach governing such funds, including 
the creation of a network for regulatory cooperation in supervising such investment funds.  

The impacts including the costs and benefits on venture capital fund mangers, SMEs, society, 
overall  economy,  environment  and  the  global  context  were  also  analysed.  Such  analysis 
concluded in favour of the creation of a venture capital passport as a stand alone instrument. 
The  impact  of  the  preferred  option  is  expected  to  benefit  venture  capital  fund  managers  by 
improving  their  operating  conditions  in  the  EU  which  shall  then  lead  to  compliance  and 
administrative  cost  reductions  and  opening  up  new  fund-raising  opportunities.  This  shall 
result  in  more  business  opportunities  and  more  funding  being  channelled  to  young  and 
innovative SMEs which shall in turn boost the competitiveness and growth of the European 
Economy.  

The comments by the Impact Assessment Board expressed in their opinion of 11 November 
have  been  taken  into  account.  In  particular,  the  analysis  of  the  problems  has  been 
strengthened by explaining how far low levels of cross-border venture capital fundraising can 
be attributed to the fragmentation of rules in the EU. The options have been better linked back 
to  the  specific  problems  identified  and  the  analysis  of  their  impacts  has  been  deepened. 
Finally, monitoring and compliance arrangements have been further clarified. 

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Legal basis 

The proposal is based on Article 114 TFEU as the most appropriate legal base in this field. 
The  proposal  aims  principally  at  improving  the  reliability  and  legal  certainty  of  marketing 
activities undertaken by operators using the designation "European Venture Capital Fund". In 
pursuing  this  aim,  the  proposal  introduces  uniform  standards  concerning  the  portfolio 
composition  of  "European  Venture  Capital  Funds",  the  investment  instruments  that  such 
funds  may  use,  and  the  investment  targets  that  are  eligible  for  funding  from  collective 
investment funds that operate under the designation "European Venture Capital Fund".  

The proposal also introduces uniform rules on the categories of investors that are considered 
as eligible to invest in "European Venture Capital Funds". A Regulation is considered to be 
the  most  appropriate  legal  instrument  to  introduce  uniform  requirements  directed  to  all 
participants in the venture capital market - venture capital investors, venture capital funds and 
the  target  companies  of  venture  capital  financing.  A  Regulation  is  also  considered  the  most 
appropriate  instrument  to  create  uniform  rules  on  who  can  be  a  venture  capital  investor,  on 
who  can  use  the  designation  "European  Venture  Capital  Fund"  and  on  the  types  of 
undertakings  that  can  receive  funding  from  such  qualifying  funds.  Finally,  a  Regulation  is 
considered to be the most appropriate instrument to ensure that all participants are subject to 
uniform requirements regarding the subscription to "European Venture Capital Funds" and the 
investment  strategies  pursued  and  investment  tools  used  by  "European  Venture  Capital 
Funds".  

3.2. 

Subsidiarity and proportionality 

The  proposal  essentially  aims  at  creating  a  trusted,  safe  and  legally  stable  marketing 
environment  for  the  marketing  of  European  venture  capital  funds.  The  determination  of  the 
essential  characteristics  of  a  European  venture  capital  fund,  in  terms  of  its  portfolio 
composition, investment tools, investment targets and eligible investor groups, can not be left 
to  the  discretion  of  the  Member  States  as  this  would  give  rise  to  different  and  inconsistent 
application  of  these  defining  requirements  throughout  the  EU.  Uniform  definitions  and 
operating  requirements  therefore  must  play  a  central  role  in  establishing  a  set  of  common 
rules for the European market for EU venture capital funds and their managers. Furthermore, 
all  collective  investment  fund  managers  operating  in  this  market  using  the  designation 
"European Venture Capital Fund" must be subject to the same organisational and conduct of 
business requirements.  

In respect of the registration and supervision of the managers of "European Venture Capital 
Funds" the proposal aims at striking a balance between the need for effective supervision of 
European venture capital funds, the interest of the competent national authorities where such 
funds  are  either  domiciled  or  offered  to  the  eligible  categories  of  investors  and  the 
coordinating  role  of  ESMA.  In  order  to  create  a  seamless  process  for  supervision,  the 
competent  authority  in  the  Member  State  where  the  manager  of  the  qualifying  "European 
Venture  Capital  Fund"  is  domiciled  will  verify  the  registration  documents  submitted  by  the 
applicant  manager  and,  after  having  assessed  whether  the  applicant  provides  sufficient 
guarantee  of  its  ability  to  comply  with  the  requirements  of  the  Regulation,  will  register  the 
applicant. In supervising the registered manager, the competent authority that has registered 
the manager will cooperate with the competent authorities in those Member States where the 

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qualifying  fund  is  marketed.  ESMA  will  maintain  a  central  database  listing  all  registered 
managers that are eligible to use the designation European venture capital fund. 

As  regards  proportionality,  the  proposal  strikes  the  appropriate  balance  between  the  public 
interest  of  promoting  the  development  of  more  liquid  venture  capital  markets  and  the  cost 
efficiency  of  the  measures  proposed.  In  providing  for  a  simple  registration  system,  the 
proposal has taken full account of the need to balance safety and reliability associated with the 
use  of  the  designation  "European  Venture  Capital  Fund"  with  the  efficient  operation  of  the 
venture capital market and the cost for its various stakeholders.  

3.3. 

Compliance with Articles 290 and 291 TFEU 

On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, 
EIOPA, and ESMA. In this respect the Commission wishes to recall the Statements in relation 
to  Articles  290  and  291  TFEU  it  made  at  the  adoption  of  the  Regulations  establishing  the 
European  Supervisory  Authorities  according  to  which:  "As  regards  the  process  for  the 
adoption  of  regulatory  standards,  the  Commission  emphasises  the  unique  character  of  the 
financial services sector, following from the Lamfalussy structure and explicitly recognised in 
Declaration  39  to  the  TFEU.  However,  the  Commission  has  serious  doubts  whether  the 
restrictions  on  its  role  when  adopting  delegated  acts  and  implementing  measures  are  in  line 
with Articles 290 and 291 TFEU." 

3.4. 

Presentation of the Proposal 

Article 1 - Scope 

Article 1 delineates the scope of the envisaged Regulation. The Article makes clear that the 
designation "European Venture Capital Fund" shall be reserved to those fund managers that 
comply with a set of uniform quality criteria that apply to the marketing of their qualifying 
venture capital funds across the Union. In this respect, Article 1 underscores the aim to set out 
a  uniform  concept  of  what  constitutes  a  qualifying  venture  capital  fund.  This  concept  is 
developed in order to ensure the smooth marketing of such funds across the Union. 

Article 2 - Scope of application 

Article  2  specifies  that  this  Regulation  applies  to  managers  of  collective  investment 
undertakings as defined in Article 3 (b) of this Regulation, provided that these managers are 
established in the Union and registered with the competent authority of their home Member 
State in accordance with Directive 2011/61/EC and that they manage portfolios of qualifying 
venture capital funds, whose assets under management in total do not exceed a threshold of 
EUR 500 million. 

Article 3 - Definitions 

Article 3 contains  essential definitions delineating the scope of application for the proposed 
Regulation.  Key  concepts  such  as  the  qualifying  venture  capital  fund,  the  qualifying 
investment  tools  and  the  qualifying  investment  targets  are  defined.  Essentially,  these 
definitions  aim  to  draw  a  clear  demarcation  line  between  the  notion  of  a  qualifying  venture 
capital fund and other funds that engage in other, less specialised, investment strategies, for 
example private equity.  

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In  line  with  the  aim  of  precisely  circumscribing  the  qualifying  funds  in  relation  to  which  a 
venture  capital  fund  manager  shall  benefit  from  the  rights  under  this  Regulation,  Article  3, 
paragraph (a) stipulates that a qualifying venture capital fund shall be a fund that dedicates at 
least  70  percent  of  its  aggregate  capital  contributions  and  uncalled  committed  capital  to 
investments  in  small  and  medium  sizes  enterprises  (SME)  that  issue  equity  or  quasi  equity 
instruments  directly  to  the  venture  capital  investor  ("investment  targets").  This  implies  that 
e.g.  operational  expenses  to  be  charged  to  the  qualifying  venture  capital  fund  as  may  be 
agreed  with  investors,  must  be  borne  out  of  the  remaining  30  percent  of  committed  capital 
contributions.  

It is important to clarify that the venture capital fund has to acquire these instruments directly 
from the issuing SME. Direct acquisition is an essential safeguard as it aims to differentiate 
qualifying  venture  capital  funds  from  the  broader  category  of  private  equity  funds  (which 
trade  in  issued  securities  on  secondary  markets).  Article  3  contains  further  definitions 
necessary for the application of the proposed Regulation.  

Article 4 – Use of the designation "European Venture Capital fund"  

Article 4 contains the key principle that only funds that comply with the uniform criteria laid 
down by this Regulation are eligible to use the designation "European venture capital fund" to 
market qualifying venture capital funds across the Union.  

Article 5 – Portfolio composition 

Article  5  contains  detailed  provision  on  the  portfolio  composition  that  characterises  a 
European  Venture  Capital  Fund.  In  this  respect,  Article  5  contains  uniform  rules  on  the 
investment targets for qualifying venture capital funds, eligible investment tools, rules on the 
limits by which a qualifying venture capital fund can increase its exposure. In order to allow 
qualifying venture capital funds a certain degree of flexibility in their investment and liquidity 
management,  secondary  trading  would  be  permitted  up  to  the  maximum  threshold  not 
exceeding 30 percent of aggregate capital contributions and uncalled capital investments.  

Article 6 – Eligible investors 

Article 6 contains detailed provisions on the investors eligible to invest in qualifying venture 
capital  funds:  according  to  this  Article,  the  qualifying  funds  may  only  be  marketed  to 
investors  recognised  as  professional  investors  in  Directive  2004/39/EC.  Marketing  to  other 
investors  such  as  certain  high-net  worth  individuals  is  only  allowed  if  they  commit  a 
minimum 'ticket' of EUR 100 000 to the fund and if certain procedures are followed by the 
fund  manager  so  that  the  fund  manager  is  reasonably  assured  that  these  other  investors  are 
capable of making their own investment decisions and understanding the risks involved.  

Article 7 – Rules of conduct and avoidance of conflicts of interest 

Article 7 contains general principles governing the behaviour of a qualifying venture capital 
manager, notably in the conduct of its activities and its relationship to investors.  

Article 8 – Conflicts of interest  

Article  8  contains  rules  for  the  handling  of  conflicts  of  interest  by  the  venture  capital 
manager.  These  rules  also  require  the  manager  to  have  the  necessary  organisational  and 
administrative arrangements in place to ensure a proper handling of conflicts of interest.  

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Article 9 – Other organisational requirements 

Article  9  requires  that  a  venture  capital  fund  manager  maintains  adequate  human  and 
technical  resources  as  well  as  sufficient  own  funds  as  are  necessary  for  the  proper 
management of qualifying venture capital funds.  

Article 10 – Valuation  

Article 10 addresses the valuation of the assets of a qualifying venture capital fund. Rules on 
this should be laid down in the statutory documents of each qualifying venture capital fund. 
Article 11 - Annual report  

Article 11 contains rules on annual reports  venture capital fund managers should prepare in 
relation  to  the  qualifying  venture  capital  funds  they  manage.  The  report  shall  describe  the 
composition of the portfolio of the fund and the activities of the past year. 

Article 12 - Disclosure to investors 

Article  12  contains  the  key  disclosure  requirements  that  are  incumbent  on  a  venture  capital 
fund  manager  in  relation  to  the  qualifying  venture  capital  funds.  Most  importantly,  these 
requirements  set  out  pre-contractual  disclosure  obligations  related  to  the  qualifying  fund's 
investment strategy and objectives, the investment instruments which are used, information on 
costs  and  associated  charges,  and  the  risk/reward  profile  of  the  investment  proposed  by  a 
qualifying  fund.  This  also  includes  information  about  how  the  remuneration  of  the  venture 
capital fund manager is calculated.  

Article 13 – Supervision  

Article 13 in order to ensure that the competent authority of the home Member State will be 
able  to  supervise  compliance  of  the  venture  capital  fund  manager  with  the  uniform 
requirements  set  out  in  the  Regulation,  the  venture  capital  fund  manager  shall  inform  the 
competent  authority  of  its  intention  to  market  qualifying  venture  capital  funds  under  the 
designation "European Venture Capital Fund." The manager shall also provide the necessary 
information including about the arrangements to comply with this Regulation and the funds he 
intends to market. Once the competent authority is satisfied that the required information is 
complete  and  that  the  arrangements  are  suitable  to  comply  with  the  requirements  set  out  in 
this  Regulation,  it  shall  register  the  venture  capital  fund  manager.  This  registration  shall  be 
valid  across  the  entire  Union  and  allows  the  venture  capital  fund  manager  to  market 
qualifying venture capital funds under the designation "European Venture Capital Funds". 

Article 14 – Update of information on qualifying venture capital funds  

Article  14  contains  rules  on  circumstances  when  information  supplied  to  the  competent 
authority in the home Member State needs to be updated.  

Article 15 - Cross-border notifications 

Article 15 describes the cross-border notification process between the competent supervisory 
authorities that is triggered by the registration of the venture capital fund manager.  

Article 16 – ESMA database 

EN 

8 

   EN 

 
Article  16  entrusts  ESMA  with  the  task  to  maintain  a  central  database  listing  all  qualifying 
venture capital funds that are registered across the Union.  

Article 17 –Supervision by competent authority 

Article  17  stipulates  that  the  competent  authority  of  the  home  Member  State  supervises  the 
requirements of this Regulation. 

Article 18 – Supervisory powers 

Article 18 specifies a list of supervisory powers that competent authorities shall have at their 
disposal to ensure compliance with the uniform criteria contained in the Regulation.  

Article 19 – Sanctions 

Article 19 contains provisions on sanctions to ensure proper enforcement of the requirements 
of this Regulation.  

Article 20 – Breach of key provisions 

Article 20 specifies that the breach of key provisions of this Regulation such as on portfolio 
composition, the eligible investors and the use of the designation "European Venture Capital 
Fund" should be sanctioned by the prohibition of the use of the designation and the removal 
of the venture capital fund manager of the register. 

Article 21 – Supervisory cooperation 

Article 21 contains rules on the exchange of supervisory information between the competent 
authorities in the home and host Member States and ESMA.  

Article 22 - Professional secrecy 

Article 22 contains provisions on the requisite level of professional secrecy that should apply 
to  all  relevant  national  authorities  and  to  the  European  Securities  and  Markets  Regulator 
(ESMA).  

Article 23 – Conditions for empowerment 

Article  23  sets  out  the  conditions  under  which  the  Commission  is  empowered  to  adopt 
delegated acts. 

Article 24 - Review  

Article  24  contains  clauses  on  the  review  of  the  proposed  Regulation  and  possible 
Commission proposals to modify the latter.  

4. 

BUDGETARY IMPLICATION  

There are no budgetary implications.  

EN 

9 

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2011/0417 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on European Venture Capital Funds  

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission,10 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Central Bank,11 

Having regard to the opinion of the European Economic and Social Committee,12 

Acting in accordance with the ordinary legislative procedure,  

Whereas: 

(1) 

(2) 

Venture capital provides finance to undertakings that are generally very small, in the 
initial stages of their corporate existence and display a strong potential for growth and 
expansion. In addition, venture capital funds provide these undertakings with valuable 
expertise  and  knowledge,  business  contacts,  brand-equity  and  strategic  advice.  By 
providing  finance  and  advice  to  these  undertakings,  venture  capital  funds  stimulates 
economic  growth,  contribute  to  the  creation  of  jobs,  boost  innovative  undertakings, 
increase  their  investment  in  research  and  development  and  foster  entrepreneurship, 
innovation and competitiveness in the Union. 

It  is  necessary  to  lay  down  a  common  framework  of  rules  regarding  the  use  of  the 
designation  "European  Venture  Capital  Fund",  in  particular  the  composition  of  the 
portfolio of funds that operate under this designation, their eligible investment targets, 
the investment tools they may employ and the categories of investors that are eligible 
to  invest  in  such  funds  by  uniform  rules  in  the  Union.  In  the  absence  of  such  a 
common  framework,  there  is  a  risk  that  Member  States  take  diverging  measures  at 

10 
11 
12 

OJ C , , p. . 
OJ C …p… 
OJ C , , p. . 

EN 

10 

   EN 

 
                                                 
national level having a direct negative impact on, and creating obstacles to, the good 
functioning  of  the  internal  market,  since  venture  capital  funds  that  wish  to  operate 
across  the  Union  would  be  subject  to  different  rules  in  different  Member  States. 
Moreover, diverging quality requirements on portfolio composition, investment targets 
and eligible investors could lead to different levels of investor protection and generate 
confusion  as  to  the  investment  proposition  associated  with  a  "European  Venture 
Capital  Fund".  Investors  should,  furthermore,  be  able  to  compare  the  investment 
propositions  of  different  venture  capital  funds.  It  is  necessary  to  remove  significant 
obstacles to cross-border fundraising by venture capital funds and to avoid distortions 
of  competition  between  those  funds,  and  to  prevent  any  further  likely  obstacles  to 
trade  and  significant  distortions  of  competition  from  arising  in  the  future. 
Consequently,  the  appropriate  legal  basis  is  Article  114  TFEU,  as  interpreted  in 
accordance with the consistent case law of the Court of Justice of the European Union. 

It  is  necessary  to  adopt  a  Regulation  establishing  uniform  rules  applicable  to  the 
European  Venture  Capital  Funds  and  imposing  corresponding  obligations  on  their 
managers  in  all  Member  States  that  wish  to  raise  capital  across  the  Union  using  the 
designation "European Venture Capital Fund". These requirements should ensure the 
confidence of investors that wish to invest in venture capital funds.  

Defining  the  quality  requirements  for  the  use  of  the  designation  "European  Venture 
Capital Fund" in the form of a Regulation would ensure that those requirements will 
be directly applicable to the managers of collective investment undertakings that raise 
funds using this designation. This would ensure uniform conditions for the use of this 
designation  by  preventing  diverging  national  requirements  as  a  result  of  the 
transposition of a Directive. This Regulation would entail that managers of collective 
investment undertakings that use this designation would need to follow the same rules 
in all of the Union, which would also boost confidence of investors that wish to invest 
in  venture  capital  funds.  A  Regulation  would  also  reduce  regulatory  complexity  and 
the  managers'  cost  of  compliance  with  often  divergent  national  rules  governing 
venture  capital  funds,  especially  for  those  managers  that  want  to  raise  capital  on  a 
cross-border  basis.  A  Regulation  should  also  contribute  to  eliminating  competitive 
distortions.  

In  order  to  clarify  the  relationship  between  this  Regulation  and  rules  on  collective 
investment  undertakings  and  their  managers,  it  is  necessary  to  establish  that  this 
Regulation should only apply to managers of collective investment undertakings, other 
than  UCITS  in  accordance  with  Article  1  of  Directive  2009/65/EC  of  the  European 
Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations 
and  administrative  provisions  relating  to  undertakings  for  collective  investment  in 
transferable securities (UCITS),13 who are established in the Union and are registered 
with the competent authority in their home Member State in accordance with Directive 
2011/61/EC  of  the  European  Parliament  and  of  the  Council  of  8  June  2011  on 
Alternative  Investment  Fund  Managers  and  amending  Directives  2003/41/EC  and 
2009/65/EC  and  Regulations  (EC)  No  1060/2009  and  (EU)  No  1095/2010.14 
Furthermore,  it  should  only  apply  to  managers  who  manage  portfolios  of  qualifying 
venture  capital  funds  whose  assets  under  management  in  total  do  not  exceed  a 

(3) 

(4) 

(5) 

13 
14 

OJ L 302, 17.11.2009, p. 32. 
OJ L 174, 1.7.2011, p.1. 

EN 

11 

   EN 

 
                                                 
threshold  of  EUR  500  million.  In  order  to  make  the  calculation  of  this  threshold 
operational, the power to adopt acts in accordance with Article 290 of the Treaty on 
the  Functioning  of  the  European  Union  should  be  delegated  to  the  Commission  in 
respect  of  specifying  the  calculation  of  this  threshold.  When  exercising  this 
empowerment,  the  Commission  should,  in  order  to  ensure  consistency  in  rules  on 
collective  investment  undertakings,  take  into  account  measures  adopted  by  the 
Commission in accordance with point (a) of Article 3 (6) of Directive 2011/61/EC. 

(6)  Where  managers  of  collective  investment  undertakings  do  not  wish  to  use  the 
designation  "European  Venture  Capital  Fund",  this  Regulation  should  not  apply.  In 
these cases, existing national rules and general Union rules should continue to apply.  

(7) 

(8) 

(9) 

(10) 

(11) 

(12) 

This  Regulation  should  establish  uniform  rules  on  the  nature  of  qualifying  venture 
capital funds, notably on the portfolio undertakings into which the qualifying venture 
capital funds are to be permitted to invest and the investment instruments to be used. 
This is necessary so that a clear demarcation line can be drawn between a qualifying 
venture capital fund and other alternative investment funds that engage in other, less 
specialised, investment strategies, for example private equity.  

In line with the aim of precisely circumscribing the collective investment undertakings 
which  will  be  covered  by  this  Regulation  and  in  order  to  ensure  their  focus  on 
providing  capital  to  small  undertakings  in  the  initial  stages  of  their  corporate 
existence, the designation "European Venture Capital Fund" should be restricted only 
to those funds that dedicate at least 70 percent of their aggregate capital contributions 
and  uncalled  committed  capital  to  investments  in  such  undertakings  in  the  form  of 
equity or quasi equity instruments.  

In  order  to  put  in  place  an  essential  safeguard  that  differentiates  qualifying  venture 
capital funds under this Regulation from the broader category of alternative investment 
funds which trade in issued securities on secondary markets, it is necessary to restrict 
qualifying  venture  capital  funds  to  making  investments  only  in  directly  issued 
instruments.  

In  order  to  allow  venture  capital  fund  managers  a  certain  degree  of  flexibility  in  the 
investment  and  liquidity  management  of  their  qualifying  venture  capital  funds, 
secondary trading should be permitted up  to a maximum threshold not exceeding 30 
percent of aggregate capital contributions and uncalled capital investments. Short term 
holdings  of  cash  and  cash  equivalents  should  not  be  taken  into  account  when 
calculating this limit. 

In order to ensure that the designation "European Venture Capital Fund" is reliable and 
easily recognisable for investors across the Union this Regulation should establish that 
only venture capital fund managers which comply with the uniform quality criteria as 
set  out  in  this  Regulation  shall  be  eligible  to  use  the  designation  "European  Venture 
Capital Fund" when marketing qualifying venture capital funds across the Union.  

In order to ensure that qualifying venture capital funds have a distinct and identifiable 
profile  which  is  suited  to  their  purpose,  there  should  be  uniform  rules  on  the 
composition of the portfolio and on the investment techniques which are permitted for 
such qualifying funds.  

EN 

12 

   EN 

 
(13) 

(14) 

In  order  to  ensure  that  qualifying  venture  capital  funds  do  not  contribute  to  the 
development of systemic risks, and so as to ensure that such funds concentrate, in their 
investment  activities,  on  supporting  qualifying  portfolio  companies,  borrowing  or 
leverage at the level of the fund should not be permitted. However, in order to permit 
the  fund  to  cover  extraordinary  liquidity  needs  that  might  arise  between  the  call  of 
committed capital from investors and the actual reception of the capital in its accounts, 
short-term borrowing should be allowed.  

In order to ensure that qualifying venture capital funds are marketed to investors who 
have  the  knowledge,  experience  and  capacity  to  take  on  the  risks  these  funds  carry, 
and  in  order  to  maintain  investor  confidence  and  trust  in  qualifying  venture  capital 
funds, certain specific safeguards should be laid down. Therefore, qualifying venture 
capital  funds  should  in  general  only  be  marketed  to  investors  who  are  professional 
clients or who can be treated as professional clients under Directive 2004/39/EC of the 
European  Parliament  and  of  the  Council  of  21  April  2004  on  markets  in  financial 
instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC  of  the  European  Parliament  and  of  the  Council  and  repealing  Council 
Directive  93/22/EEC.15  This  category  includes  venture  capital  fund  managers  who 
themselves invest into venture capital funds. However, in order to have a sufficiently 
broad  investor  base  for  investment  into  venture  capital  funds  it  is  also  desirable  that 
certain other investors have access to qualifying venture capital funds, including high 
net worth individuals. For those other investors, however, specific safeguards should 
be laid down in order to ensure that qualifying venture capital funds are only marketed 
to  investors  that  have  the  appropriate  profile  for  making  such  investments.  These 
safeguards exclude marketing through the use of periodic savings plans. 

(15)  To ensure that only venture capital fund managers who fulfil uniform quality criteria 
as  regards  their  behaviour  in  the  market  use  the  designation  "European  Venture 
Capital  Fund",  this  Regulation  should  establish  rules  on  the  conduct  of  business  and 
the  relationship  of  the  venture  capital  fund  manager  to  its  investors.  For  the  same 
reason this Regulation should lay down uniform conditions concerning the handling of 
conflicts of interest by such managers. These rules should also require the manager to 
have the necessary organisational and administrative arrangements in place to ensure a 
proper handling of conflicts of interest.  

(16) 

In  order  to  ensure  the  integrity  of  the  designation  "European  Venture  Capital  Fund" 
this  Regulation  should  also  contain  quality  criteria  as  regards  the  organisation  of  a 
venture  capital  fund  manager.  Therefore,  this  Regulation  should  lay  down  uniform, 
proportionate  requirements  for  the  need  to  maintain  adequate  technical  and  human 
resources  as  well  as  sufficient  own  funds  for  the  proper  management  of  qualifying 
venture capital funds.  

(17) 

It  is  necessary  for  the  purpose  of  investor  protection  to  ensure  that  the  assets  of  the 
qualifying  venture  capital  fund  are  properly  evaluated.  Therefore,  the  statutory 
documents of qualifying venture capital funds should contain rules on the valuation of 
assets. This should ensure the integrity and transparency of the valuation. 

15 

OJ L 145, 30.4.2004, p. 1. 

EN 

13 

   EN 

 
                                                 
(18) 

(19) 

(20) 

In  order  to  ensure  that  venture  capital  fund  managers  which  make  use  of  the 
designation  "European  Venture  Capital  Funds"  give  sufficient  account  of  their 
activities, uniform rules on annual reports should be established.  

It is necessary, for the purposes of ensuring the integrity of the designation "European 
Venture Capital Fund" in the eyes of investors that it is only used by venture capital 
fund  managers  who  are  fully  transparent  as  to  their  investment  policy  and  their 
investment  targets.  This  Regulation  should  therefore  set  out  uniform  rules  on 
disclosure  requirements  that  are  incumbent  on  a  venture  capital  fund  manager  in 
relation  to  its  investors.  In  particular,  there  should  be  pre-contractual  disclosure 
obligations related to the investment strategy and objectives of the qualifying venture 
capital  funds,  the  investment  instruments  which  are  used,  information  on  costs  and 
associated  charges,  and  the  risk/reward  profile  of  the  investment  proposed  by  a 
qualifying  fund. In  view of achieving a high  degree of transparency, such disclosure 
requirements should also include information on how the remuneration of the venture 
capital fund manager is calculated. 

In order to ensure effective supervision of the uniform requirements contained in this 
Regulation,  the  competent  authority  of  the  home  Member  State  shall  supervise 
compliance of the venture capital fund manager with the uniform requirements set out 
in this Regulation. To this effect, the qualifying venture capital manager who wishes 
to market its qualifying funds under the designation "European Venture Capital Fund" 
should  inform  the  competent  authority  of  his  home  Member  State  of  this  intention. 
The  competent  authority  should  register  the  venture  capital  fund  manager  if  all 
necessary  information  has  been  provided  and  if  there  are  suitable  arrangements  to 
comply with the requirements of this Regulation are in place. This registration should 
be valid across the entire Union.  

(21) 

In order to ensure effective supervision of compliance with the uniform criteria set out 
in  this  Regulation,  this  Regulation  should  contain  rules  on  the  circumstances  under 
which  information  supplied  to  the  competent  authority  in  the  home  Member  State 
needs to be updated.  

(22)  For  the  effective  supervision  of  the  requirements  of  this  Regulation,  this  Regulation 
should also lay down a process for cross-border notifications between the competent 
supervisory authorities, to be triggered by the registration of the venture capital fund 
manager in its home Member State.  

(23) 

(24) 

(25) 

In  order  to  maintain  transparent  conditions  for  the  marketing  of  qualifying  venture 
capital  funds  across  the  Union,  the  European  Securities  and  Markets  Authority 
(ESMA) should be entrusted with maintaining a central database listing all qualifying 
venture capital funds that are registered in accordance with this Regulation.  

In order to ensure the effective supervision of the uniform criteria established in this 
Regulation, this Regulation should contain a list of supervisory powers that competent 
authorities shall have at their disposal.  

In order to ensure proper enforcement, this Regulation should contain sanctions for the 
breach  of  key  provisions  of  this  Regulation,  which  are  the  rules  on  portfolio 
composition, on safeguards relating to the identity of eligible investors, and on the use 
of the designation "European Venture Capital Fund" only by registered venture capital 

EN 

14 

   EN 

 
fund  managers.  It  should  be  established  that a breach of these key  provisions  entails 
the prohibition of the use of the designation and the removal of venture capital fund 
manager from the register.  

(26)  Supervisory  information  should  be  exchanged  between  the  competent  authorities  in 

the home and host Member States and ESMA.  

(27)  Effective  regulatory  cooperation  among 

tasked  with  supervising 
compliance  with  the  uniform  criteria  set  out  in  this  Regulation  requires  that  a  high 
level  of  professional  secrecy  should  apply  to  all  relevant  national  authorities  and  to 
ESMA.  

the  entities 

(28)  Technical standards in financial services should ensure consistent harmonisation and a 
high  level  of  supervision  across  the  Union.  As  a  body  with  highly  specialised 
expertise, it would be efficient and appropriate to entrust ESMA with the elaboration 
of draft implementing technical standards where these do not involve policy choices, 
for submission to the Commission.  

(29)  The Commission should be empowered to adopt implementing technical standards by 
means of implementing acts pursuant to Article 291 of the Treaty on the Functioning 
of  the  European  Union  and  in  accordance  with  Article  15  of  Regulation  (EU)  No 
1095/2010  of  the  European  Parliament  and  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Securities  and  Markets 
Authority)  amending  Decision No  716/2009/EC and repealing Commission Decision 
2009/77/EC.16  ESMA  should  be  entrusted  with  drafting  implementing  technical 
standards for the format and method of the notification procedure in Article 15. 

(30) 

In order to specify the requirements set out in this Regulation, the power to adopt acts 
in  accordance  with  Article  290  of  the  Treaty  on  the  Functioning  of  the  European 
Union should be delegated to the Commission in respect of specifying the methods to 
be used for calculating and monitoring the threshold as referred to in this Regulation, 
and specifying the types of conflicts of interests venture capital funds managers need 
to avoid and the steps to be taken in that respect. It is of particular importance that the 
Commission carry out appropriate consultations during its preparatory work, including 
at expert level. 

(31)  The  Commission,  when  preparing  and  drawing  up  delegated  acts,  should  ensure  a 
simultaneous,  timely  and  appropriate  transmission  of  relevant  documents  to  the 
European Parliament and to the Council.  

(32)  At the latest four years after the date on which this Regulation becomes applicable a 
review  of  this  Regulation  should  be  carried  out  in  order  to  take  account  of  the 
development  of  the  venture  capital  market.  On  the  basis  of  the  review,  the 
Commission  should  submit  a  report  to  the  European  Parliament  and  the  Council 
accompanied, if appropriate, by legislative changes.  

(33)  This Regulation respects fundamental rights and observes the principles recognised in 
particular by the Charter of Fundamental Rights of the European Union, including the 

16 

OJ L 331, 15.12.2010, p. 84. 

EN 

15 

   EN 

 
                                                 
right  to  respect  for  private  and  family  life  (Article  7)  and  the  freedom  to  conduct  a 
business (Article 16). 

(34)  Directive 95/46 of the European Parliament and of the Council of 24 October 1995 on 
the protection of individuals with regard to the processing of personal data and on the 
free  movement  of  such  data17  governs  the  processing  of  personal  data  carried  out  in 
the Member States in the context of this Regulation and under the supervision of the 
Member States competent authorities, in particular the public independent authorities 
designated  by  the  Member  States.  Regulation  (EU)  No  45/2001  of  the  European 
Parliament and of the Council of 18 December 2000 on the protection of individuals 
with regard to the processing of personal data by the EU institutions and bodies and on 
the free movement of such data,18 governs the processing of personal data carried out 
by  ESMA  within  the  framework  of  this  Regulation  and  under  the  supervision  of  the 
European Data Protection Supervisor. 

(35)  This  Regulation  should  be  without  prejudice  to  the  application  of  state  aid  rules  to 

qualifying venture capital funds. 

(36)  The objective of this Regulation, notably to ensure uniform requirements apply to the 
marketing of qualifying venture capital funds, cannot be sufficiently achieved by the 
Member  States.  The  Union  may  therefore  adopt  measures,  in  accordance  with  the 
principle  of  subsidiarity  as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this 
Regulation  provides  for  a  simple  registration  system  for  venture  capital  fund 
managers,  thereby  taking  full  account  of  the  need  to  balance  safety  and  reliability 
associated with the use of the designation "European Venture Capital Fund" with the 
efficient  operation  of  the  venture  capital  market  and  the  cost  for  its  various 
stakeholders.  In  doing  so,  this  Regulation  does  not  go  beyond  what  is  necessary  in 
order to achieve that objective, 

HAVE ADOPTED THIS REGULATION: 

CHAPTER I 
SUBJECT MATTER, SCOPE AND DEFINITIONS 

Article 1 

This Regulation lays down uniform requirements for those managers of collective investment 
undertakings  who  wish  to  use  the  designation  "European  Venture  Capital  Fund"  and  the 
conditions for the marketing of collective investment undertakings under this designation in 
the Union, thereby contributing to the smooth functioning of the internal market. It lays down 
uniform rules for the marketing of qualifying venture capital funds to eligible investors across 
the Union, for the portfolio composition of qualifying venture capital funds, for the eligible 
investment instruments and techniques to be used by qualifying venture capital funds as well 

17 
18 

OJ L 281 , 23.11.1995 p. 31. 
OJ L 8, 12.1.2001, p. 1. 

EN 

16 

   EN 

 
                                                 
as  for  the  organisation,  conduct  and  transparency  of  venture  capital  fund  managers  that 
market qualifying venture capital funds across the Union.  

Article 2 

1. 

2. 

3. 

This Regulation applies to managers of collective investment undertakings as defined 
in  point  (b)  of  Article  3  who  are  established  in  the  Union  and  are  subject  to 
registration with the competent authorities of their home Member State in accordance 
with point (a) of Article 3 (3) of Directive 2011/61/EC, provided that those managers 
manage  portfolios  of  qualifying  venture  capital  funds,  whose  assets  under 
management  in  total  do  not  exceed  a  threshold  of  EUR  500  million  or,  in  the 
Member States where the Euro is not the official currency, the corresponding value 
in the national currency on the date of the entry into force of this Regulation. 

In  calculating  the  threshold  referred  to  in  paragraph  1  managers  of  collective 
investment  undertakings  who  manage  funds  other  than  qualifying  venture  capital 
funds will not need to aggregate the assets managed in those other funds.  

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  23  specifying  the  methods  for  calculating  the  threshold  referred  to  in 
paragraph 1 of this Article and for monitoring compliance on an ongoing basis with 
this threshold. 

For the purposes of this Regulation, the following definitions apply: 

Article 3 

(a) 

(b) 

'qualifying venture capital fund' means a collective investment undertaking that 
invests  at  least  70  percent  of  its  aggregate  capital  contributions  and  uncalled 
committed capital in assets that are qualifying investments;  

'collective  investment  undertaking'  means  an  undertaking  which  raises  capital 
from  a  number  of  investors  with  a  view  to  investing  it  in  accordance  with  a 
defined investment policy for the benefit of those investors and which does not 
require authorisation pursuant to Article 5 of Directive 2009/65/EC; 

(c) 

'qualifying investments' means equity or quasi equity instruments that are 

(i) 

issued by a qualifying portfolio undertaking and acquired directly by the 
qualifying venture capital fund from the qualifying portfolio undertaking, 
or  

(ii) 

issued  by  a  qualifying  portfolio  undertaking  in  exchange  for  an  equity 
security issued by the qualifying portfolio undertaking, or  

(iii) 

issued by an undertaking of which the qualifying portfolio undertaking is 
a  majority-owned  subsidiary  and  which  is  acquired  by  the  qualifying 
venture  capital  fund  in  exchange  for  an  equity  instrument  issued  by  the 
qualifying portfolio undertaking; 

EN 

17 

   EN 

 
(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

(k) 

(l) 

'qualifying portfolio undertaking' means an undertaking that, at the time of an 
investment by the qualifying venture capital fund, is not listed on a regulated 
market as defined in point (14) of Article 4 (1) of Directive 2004/39/EC which 
employs  fewer  than  250  persons,  and  either  has  an  annual  turnover  not 
exceeding EUR 50 million, or an annual balance sheet total not exceeding EUR 
43 million, and which is not itself a collective investment undertaking; 

'equity' means ownership interest in an undertaking, represented by the shares 
or  other  form  of  participation  in  the  capital  of  the  qualifying  portfolio 
undertaking, issued to the investors; 

'quasi-equity'  means  any  instrument,  whose  return  is  predominantly  based  on 
the  profits  or  losses  of  the  qualifying  portfolio  undertaking  and  which  is 
unsecured in the event of default; 

'marketing' means a direct or indirect offering or placement at the initiative of 
the  venture  capital  fund  manager  or  on  behalf  of  the  venture  capital  fund 
manager  of  units  or  shares  of  a  venture  capital  fund  it  manages  to  or  with 
investors domiciled or with a registered office in the Union; 

'committed  capital'  means  any  commitment  pursuant  to  which  a  person  is 
obligated  to  acquire  an  interest  in  the  venture  capital  fund  or  make  capital 
contributions to the venture capital fund; 

'venture capital fund manager' means a legal person whose regular business is 
managing at least one qualifying venture capital fund; 

'home Member State' means the Member State where the venture capital fund 
manager is established or has its registered office; 

'host  Member  State'  means  the  Member  State,  other  than  the  home  Member 
State,  where  the  venture  capital  fund  manager  markets  qualifying  venture 
capital funds in accordance with this Regulation; 

'competent  authority'  means  the  national  authority  which  the  home  Member 
State  designates,  by  law  or  regulation,  to  undertake  the  registration  of 
managers of collective investment undertakings as referred to in paragraph (1) 
of Article 2. 

CHAPTER II 
CONDITIONS FOR THE USE OF THE DESIGNATION 
"EUROPEAN VENTURE CAPITAL FUND" 

Article 4 

Venture capital fund managers who comply with the requirements set out in this Chapter shall 
be entitled to use the designation "European venture capital fund" in relation to the marketing 
of qualifying venture capital funds in the Union.  

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Article 5 

1. 

2. 

3. 

The venture capital fund manager shall ensure that, when acquiring assets other than 
qualifying  investments,  no  more  than  30  percent  of  the  fund's  aggregate  capital 
contributions  and  uncalled  committed  capital  is  used  for  the  acquisition  of  assets 
other than qualifying investments; short term holdings in cash and cash equivalents 
shall not be taken into account for calculating this limit.  

The  venture  capital  fund  manager  shall  not  borrow,  issue  debt  obligations,  provide 
guarantees, at the level of the qualifying venture capital fund, nor employ at the level 
of the qualifying venture capital fund any method by which the exposure of the fund 
will be increased, whether through borrowing of cash or securities, the engagement 
into derivative positions or by any other means. 

The  prohibition  set  out  in  paragraph  2  shall  not  apply  to  borrowing  for  a  non-
renewable term of no longer than 120 calendar days to provide liquidity between a 
call for and receipt of committed capital from investors.  

Article 6 

Venture capital fund managers shall market the units and shares of qualifying venture capital 
funds exclusively to investors which are considered to be professional clients in accordance 
with  Section  I  of  Annex  II  of  Directive  2004/39/EC  or  may,  on  request,  be  treated  as 
professional clients in accordance with Section II of Annex II of Directive 2004/39/EC, or to 
other investors where: 

(a) 

those other investors commit to invest a minimum of EUR 100.000; 

(b) 

(c) 

(d) 

(e) 

those other investors state in writing, in a separate document from the contract 
to be concluded for the commitment to invest, that they are aware of the risks 
associated with the envisaged commitment or investment; 

the  venture  capital  fund  manager  undertakes  an  assessment  of  the  expertise, 
experience and knowledge of the investor, without presuming that the investor 
has the market knowledge and experience of those listed in Section I of Annex 
II of Directive 2004/39/EC; 

the venture capital fund manager is reasonably assured, in light of the nature of 
the  commitment  or  investment  envisaged,  that  the  investor  is  capable  of 
making his own investment decisions and understanding the risks involved and 
that a commitment of this kind is appropriate for such an investor; 

the venture capital fund manager confirms in writing that he has undertaken the 
assessment referred to in point (c) and that the conditions set out in point (d) 
are fulfilled. 

Venture  capital  fund  managers  shall, in relation to the qualifying venture capital funds they 
manage: 

Article 7 

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(a) 

act with due skill, care and diligence in conducting their activities;  

(b) 

(c) 

apply  appropriate  policies  and  procedures  for  preventing  malpractices  that 
might  reasonably  be  expected  to  affect  the  interests  of  investors  and  the 
qualifying portfolio undertakings;  

conduct  their  business  activities  so  as  to  promote  the  best  interests  of  the 
qualifying venture capital funds they manage, the investors in those qualifying 
venture capital funds they manage and the integrity of the market; 

(d) 

apply  a  high  level  of  diligence  in  the  selection  and  ongoing  monitoring  of 
investments in qualifying portfolio undertakings; 

(e)  possess  adequate  knowledge  and  understanding  of  the  qualifying  portfolio 

undertakings they invest in.  

Article 8 

1. 

Venture  capital  fund  managers  shall  identify  and  avoid  conflicts  of  interest  and, 
where  they  cannot  be  avoided,  manage  and  monitor  and,  in  accordance  with 
paragraph  4,  disclose,  those  conflicts  of  interest  in  order  to  prevent  them  from 
adversely  affecting  the  interests  of  the  qualifying  venture  capital  funds  and  their 
investors  and  to  ensure  that  the  qualifying  venture  capital  funds  they  manage  are 
fairly treated; 

2. 

The  venture  capital  fund  manager  shall  identify  in  particular  those  conflicts  of 
interest that may arise between: 

(a)  venture  capital  fund  managers,  those  persons  who  effectively  conduct  the 
business  of  the  venture  capital  fund  manager,  employees  or  any  person  who 
directly  or  indirectly  controls  or  is  controlled  by  the  venture  capital  fund 
manager,  and  the  qualifying  venture  capital  fund  managed  by  the  venture 
capital  fund  managers  or  the  investors  in  those  qualifying  venture  capital 
funds; 

(b) 

the  qualifying  venture  capital  fund  or  the  investors  in  that  qualifying  venture 
capital fund, and another qualifying venture capital fund managed by the same 
venture capital fund manager or the investors in that other qualifying venture 
capital fund. 

3. 

4. 

Venture  capital  fund  managers  shall  maintain  and  operate  effective  organisational 
and administrative arrangements in order to comply with the requirements set out in 
paragraphs 1 and 2. 

Disclosures  of  conflicts  of  interest  as  referred  to  in  paragraph  1  shall  be  provided, 
where  organisational  arrangements  made  by  the  venture  capital  fund  manager  to 
identify,  prevent,  manage  and  monitor  conflicts  of  interest  are  not  sufficient  to 
ensure, with reasonable confidence, that risks of damage to investors’ interests will 
be  prevented.  The  venture  capital  fund  managers  shall  clearly  disclose  the  general 
nature or sources of conflicts of interest to the investors before undertaking business 
on their behalf. 

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5. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 23 measures specifying: 

(a) 

the types of conflicts of interest as referred to in paragraph 2 of this Article; 

(b) 

the  steps  venture  capital  fund  managers  are  expected  to  take,  in  terms  of 
structures and organisational and administrative procedures in order to identify, 
prevent, manage, monitor and disclose conflicts of interest. 

Article 9 

At all times, venture capital fund managers shall have sufficient own funds and use adequate 
and appropriate human and technical resources as are necessary for the proper management of 
qualifying venture capital funds. 

Rules  for  the  valuation  of  assets  shall  be  laid  down  in  the  statutory  documents  of  the 
qualifying venture capital fund.  

Article 10 

Article 11 

1. 

2. 

The  venture  capital  fund  manager  shall  make  available  an  annual  report  to  the 
competent  authority  of  the  home  Member  State  for  each  qualifying  venture  capital 
fund  under  management  no  later  than  6  months  following  the  end  of  the  financial 
year.  The  report  shall  describe  the  composition  of  the  portfolio  of  the  qualifying 
venture  capital  fund  and  the  activities  of  the  past  year.  It  shall  contain  the  audited 
financial  accounts  for  the  qualifying  venture  capital  fund.  It  shall  be  produced  in 
accordance  with  existing  reporting  standards  and  the  terms  agreed  between  the 
venture  capital  fund  manager  and  the  investors.  The  venture  capital  fund  manager 
shall provide the report to investors on request. Venture  capital fund managers and 
investors may agree additional disclosures amongst themselves.  

Where  the  venture  capital  fund  manager  is  required  to  make  public  an  annual 
financial  report  in  accordance  with  Directive  2004/109/EC  of  the  European 
Parliament  and  Council19  in  relation  to  the  qualifying  venture  capital  fund,  the 
information  referred  to  in  paragraph  1  of  this  Article  may  be  provided  either 
separately or as an additional part of the annual financial report.  

1. 

Venture  capital  fund  managers  shall  inform  their  investors  at  least  about  the 
following elements prior to their investment decision: 

Article 12 

19 

OJ L 390, 31.12.2004, p. 38. 

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(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the identity of the venture capital fund manager and any other service providers 
contracted by the venture capital fund manager in relation to their management 
of the qualifying venture capital funds, and a description of their duties; 

a  description  of  the  investment  strategy  and  objectives  of  the  qualifying 
venture  capital  fund,  including  a  description  of  the  types  of  the  qualifying 
portfolio undertakings and other assets in which the qualifying venture capital 
fund may invest, the techniques it may employ, and any applicable investment 
restrictions;  

a description of the risk profile of the qualifying venture capital fund and any 
risks  associated  with  the  assets  in  which  the  fund  may  invest  or  investment 
techniques that may be employed; 

a description of the qualifying venture capital fund’s valuation procedure and 
of the pricing methodology for the valuation of assets, including the methods 
used for the valuation of qualifying portfolio undertakings; 

a  description  of  how  the  remuneration  of  the  venture  capital  fund  manger  is 
calculated; 

a  description  of  all  fees,  charges  and  expenses  and  of  the  maximum  amounts 
thereof which are directly or indirectly borne by investors; 

(g)  where  available,  the  historical  performance  of  the  qualifying  venture  capital 

fund; 

(h) 

a  description  of  the  procedures  by  which  the  qualifying  venture  capital  fund 
may change its investment strategy or investment policy, or both. 

Where  the  qualifying  venture  capital  fund  is  required  to  publish  a  prospectus  in 
accordance  with  Directive  2003/71/EC  of  the  European  Parliament  and  of  the 
Council20  or  in  accordance  with  national  law  in  relation  to  the  qualifying  venture 
capital  fund,  the  information  referred  to  in  paragraph  1  of  this  Article  may  be 
provided either separately or as a part of the prospectus. 

CHAPTER III 
SUPERVISION, ADMINISTRATIVE COOPERATION 

Article 13 

Venture  capital  fund  managers  who  intend  to  use  designation  "European  Venture 
Capital Fund" for the marketing of their qualifying venture capital funds shall inform 
the  competent  authority  of  their  home  Member  State  of  this  intention  and  shall 
provide the following information:  

2. 

1. 

20 

OJ L 345, 31.12.2003, p. 64. 

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(a) 

(b) 

(c) 

(d) 

the  identity  of  the  persons  who  effectively  conduct  the  business  of  managing 
qualifying venture capital funds;  

the identity of the qualifying venture capital funds whose units or shares shall 
be marketed and their investment strategies; 

information on the arrangements made for complying with the requirements of 
Chapter II; 

a  list  of  Member  States  where  the  venture  capital  fund  manager  intends  to 
market each qualifying venture capital fund. 

2. 

The  competent  authority  of  the  home  Member  State  shall  only  register  the  venture 
capital fund manager if it is satisfied that  

(a) 

the information required under paragraph 1 is complete and  

(b) 

the arrangements notified according to point (c) of paragraph 1 are suitable in 
order to comply with the requirements of Chapter II.  

3. 

The  registration  shall  be  valid  for  the  entire  territory  of  the  Union  and  shall  allow 
venture  capital  fund  managers  to  market  qualifying  venture  capital  funds  under  the 
designation "European Venture Capital Funds" throughout the Union. 

Article 14 

The Venture capital fund manager shall inform the competent authority of the home Member 
State where the venture capital fund manager intends to market: 

(a) 

a new qualifying venture capital fund;  

(b) 

an existing qualifying venture capital fund in a Member State not mentioned in 
the list referred to in point (d) of Article 13 (1). 

Article 15 

1. 

2. 

3. 

Immediately after the registration of a venture capital fund manager, the competent 
authority of the home Member State shall notify the fact that the venture capital fund 
manager is registered to the Member States indicated in accordance with point (d) of 
Article 13 (1) and to ESMA. 

The host Member States indicated in accordance with point (d) of Article 13 (1) shall 
not  impose,  on  the  venture  capital  fund  manager  registered  in  accordance  with 
Article  13,  any  requirements  or  administrative  procedures  in  relation  to  the 
marketing of its qualifying venture capital funds, nor shall they require any approval 
of the marketing prior to its commencement. 

In  order  to  ensure  uniform  application  of  this  article,  ESMA  shall  develop  draft 
implementing technical standards to determine the format of the notification. 

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4. 

5. 

ESMA shall submit those draft implementing technical standards to the Commission 
by [insert date]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in paragraph 3 of this Article in accordance with the procedure laid down 
in Article 15 of Regulation (EU) No 1095/2010. 

ESMA shall maintain a central database, publicly accessible on the internet, listing all venture 
capital fund managers registered in the Union in accordance with this Regulation. 

Article 16 

The  competent  authority  of  the  home  Member  State  shall  supervise  compliance  with  the 
requirements set out in this Regulation.  

Article 17 

Article 18 

Competent  authorities  shall,  in  conformity  with  national  law,  have  all  supervisory  and 
investigatory  powers  that  are  necessary  for  the  exercise  of  their  functions.  They  shall  in 
particular have the power to: 

(a) 

request  access  to  any  document  in  any  form,  and  to  receive  or  take  a  copy 
thereof; 

(b) 

require the venture capital fund manager to provide information without delay;  

(c) 

require  information  from  any  person  related  to  the  activities  of  the  venture 
capital fund manager or the qualifying venture capital fund;  

(d) 

carry out on site inspections with or without prior announcements;  

(e) 

issue an order to ensure that a venture capital fund manager complies with the 
requirements  of  this  Regulation  and  desists  from  a  repetition  of  any  conduct 
that may consist of a breach of this Regulation. 

Article 19 

1. 

2. 

Member  States  shall  lay  down  the  rules  on  administrative  measures  and  sanctions 
applicable to breaches of the provisions of this Regulation and shall take all measures 
necessary to ensure that they are implemented. The measures and sanctions provided 
for shall be effective, proportionate and dissuasive.  

By  [24  months  after  entry  into  force  of  this  Regulation]  the  Member  States  shall 
notify  the  rules  referred  to  paragraph  1  to  the  Commission  and  ESMA.  They  shall 
notify  the  Commission  and  ESMA  without  delay  of  any  subsequent  amendment 
thereto. 

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Article 20 

1. 

The  competent  authority  of  the  home  Member  State  shall  take  the  appropriate 
measures referred to in paragraph 2 where a venture capital fund manager: 

(a) 

(b) 

(c) 

fails  to  comply  with  the  requirements  that  apply  to  portfolio  composition  in 
breach of Article 5; 

fails  to  market  the  qualifying  venture  capital  fund  to  eligible  investors  in 
breach of Article 6; 

fails  to  register  with  the  competent  authority  of  their  home  Member  State  in 
breach of the requirements of Article 13. 

2. 

In the cases referred to in paragraph 1 the competent authority of the home Member 
State shall take the following measures, as appropriate: 

3. 

4. 

1. 

2. 

1. 

(a)  prohibit  the  use  of  the  designation  "European  Venture  Capital  Fund"  for  the 
marketing  of  one  or  more  qualifying  venture  capital  funds  of  the  venture 
capital fund manager; 

(b) 

remove the venture capital fund manager from the register. 

The  competent  authority  of  the  home  Member  State  shall  inform  the  competent 
authorities  of  the  host  Member  States  indicated  in  accordance  with  point  (d)  of 
Article 13 (1) of the removal of the venture capital fund manager from the register 
referred to in point (b) of paragraph 2 of this Article. 

The  right  to  market  one  or  more  qualifying  venture  capital  funds  under  the 
designation "European Venture Capital Funds" in the Union expires with immediate 
effect from the date of the decision of the competent authority referred to in points 
(a) or (b) of paragraph 2. 

Article 21 

Competent  authorities  and  ESMA  shall  cooperate  with  each  other  whenever 
necessary  for  the  purpose  of  carrying  out  their  respective  duties  under  this 
Regulation.  

They  shall  exchange  all  information  and  documentation  necessary  to  identify  and 
remedy breaches to this Regulation.  

Article 22 

All persons who work or who have worked for the competent authorities or ESMA, 
as well as auditors and experts instructed by the competent authorities, are bound by 
the  obligation  of  professional  secrecy.  No  confidential  information  which  those 
persons  receive  in  the  course  of  their  duties  shall  be  divulged  to  any  person  or 
authority  whatsoever,  save  in  summary  or  aggregate  form  such  that  venture  capital 
fund managers and qualifying venture capital funds cannot be individually identified, 

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2. 

3. 

1. 

2. 

3. 

4. 

5. 

without  prejudice  to  cases  covered  by  criminal  law  and  proceedings  under  this 
Regulation. 

The  competent  authorities  of  the  Member  States  or  ESMA  shall  not  be  prevented 
from exchanging information in accordance with this Regulation or other Union law 
applicable to venture capital fund managers and qualifying venture capital funds.  

Where  competent  authorities  and  ESMA  receive  confidential  information  in 
accordance with paragraph 2, they may use it only in the course of their duties and 
for the purpose of administrative and judicial proceedings. 

CHAPTER IV 
TRANSITIONAL AND FINAL PROVISIONS 

Article 23 

The  power  to  adopt  delegated  acts  is  conferred  on  the  Commission  subject  to  the 
conditions laid down in this Article. 

The delegation of power referred to in paragraph 3 of Article 2 and paragraph 5 of 
Article 8 shall be conferred on the Commission for a period of four years from the 
date of entering into force of this Regulation. The Commission shall draw up a report 
in respect  of  the delegation of powers not later than nine months before the end of 
the four year period. The delegation of power shall be tacitly extended for periods of 
an  identical  duration,  unless  the  European  Parliament  or  the  Council  opposes  such 
extension not later than three months before the end of each period. 

The delegation of power referred to in paragraph 3 of Article 2 and paragraph 5 of 
Article 8 may be revoked at any time by the European Parliament or by the Council. 
A decision of revocation shall put an end to the delegation of the power specified in 
that decision. It shall take effect the day following the publication of the decision in 
the Official Journal of the European Union or at a later date specified therein. It shall 
not affect the validity of any delegated acts already in force. 

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to 
the European Parliament and to the Council. 

A delegated act adopted pusuant to paragraph 3 of Article 2 or paragraph 5 of Article 
8  shall  enter  into  force  only  if  no  objection  has  been  expressed  either  by  the 
European Parliament or the Council within a period of two months of notification of 
that act to the European Parliament and the Council or if, before the expiry of that 
period,  the  European  Parliament  and  the  Council  have  both  informed  the 
Commission that they will not object. That period shall be extended by two months 
at the initiative of the European Parliament or the Council. 

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Article 24 

1. 

At  the  latest  four  years  after  the  date  of  application  of  this  Regulation,  the 
Commission shall review this Regulation. The review shall include a general survey 
of  the  functioning  of  the  rules  in  this  Regulation  and  the  experience  acquired  in 
applying them, including:  

(a) 

the extent to which the designation "European Venture Capital Fund" has been 
used  by  venture  capital  fund  managers  in  different  Member  States,  whether 
domestically or on a cross border basis;  

(b) 

the scope of this Regulation, including the threshold of EUR 500 million.  

2. 

After  consulting  ESMA  the  Commission  shall  submit  a  report  to  the  European 
Parliament and the Council accompanied, if appropriate, by a legislative proposal.  

Article 25 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. It shall apply from the 22 July 2013, except for 
paragraph 3 of Article 2 and paragraph 5 of Article 8, which shall apply from the date of entry 
into force of this Regulation.. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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