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
Date: 2016-07-14
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: action programme, capital market, economic growth, entrepreneurship, fund (EU), investment aid, investment company, investment policy, small and medium-sized enterprises, venture capital

EN 

   EN 

   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 ....................................................................................................... 4 

2.  PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES .. 5 

2.1.  Background ....................................................................................................... 5 
2.2.  Related EU initiatives ........................................................................................ 6 
2.3.  Consultation of interested parties ...................................................................... 7 
Inter Service Steering Group ............................................................................. 7 
2.4. 

3.  PROBLEM DEFINITION .......................................................................................... 8 

3.1. 

Introduction ....................................................................................................... 8 
3.1.1.  Venture Capital ................................................................................... 8 
3.1.2.  EU social impact capital ..................................................................... 9 
3.2. 
Initial objectives of the EuVECA and EuSEF Regulations .............................. 9 
3.3.  Problem drivers ............................................................................................... 12 
3.3.1.  Limitations on managers ................................................................... 12 
3.3.2.  Fund rules.......................................................................................... 14 
3.3.3.  Different application in Member States ............................................ 15 
3.4.  Problems .......................................................................................................... 15 
3.4.1.  Low take-up and assets under management below expectations ...... 15 
3.4.2.  Lack of cross-border business ........................................................... 18 
3.5.  Consequences .................................................................................................. 19 

4.  SUBSIDIARITY ....................................................................................................... 20 

5.  OBJECTIVES ........................................................................................................... 21 

6.  OPTIONS .................................................................................................................. 22 

6.1.  Number  of  EuVECA  and  EuSEF  managers,  number  of  funds  and  size  of 

assets under management ................................................................................ 22 
6.1.1.  Description of the policy options....................................................... 22 
6.1.2.  Analysis of impacts and comparison of options ................................ 22 
6.2.  EuVECA eligible assets – qualifying portfolio undertakings definition  ........ 25 
6.2.1.  Description of the policy options....................................................... 25 
6.2.2.  Analysis of impacts and comparison of options ................................ 26 
6.3.  The investor base and related investor protection rules .................................. 30 
6.3.1.  Description of the policy options....................................................... 30 
6.3.2.  Analysis of impacts and comparison of options ................................ 30 

6.4.  Differences  in  costs  for  launching  and  marketing  EuVECA  and  EuSEF 

funds ................................................................................................................ 34 
6.4.1.  Description of the policy options....................................................... 34 
6.4.2.  Analysis of impacts and comparison of options ................................ 34 

7.  MONITORING AND EVALUATION .................................................................... 39 

2 

 
 
 
 
 
 
 
 
 
8.  ANNEX 1 (PROCEDURAL INFORMATION CONCERNING THE PROCESS 
TO PREPARE THE IMPACT ASSESSMENT REPORT AND THE RELATED 
INITIATIVE) ............................................................................................................ 41 

9.  ANNEX 2 (STAKEHOLDER CONSULTATIONS) ............................................... 42 

10.  ANNEX 3 (WHO IS AFFECTED BY THE INITIATIVE AND HOW) ................. 43 

11.  ANNEX 4 (REVIEW OF THE EUVECA AND EUSEF REGULATIONS) ........... 44 

12.  ANNEX  5 

(REVIEW  CLAUSES  OF  THE  EUVECA  AND  EUSEF 

REGULATIONS)...................................................................................................... 75 

13.  ANNEX 6 (EU LEGAL FRAMEWORKS FOR INVESTMENT FUNDS) ............ 76 

14.  ANNEX 7 (RESULTS OF THE CONSULTATIONS) ............................................ 80 

15.  ANNEX 8 (THE SME LIFE CYCLE AND FINANCING NEED) ....................... 103 

16.  ANNEX  9  (KEY  CHARACTERISTICS  OF  VENTURE  CAPITAL  AND 

SOCIAL VENTURE MARKET )........................................................................... 107 

17.  ANNEX 10 (VENTURE CAPITAL BUSINESS MODEL)................................... 114 

18.  ANNEX 11 (INVESTEUROPE STATISTICS) ..................................................... 119 

19.  ANNEX  12 

(STAKEHOLDERS'  CONTRIBUTION  TO  THE  PUBLIC 

CONSULTATION) ................................................................................................. 136 

20.  ANNEX 13 (ANECDOTAL EVIDENCE ON THE EUVECA REGIME) ............ 139 

21.  ANNEX 14 (VENTURE CAPITAL IN EUROPE) ................................................ 142 

22.  ANNEX  15  (ESMA  REGISTERED  EUVECA  AND  EUSEF  AS  OF  APRIL 

2016)........................................................................................................................ 144 

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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  Europe1  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 Investment2, 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)3 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  345/20134    and  European  Social  Entrepreneurship  Funds  (EuSEF) 
Regulation 346/20135  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 REFIT6 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)7  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.  

1 http://ec.europa.eu/priorities/jobs-growth-and-investment/investment-plan_en 
2 http://www.eib.org/efsi/index.htm 
3 http://ec.europa.eu/finance/capital-markets-union/index_en.htm 
4 Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European 

venture capital funds 

5 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European 

social entrepreneurship funds 

6 http://ec.europa.eu/smart-regulation/refit/index_en.htm 
7 Directive 2011/61/EU 

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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. 

Background 

2. Procedural issues and consultation of interested parties 
2.1. 
The Single Market Act I (SMA I) adopted by the Commission in April 20118 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 needs9. 

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 
(GECES10)  to  develop  a  methodology  which  would  be  appropriate  for  the  specific  social 

8 http://ec.europa.eu/growth/single-market/smact/index_en.htm 
9 See Annex 6 
10  Groupe  d'experts  de  la  Commission  sur  l'Entrepreneuriat  Social  -  http://ec.europa.eu/growth/sectors/social-

economy/enterprises/expert-groups/index_en.htm 

5 

 
                                                            
impact measurement needs of EuSEF funds. This work has also informed the output11 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 Initiative12,  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)13, as well as under Horizon 202014, 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 Strategy15 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.  

11 http://www.socialimpactinvestment.org/reports/Measuring%20Impact%20WG%20paper%20FINAL.pdf 
12 COM(2011) 682 final 
13 http://ec.europa.eu/growth/smes/cosme/ 
14 https://ec.europa.eu/programmes/horizon2020/ 
15 (COM(2015)0550 final) 

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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 parties16 

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  consultation17  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  evidence18  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 

16 For further details on the feedback from the stakeholders please refer to Annexes 2, 11 and 12. 
17 http://ec.europa.eu/finance/consultations/2015/venture-capital-funds/index_en.htm 
18 http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 

7 

 
                                                            
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 
Introduction  
3.1. 

3.1.1. Venture Capital19 

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) 

19 Further details of the venture capital sectors are presented in Annexes 9, 10 and 11. 

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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  returns20.  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.21 

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  Assessments22,  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 

20  Saltuk,  Y.,  A.  Idrissi,  A.  Bouri,  A.  Mudaliar,  and  H.  Schiff  (2014),  “Spotlight  on  the  Market:  The  Impact 
Investor Survey”, Global Social Finance, J.P. Morgan and the Global Impact Investing Network 
21 World Economic Forum (2014), “Charting the Course: How Mainstream Investors can Design Visionary and 

Practical Impact Investing Strategies” 

22 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011SC1515&from=EN 

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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.  

10 

 
Chart 2 - Problem tree 

Problem drivers 

Problems 

Consequence 

Limitations on managers  

-

-

Large  managers  not  allowed  to 
run EuVECA and EuSEF  

Dual  requirements  imposed  by 
EuVECA/EuSEF 
AIFMD 
Regulations 

and 

Product rules 

-
-

€100,000 minimum investment 
EuVECA eligible assets 

Different application in Member States 

-
-

for managing the funds 
for marketing the funds 

Low take-up and assets under 
management below expectations  

-
-
-

few managers 
few funds  
small investors base 

Lack of cross-border business 

-
-

Inconsistent application by MS 
considerable 
including 
own 
supervisory fees 

funds 

total 

costs, 
and 

Low level of investments in EU Venture 
Capital and Social Enterprises 

-

EuVECA  and  EuSEF  contribute 
less  to  growth  and  to  positive 
social impacts than intended 

11 

 
 
 
 
 
 
 
3.3. 

Problem drivers 

3.1.3.  Limitations on managers 

The EU’s regulatory framework is built on two complementary pillars23: 

i. 

ii. 

The  Directive  on  Undertakings  for  Collective  Investment  in  Transferable  Securities 
(UCITS)24  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. 

The AIFMD Directive25 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. 

23 See Annex 6 
24 Directive 2009/65/CE of the European Parliament and of the Council of 13 July 2009 
25 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 

12 

 
 
 
 
                                                            
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 ELTIF26 (a specialised European long-term 
investment fund framework) as further described in Annex 6. 

26 Regulation (EU) 2015/760 of the European parliament and the Council of 29 April 2015 on European long-

term investment funds. 

13 

 
 
 
 
 
                                                            
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)  27,  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 Recommendation28 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, 

27 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 
28 Commission Recommendation 2003/361/EC 

14 

 
 
 
                                                            
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]29.  

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 

29 http://ec.europa.eu/internal_market/social_business/docs/COM2011_682_en.pdf 

15 

 
 
 
 
 
                                                            
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 
including  alternative 
manage  and  market  other  alternative 

investment  funds 

16 

 
 
 
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 

17 

 
 
 
 
 
 
 
 
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. 

18 

 
 
 
 
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) 30. 

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.31  

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 

30http://www.efama.org/Publications/Statistics/Quarterly/Quarterly%20Statistical%20Reports/260311_Quarterly
%20Statistical%20Release%20Q4%202014.pdf 
31  Michael  Brigl,  Heinrich  Liechtenstein  (2015),  The  State  of  European  Venture  Capital,  BCG  Perspectives, 
IESE Business School. 

19 

 
 
 
 
                                                            
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.   

20 

 
 
 
 
 
 
 
5. Objectives  

Operational objectives 

1.

2.

3.

remove limitations for larger managers to manage EuVECA and EuSEF funds 
and dual registration requirements 
strike  the  right  balance  between  the  need  to  have  a  light  touch  regime  and  a 
sufficient level of investor protection  
streamline the rules for marketing and managing the funds 

Specific objective 1 

Specific objective 2 

Make it easier for 
managers to run 
EuVECA and EuSEF 
and attract more 
investors 

Facilitate operations 
and decrease costs 
for EuVECA and 
EuSEF funds 

Increase investments into venture capital and social enterprises via EuVECA and 
EuSEF funds. 

General objective 

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. 

21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 

22 

 
 
 
 
 

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 
Directive32 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 

32 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 

23 

 
 
 
                                                            
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 

Option 2 

Allow 
AIFMD 
authorised  manager  to 
market 
and  manage 
EuVECA  and  EuSEF 
funds. 

Types of asset managers 
impacted 

AIFMD authorised managers 

Estimated impact 

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 

24 

 
 
 
 
 
 
 
 
Option 1 

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 
managersare  incentivised  to 
run  EuVECA  and  EuSEF 
funds 

++  Increase  the  number  of 
EuVECA and EuSEF funds 

0 

++  Low 
costs 

implementation 

++  Positive  impact  on  the 
EuVECA  and  EuSEF 
Labels 

++  AIFMD-authorised  managers 
to  offer 
would  be 
incentivised 
EuVECA  and  EuSEF 
to 
funds 
insurance  companies  as  those  funds 
benefit  from  a  favourable  treatment 
compared 
alternative 
investment funds under Solvency II 

other 

to 

++ No impact on investor protection 

Option 3 

--  Negative 
protection 

impact  on 

investor 

++  Lower  costs  for  EuVECA  and 
EuSEF  managers  which  grow  above 
the €500 million AIFMD threshold 

--  no  significant  impact  as 
EuVECA 
EuSEF 
and 
managers  are  far  from  the 
€500 million threshold 

--  Negative 
impact 
systemic risk monitoring 

on 

the 

-- Will not have an impact 
on 
of 
EuVECA  and  EuSEF 
funds. 

take  up 

++:  major  improvements;  +:  some  improvements;  0:  no  or  marginal  impacts;  -  some 
deterioration; -- significant deterioration,  

6.2. 

EuVECA eligible assets – qualifying portfolio undertakings definition 33 

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 234 

Option  4:  Permit  follow-on  investments  in  firms  that  exceed  the  qualifying  portfolio 
criteria.   

33 The focus of the EuSEF Regulation is different from that of  the EuVECA Regulation. The EuSEF Regulaiton 
focuses on unlisted social entities. No action is needed on the EuSEF eligible assets at this stage as the 
scope of the EuSEF eligible assets is sufficiently broad to capture the entities that fulfil relevant social 
objectives.   

34 See Article 33 of Directive 2014/65/EU. 

25 

 
 
 
 
 
 
 
 
 
                                                            
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  200335.  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 II36 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 

35 Commission Recommendation 2003/361/EC. 
36 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial 

instruments and amending Directive 2002/92/EC and Directive 2011/61/EU 

26 

 
 
 
 
                                                            
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 

27 

 
 
 
 
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.37 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.38  

  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  funds39.  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 

37 http://ec.europa.eu/finance/securities/docs/isd/mifid/111020-impact-assessment_en.pdf 
38 EIB/PWC (2012): Innovative Mid-Cap Financing Study (Risk Sharing Finance Facility (RSFF). New Ways to 

Finance Innovative Mid-Caps). 

39 See Annex 11 

28 

 
 
 
 
                                                            
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/undert
akings/ investors 

Estimated impact 

Allow entities with up to 
499 employees.  

Option 2 

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 

Option 4 

Allow entities with market 
capitalisation  <  €200M 
listed  on  the  SME  growth 
eligible 
to  be 
market 
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. 

for 

Allow 
investment 
portfolio undertakings 

subsequent 
in  qualifying 

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 

Option 2 

++ Investors will benefit from broader 
investment base 

-  Unlisted  SMEs  may  have  reduced 
investment 
from  EuVECA, 
focus 
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 

29 

0 

++  Low 
costs 

implementation 

++  Positive  impact  on  the 
EuVECA label 

+  Follows 
practice, 
market actually invests 

the  market 
the 

i.e.  how 

 
 
 
 
 
 
 
 
 
approach 
investment 
Horizon 2020 programs 

of 

Option 3 

++ Investors will benefit from broader 
investment base 

- Potentially less financing to 
SMEs 

++  Low 
costs 

implementation 

++  SME  growth  market  will  benefit 
from greater liquidity and capital 

-  Unlisted  SMEs  may  have  reduced 
from  EuVECA, 
focus 
investment 
albeit from a wider capital pool 

0 No impact on investors protection 

++ More diversified portfolio 

++  Increased  the  number  of 
EuVECA funds. 

Aligned 

with 
++ 
investment 
approach 
horizon 2020 programs 

the 
of 

++  Positive  impact  on  the 
EuVECA label 

Option 4 

++ Investors will benefit from broader 
investment base 

- Potentially less financing to 
SMEs 

++  Low 
costs 

implementation 

++ More diversified portfolio 

++  Increased  the  number  of 
EuVECA funds. 

++  Positive  impact  on  the 
EuVECA label 

++  Supports  how 
market actually invests 

the 

++  SME  growth  market  will  benefit 
from greater liquidity and capital 

-  Unlisted  SMEs  may  have  reduced 
investment 
from  EuVECA, 
focus 
albeit from a wider capital pool 

+  SME  labour  intensive  firms  will 
benefit from additional investments 

0 No impact on investors protection 

++:  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 

30 

 
 
 
 
 
 
 
 
 
 
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 

31 

 
 
 
 
 
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.  

32 

 
 
 
 
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 

++ larger investors base 

- - Lack of investor protection 

+ Potentially more capital invested  

Option 3 

++  Positive 
protection 

impact  on 

investor 

++ larger investor base 

- - More costs for costs EuVECA and 
EuSEF managers 

-  -  Investors  in  Venture 
capital are high net worth 
individuals 

-  Lack  of 

- 
protection 

investor 

- - 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 

rules 
--  Diversification 
and 
depositary 
requirements  will  hinder 
the 
of 
development 
EuVECA  and  EuSEF 
funds. 

33 

 
 
 
 
 
 
 
 
 
 
 
 
++:  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)40. 

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)41.  Alternatively 
guidelines  or  recommendations  to  competent  authorities  could  be  issued  by  ESMA  under 
Article 16 of the ESMA Regulation42. 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 

40  Articles  10  (1),  14  and  16  (2)  of  the  EuVECA  Regulation  and  Articles  11(1),  15  and  17(2)  of  the  EuSEF 
Regulation. 
41 http://europa.eu/pol/pdf/qc3209190enc_002.pdf#page=51 

42 Regulation (EU) N°1095/2010 of the European Parliament and of the Council of 24 November 2010 

34 

 
 
 
 
                                                            
 
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 
EuVECA 

and 

in 
the 
EuSEF 

EuVECA  and  EuSEF 
managers  

35 

This 
positive 

can  have 

a 
impact  on 

 
 
 
 
Regulations  that  host  Member 
States may not impose fees  

Streamlined  EuVECA 
and 
EuSEF  registrations  with  the 
AIFMD 

EuVECA  and  EuSEF 
managers  and  AIFMD-
authorised managers 

clarification 

of 
Explicit 
sufficient  own  funds  through 
modifications  of  the  EuVECA 
and  EuSEF  Regulations  and 
level 2 

EuVECA  and  EuSEF 
managers 

EuVECA  and  EuSEF 
it  can 
managers  as 
reduce 
cross-
the 
marketing 
border 
costs.  

Reduce 
the 
registration  costs  and 
administrative 
burden.   

the 
Reduce 
compliance  costs  for 
EuVECA  and  EuSEF 
fostered 
managers, 
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 

-  Not Legally binding  

- - Room for interpretations 

++ No impact on investors 

Option 3 

++  Less  costs  for  EuVECA  and 
EuSEF managers 

-  Less  probability 
achieve the goal 

to 

-  Low  implementing  costs 
but low results 

++ Legally Binding  

++  Will  avoid  duplication  of 
costs  and  non-proportionate 
requirements  

rules 

+  Clearer 
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 
EuVECA 
managing 
and 
funds, 
portfolio undertakings 

investors 

Proportionality 

Allow 
authorised  managers 
manage 

large  AIFMD-
to 
market 

and 

As the main features of the 
regime 
been 
have 
preserved,  there  will  be  no 

the 
The  main  featureof 
regime 
been 
have 
preserved  for  small  asset 

The 
options 

preferred 
take 

36 

 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
EuVECA funds   

Expand  the  definition  of 
qualifying 
portfolio 
undertakings 

Maintain 
minimum investment 

the  €100,000 

Explicit  clarifications 
in 
the EuVECA Regulation to 
burdensome 
avoid 
administrative 
processes 
and  additional  measures  
(including fees imposed by 
host  Member  States)  and 
non-proportionate 
requirements  imposed  by 
home Member States. 

additional  costs  for  asset 
managers. 

managers  and  will  be 
further reinforced. 

The  costs  are  likely  to  be 
lower  than  it  is  in  the 
the 
current  situation  as 
will 
adapted 
specificy 
explicitely 
proportionality 
the 
of 
requirements.  

rules 

large  AIFMD-
Allowing 
to 
authorised  managers 
manage 
market 
and 
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. 

such 

Maintaining  the  €100,000 
threshold  is  also  limiting 
introduction  of  new 
the 
as 
requirements 
or 
depositary 
diversification 
that 
will  have  an  impact  on  the 
costs 
asset 
managers  and  indirectly  to 
the fees paid by investors.  

rules 

the 

for 

impact  on 

No 
budget. 

the  EU 

37 

The  balanced  approach 
investor 
between 
and 
protection 
attractiveness of the regime 
is preserved. 

There  are  no  additional 
risks for investors. 

Large  AIFMD-authorised 
managers will benefit from 
the 
funds 
EuVECA 
framework and will be able 
to  market  EuVECA  funds 
investors. 
to 
non-retail 
They  may  aslo 
target  
institutional  investors  such 
insurance  companies 
as 
that 
already 
incentivised  to  invest  in 
this fund framework. 

are 

As  more  asset  managers 
will  be 
to  use 
able 
EuVECA label, this in turn 
will have a positive impact 
on  SMEs  and  small  mid-
caps. 

The brodened definition of 
portfolio 
qualifying 
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 
portfolio 
qualifying 
undertaking  by  allowing 
investment in SME growth 
the 
market  will 
development 
those 
markets. 

foster 
of 

more 

Investors  will  have  access 
diversified 
to 
some 
in 
portfolio  and 
extent 
risky 
less 
investment. 

The 
for 
administrative 
EuVECA managers burden 
will be reduced. 

The preferred options are 
coherent with other 

of 

the 
account 
principle 
of 
proportionality,  as 
enshrined in Article 
5(4)  of  the  Treaty 
on European Union, 
being  adequate  to 
reach the objectives 
going 
not 
and 
beyond  what 
is 
necessary  in  doing 
so.  

as 

the 

seek 

The  selected  policy 
to 
options 
strike 
right 
between 
balance 
interest, 
public 
protection 
of 
safety 
investors, 
trust 
and 
considerations 
as 
well 
related 
costs.  Unnecessary 
are 
burdens 
avoided.  Given  the 
underlying 
the 
objective, 
this 
success 
initiative  will  to  a 
large degree depend 
on  achieving 
the 
balance 
right 
between  proposed 
rights 
and 
obligations. 

of 

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 
specific 
the 
growth 
features, 
and 
potential 
innovativeness 
of 
the EuVECA sector. 

 
 
 
 
 
 
legislation and initiatives, 
in particular AIFMD, 
MiFID SME Growth 
Market, CMU, and 
reinforce EU financing 
programmes, 
includingHorizon 2020 and 
EFSI.  

The EuSEF Regulation 

Preferred policy options 

Cost impacts 

Benefits    for  managers 
managing  EuSEF  funds 
and investors 

Proportionality 

large  AIFMD-
Allow 
authorised  managers 
to 
manage and market EuSEF 
funds   

Maintain 
minimum investment 

the  €100,000 

in 
Explicit  clarifications 
the  EuSEF  Regulation  to 
burdensome 
avoid 
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 
been 
have 
preserved,  there  will  be  no 
additional  costs  for  asset 
managers. 

The  main  features  of  the 
regime 
been 
have 
preserved  for  small  asset 
managers  and  will  be 
further reinforced. 

The  balanced  approach 
investor 
between 
protection 
and 
attractiveness of the regime 
is preserved. 

There  are  no  additional 
risks for investors. 

Large  AIFMD-authorised 
managers will benefit from 
funds 
EuSEF 
the 
framework and will be able 
to  market  EuSEF  funds  to 
non-retail  investors.  They 
target  
aslo 
may 
institutional  investors  such 
insurance  companies 
as 
that 
already 
incentivised  to  invest  in 
this fund framework. 

are 

As  more  asset  managers 
will  be  able  to  use  the 
EuSEF  label  this  in  turn 
will have a positive impact 
on 
undertakings 
financing. 

social 

more 

Investors  will  have  access 
diversified 
to 
some 
portfolio  and 
in 
extent 
risky 
less 
investment. 

The  administrative  burden 
for  EuSEF  managers  will 
be reduced. 

The  costs  are  likely  to  be 
lower  than  it  is  in  the 
the 
current  situation  as 
will 
adapted 
specificy 
explicitely 
the 
of 
proportionality 
requirements.  

rules 

large  AIFMD-
Allowing 
authorised  managers 
to 
manage and market EuSEF 
funds  is  likely  to  have  a 
impact  on  fees 
positive 
paid 
to 
investors 
by 
managers.  

Large  AIFMD-authorised 
managers 
have  more 
economy  of  scale  that  in 
for 
turn  are  beneficial 
investors. 

such 

Maintaining  the  €100,000 
threshold  is  also  limiting 
introduction  of  new 
the 
as 
requirements 
or 
depositary 
diversification 
that 
will  have  an  impact  on  the 
asset 
costs 
managers  and  indirectly  to 
the fees paid by investors. 

rules 

the 

for 

impact  on 

No 
budget. 

the  EU 

38 

The  preferred  options 
take  account  of  the 
of 
principle 
proportionality, 
as 
enshrined  in  Article 
5(4)  of  the  Treaty  on 
European 
Union, 
to 
being 
reach  the  objectives 
and not going beyond 
what  is  necessary  in 
doing so.  

adequate 

right 

The  selected  policy 
options  seek  to  strike 
the 
balance 
public 
between 
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 
balance 
the 
proposed 
between 
rights 
and 
obligations. 

right 

common 

The  envisaged  rules 
will, therefore, not go 
beyond  what 
is 
necessary  to  achieve 
a 
legal 
framework for EuSEF 
funds.  They  have 
carefully 
been 
considered 
and 
tailored to support the 

 
 
 
 
 
  
features, 
specific 
growth  potential  and 
innovativeness  of  the 
EuSEF sector. 

with 

The  preferred  options  are 
coherent 
other 
legislation  and  initiatives, 
in  particular  AIFMD  and 
CMU,  and  reinforce  EU 
programmes, 
financing 
including 
COSME, 
Horizon 2020 and EFSI. 

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. 

39 

 
 
 
 
 
 
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 objectives 
have been achieved and no unintended undesirable consequences have arisen. The review date 
of 22 July 2017, as laid down in current EuVECA and EuSEF Regulations, will be aligned to 
the new deadline and a new deadline will be set for the evaluation, which will also consider 
the further elements referred to in Annex 5 that are not covered in this revision. Furthermore, 
the  application  of  the  revised  Regulations  should  be  monitored  on  an  ongoing  basis  with 
regard to the extent to which the objectives have been achieved. Indicators for this monitoring 
would include, for example:  

the number of large managers managing EuVECA and EuSEF funds; 

 
  value of assets under management in EuVECA and EuSEF funds and average size of 

 

EuVECA and EuSEF funds; 
the cost of marketing, including marketing fees, of cross-border EuVECA and EuSEF 
funds; 

  consistency of level of own funds held by sub-threshold managers. 

Indicators for this monitoring would include (i) overall data on EU venture and social impact 
capital sectors, including venture and social impact capital funds which are neither EuVECA 
nor EuSEF funds, (ii) the number of EuVECA and EuSEF funds and the number of AIFMD-
authorised  managers  managing  and  marketing  EuVECA  and  EuSEF  funds  as  well  as  the 
number  of  EuVECA  and  EuSEF  managers  registered  under  Regulation  (EU)  345/2013  and 
Regulation  (EU)  346/2013,  (iii)  value  of  assets  under  management  in  EuVECA  and  EuSEF 
funds and average size of such funds, (iv) the cost of marketing of cross-border EuVECA and 
EuSEF  funds,  and  (v)  consistency  of  level  of  own  funds  held  by  EuVECA  and  EuSEF 
managers. Monitoring will be conducted in co-operation with ESMA, tasked with keeping a 
register  of  EuVECA  and  EuSEF  managers  and  EuVECA  and  EuSEF  funds  and,  where 
available,  based  on  reporting  under  AIFMD.  Commercial  data  and  reports  concerning  the 
EuVECA and EuSEF sectors and EU venture and social impact capital markets will also be 
reviewed to capture the impacts of EuVECA and EuSEF funds in a broader perspective. 

Monitoring  will  be  conducted  in  cooperation  with  ESMA,  which  is  already  tasked  with 
keeping  a  register  of  EuVECA  and  EuSEF  managers.  Information  could  also  be  obtained 
from  a  monitoring  work  stream,  data  and  information  already  collected  and  provided  by 
NCAs and EU industry associations, or through a survey. This could be further complemented 
by a targeted study. 

Since  the  data  that  would  feed  into  monitoring  is  already  collected  and  assessed  under 
existing national and industry practices, it is not expected that the monitoring envisaged here 
would create any additional administrative burden for EuVECA and EuSEF funds and other 
relevant  stakeholders.  The  impact  of  additional  monitoring  activities  on  national  and  EU 
supervisory  authorities  is  expected  to  be  of  a  purely  incremental  nature  that  would  be 
absorbed readily into business as usual practices. 

The Commission will also monitor that the applicable rules adequately reflect the evolution of 
the  venture  capital  and  social  investment  sector.  In  this  respect,  the  Commission  will  also 
regularly assess changing business practices, at EU and international levels. 

40 

 
 
 
 
 
8. Annex 1 (Procedural information concerning the process to 
prepare  the  impact  assessment  report  and  the  related 
initiative) 
  Lead  Directorate-General:  Directorate-General  for  Financial  Stability,  Financial 

Services and Capital Markets Union.  

  Commisson Work Programme reference 2015/FISMA/153. 
  Organisation and timing of Inter Service Steering Group’s meetings: four meetings on 
28  January,  10  March,  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, Communications Networks Content and Technology, the Legal Service 
and the Secretariat General. 

  Evidence used in the impact assessment: 

o  Replies by stakeholders to the following public consultations:  

  From  18  February  2015  to  13  May  2015:  a  public  consultation 
launched by the Green Paper titled Building a Capital Markets Union. 
It  included  questions  on  the  EuVECA  and  EuSEF  Regulations; 
http://ec.europa.eu/finance/consultations/2015/capital-markets-
union/index_en.htm  

  From 30 September 2015 to  6 January  2016: a public consultation on 
and  EuSEF  Regulations: 

the  EuVECA 
the 
http://ec.europa.eu/finance/consultations/2015/venture-capital-
funds/index_en.htm   

review 

of 

  From 30 September 2015 to 31 January 2016: Call for evidence on the 
EU  regulatory  framework  for  financial  services  inviting  feedback  and 
empirical evidence on the benefits, unintended effects, consistency and 
coherence  of  the  financial  legislation  adopted  in  response  to  the 
crisis; 
financial 
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-
framework-review/index_en.htm  

o  A  targeted  technical  workshop  aimed  at  managers  of  existing  EuVECA  and 
EuSEF  funds  organised  on  27  January  2016  by  the  Directorate-General: 
Directorate-General  for  Financial  Stability,  Financial  Services  and  Capital 
Markets Union. 

o  Targeted  consultations  through  bilateral  meetings,  teleconferences  with 

stakeholders, statistics provided by industry associations. 

  Expert  advice  and  information  provided  by  the  European  Securities  and  Markets 

 

Authority (ESMA): https://www.esma.europa.eu/    
In  due  course,  the  Expert  Group  of  the  European  Securities  Committee  will  be 
consulted 
texts: 
http://ec.europa.eu/finance/securities/egesc/index_en.htm   

legal 

draft 

the 

on 

41 

 
 
 
 
 
9. Annex 2 (Stakeholder consultations)  
Stakeholders  (asset  managers,  investors,  industry  associations,  public  authorities)  were 
consulted  through  three  public  consultations  organised  in  2015,  through  which  the 
Commission’s minimum standards for consultation have been met. 

  From 18 February 2015 to 13 May 2015: a public consultation launched alongside the 
Building a Capital Markets Union Green Paper . The consultation included questions 
on  the  EuVECA  and  EuSEF  Regulations;  almost  60%  of  respondents  agreed  that 
specific changes should be made.   

  From 30 September 2015 to 6 January 2016: 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. 

  From 30 September 2015 to 31 January 2016: Call for evidence on the EU regulatory 
framework  for  financial  services,  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. 

In  addition,  on  27  January  2016,  the  Directorate-General  for  Financial  Stability,  Financial 
Services  and  Capital  Markets  Union  organised  a  targeted  technical  workshop  aimed  at 
managers of existing EuVECA and EuSEF, together with practitioners, supervisors and other 
stakeholders interested in offering these funds. The purpose of the workshop was to analyse 
the  practical  challenges  posed  in  offering  and  running  these  funds.  It  also  considered  what 
practical challenges exist to successful cross-border marketing. The minutes of the workshop 
are included in Annex 7.  

42 

 
 
 
 
 
 
 
10.  Annex 3 (Who is affected by the initiative and how)  

  Sub-threshold  managers  of  EuVECA  and  EuSEF  funds.  Reduced  costs  for 
EuVECA  and  EuSEF  managers  through  explicit  clarification  of,  and  common 
approach  to,  calculation  of  sufficient  own  funds,  that  host  Member  States  may  not 
impose fees and EuVECA and EuSEF registration processes that are streamlined with 
the AIFMD  

  Large  AIFMD-authorised  managers.  Opening  up  management  and  marketing  of 
EuVECA  and  EuSEF  funds  to  managers  fully  authorised  under  AIFMD  will  allow 
such managers to offer a full range of products to their clients. They will be able to set 
up  these  funds,  bringing  the  ability  to  market  to  high  net  worth  individuals  and  use 
EuVECA and EuSEF funds' associated labels. Large managers could potentially apply 
economies of scale to labour intensive processes such as risk capital screening through 
leveraging  their  wider  infrastructure  in  support  of  this  -  including  expert  staff,  in-
house information and IT tools. This would lower operational costs and in return could 
foster the development of EuVECA and EuSEF funds.  

  Investors in EuVECA and EuSEF funds. Investors will benefit from a wider range 
of  funds  marketed  by  a  wider  range  of  managers,  both  sub-threshold  and  large. 
Allowing  large  AIFMD-authorised  managers  to  manage  and  market  EuVECA  and 
EuSEF  funds  is  likely  to  reduce  fees  paid  by  investors  to  managers  through  greater 
competition  and  economies  of  scale.  For  EuVECA  investors,  the  greater  range  of 
eligible assets in which their funds will be able to invest will result in a portfolio made 
less risky through greater diversification and investment in entities at a more advanced 
stage of development. Investors will also gain from funds that are able to retain equity 
in successful companies as they move up the funding ladder. 

  Social  undertakings.  As  more  asset  managers  will  be  able  to  use  the  EuSEF  label, 

this in turn will increase the financing available to social undertakings. 

  SMEs, mid-caps, SMEs on SME growth markets and other companies listed on 

SME growth markets which are not SMEs. 

o  Mid-caps: there is a clear need for investment in small mid-caps identified by 
EU  programmes  such  as  Horizon  2020.  Expanding  the  eligible  investment 
criteria  will  help  to  provide  further  investment  to  these  entities,  ensuring  a 
consistency  of  EU-wide  approach  and  further  reinforcing  these  financing 
programmes. 

o  SMEs listed on SME growth markets within the meaning of the MiFID 2: 
there is  already  a  strong  identified  need  for  growth  capital for  growing  firms 
not currently eligible for investment by EuVECA funds. Firms listed on SME 
growth markets will have greater access to capital. 

o  SMEs: permitting investment in mid-caps and SMEs on SME growth markets 
is likely to make the EuVECA funds more attractive to investors and grow the 
overall  pool  of  eligible  venture  capital  available  for  investment,  including  in 
SMEs. 

o  By  permitting  follow-on  investments  companies  that  eventually  exceed  the 
eligible  assets  criteria  (SMEs,  mid-caps,  SMEs  on  SME  growth  markets) 
would still qualify for EuVECA investments, allowing further investment hand 
continued close support.   

43 

 
 
 
 
 
11.  Annex 4 (Review of the EuVECA and EuSEF Regulations)  

Section 1 Executive Summary 

The  European  Venture  Capital  Funds  (EuVECA)  Regulation  345/2013  and  European  Social 
Entrepreneurship  Funds  (EuSEF)  Regulation  346/2013  aim  to  increase  the  amount  of  non-
bank  capital  available  for  investment  in  SMEs,  such  as  start-ups  and  social  enterprises.  The 
ultimate  objectives  are  to  make  European  SMEs  more  competitive  in  a  global  marketplace, 
taking  part in  the  benefits  of  the  single  market,  and  contribute  to  the  EU  goals  on  inclusive 
and sustainable growth. 

Both  initiatives  have  been  included  in  the  2016  European  Commission's  Regulatory  Fitness 
and  Performance  programme  (REFIT).  Inclusion  in  the  REFIT  programme  was  justified  as 
the  uptake  of  these  two fund  schemes  has  been up  to  now  below  the  expectations  implying 
that legislation was not fit for purpose. It is for this reason that the Commission has decided to 
accelerate  the  planned  review  of  2017  and  to  start  a  legislative  review  as  part  of  the  2016 
REFIT  work  programme.  The  aim  of  the  review  is  to  assess  to  what  extent  the  existing 
regulations  have  met  their  principle  objectives  and  in  particular  whether  they  have  been 
efficient, effective, coherent, relevant and had added value EU-wise. 

Given that both regulations have been applicable only since mid-2013, this assessment does 
not  consitute  a  full  evaluation,  as  it  is  too  early  to  draw  a  firm  conclusion  on  long-term 
impacts.  Instead,  the  review  provides  the  assessment  of  the  initial  results  focusing  on  the 
potential  factors  that  may  have  prevented  the  wider  take-up  of  the  funds  (as  compared  to 
initial  expectations).  To  the  extent  possible,  the  review  analysed  the  performance  of  the 
regulations in the context of the five evaluation criteria, as required by the Better Regulation 
guidelines.  

Given  the  urgency  of  adressing  any  potential  problems  with  the  existing  regulations,  the 
review  has  been  conducted  in  parallel  with  the  work  on  the  impact  assessment  (IA)  and  is 
presented as a standalone annex to the IA. 

Both the EuVECA and EuSEF Regulations were proposed by the Commission on 7 December 
2011  and  adopted  by  the  co-legislators  on  17  April  2013.  They  apply  from  22  July  2013. 
Their  legal  basis  is  Article  114  TFEU.  The  two  Regulations  share  the  same  structure  and 
include  the  same  wording  with  the  exception  of  the  definitions  of  qualifying  portfolio 
undertaking.  The  definitions  determine  the  investment  focus  of  the  funds,  i.e.  young  and 
innovative  companies  for  EuVECA  funds  or  social  enterprises  for  EuSEF  funds.  Therefore, 
this report considers both the EuVECA and EuSEF Regulations. 

This  review  is  based  primarily  on  desk  research  of  Commission  services43  and  stakeholder 
consultations including: 

43 The Directorate General for Financial Stability, Financial Services and Capital Markets Union was in charge of 
this review. It was supported by the Directorates General and services which participated in the steering group 

44 

 
 
 
 
                                                            
 
 

  numerous bilateral meetings between the Commission services and stakeholders;  
 

three  public  online  consultations:  (i)  the  consultation  on  the  Green  Paper  on  the 
Capital  Markets  Union;  (ii)  the  EuVECA  and  EuSEF  consultation,  and  (iii)  the  Call 
for evidence44; 
technical workshop organised by DG FISMA with managers of existing EuVECA and 
EuSEF funds as well as practitioners who are interested in offering these funds.  
As to the effectiveness of both the EuVECA and EuSEF Regulations, this review concludes 
that while the take-up of the opportunities offered by the EuVECA Regulation could still be 
further  improved,  the  limited  take-up  by  EuSEF  funds  is  clearly  unsatisfactory.  Both  the 
EuVECA and EuSEF Regulations are limited by a range of barriers, in particular limitations 
on large managers whose portfolio exceeds €500 million that may not set up and operate such 
funds,  a  €100,000  minimum  entry  ticket  for  non-professional  investors  and  a  specific 
limitations as to eligible investments (i.e. definition of qualifying portfolio undertaking). As 
regards  efficiency,  the  review  identifies  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 which constitute an impediment to setting up of EuVECA or EuSEF funds. In 
terms of relevance, both EuVECA  and EuSEF  frameworks  are recognised as  integral  to  the 
work  on  CMU.  The  EuVECA  and  EuSEF  Regulations  form  part  of  the  Commission's 
initiative to increase non-bank finance for the economy, and are aligned with the objectives of 
President  Junker's  Investment  Plan  for  Europe  to  increase  competitiveness  and  to  stimulate 
investments  for  the  purpose  of  job  creation.  coherence  is  achieved  due  to  the  fact  that  the 
EuVECA  and  EuSEF  Regulations,  are  actually  complemementing  AIFMD,  as  they  address 
small  managers  whose  portfolios  are  below  €500  million  with  a  view  to  give  them  the 
opportunity  to  market  EuVECA  and  EuSEF  funds  cross  border.  In  terms  of  the  EU  added 
value,  EuVECA  and  EuSEF  Regulations  covered  a  gap  that  existed in  legislation before  by 
introducing a new framework aiming to address the need of small managers to market funds 
cross border and to increase the amount of non-bank capital available for investment in start-
ups and social enterprises. A further EU added value was that the Regulations, being "single 
rule  books"  aimed  to  ensure  that  investors  had  the  best  possible  and  comparable 
informationfor investing in EuVECA and EuSEF funds around Europe. 

Section 2 Introduction 

The European Venture Capital Funds (EuVECA) Regulation 345/2013 and European Social 
Entrepreneurship Funds (EuSEF) Regulation 346/2013 aim at increasing the amount of non-
bank  capital  available  for  investment  in  SMEs,  such  as  start-ups  and  social  enterprises. 
Unlisted  start-up  companies  do  not  always  have  the  size  or  structure  to  gain  access  to 
mainstream  financing,  such  as  issuing  shares  on  a  listed  market  or  issuing  bonds.  The 
EuVECA and EuSEF Regulations aim to deepen the capital pool available for investments in 
unlisted SMEs. 

for  the  impact  assessment,  in  particular  the  Secretariat  General  and  Directorate  General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs, Directorate General for  Competition, Directorate General for  Economic 
and  Financial  Affairs,  Directorate  General  for  Justice,  Directorate  General  for  Communications  Networks 
Content and Technology and the Legal Service. 
44 http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 

45 

 
 
 
 
 
                                                                                                                                                                                          
EuVECA and EuSEF frameworks form part of Commission's initiative to increase non-bank 
finance  for  the  economy  in  a  well  regulated  way,  and  are  aligned  with  the  objectives  of 
President  Junker's  Investment  Plan  for  Europe,  to  increase  competitiveness  and  to  stimulate 
investments for the purpose of job creation. 

The  scope  of  this  review  are  the  EuVECA  Regulation  and  the  EuSEF  Regulation,  with  a 
specific focus on assessing the take-up of the funds. Indeed, for the other objectives it is too 
early to  evaluate  fully  the impacts, in  particular for the assessment of the competitivness of 
European SMEs in the global marketplace, and how EuVECA and EuSEF funds contribute to 
the EU inclusive and sustainable growth. This is because both Regulations became applicable 
on 22 July 2013. As a result, the data available for conducting this review is limited. 

This  review  is  based  primarily  on  desk  research  of  the  Commission  services45.  On  18 
February  2015  the  Commission  launched  a  consultation  on  the  Green  Paper  on  the  Capital 
Markets  Union.  The  CMU  consultation  paper  asked  whether  changes  to  the  EuVECA  and 
EuSEF Regulations would be necessary to improve the attractiveness of EuVECA and EuSEF 
funds and almost 60% of respondents proposed on the specific questions suggested changes to 
the  Regulations.  The  information  used  in  this  review  stems  primarily  from  a  public  online 
consultation  (the  EuVECA  and  EuSEF  consultation)  the  Commission  services  conducted 
from 30 September 2015 to 6 January 2016. Forty six answers have been received: 30 from 
private organisations or companies; 13 from public authorities or international organisations 
and  3  from  private  individuals.  On  30  September  2015,  the  Commission  services  also 
launched a Call for evidence46 in which interested parties were invited to provide 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  287  responses 
received included claims as to the EuVECA or EuSEF Regulations. On 27 January 2016 DG 
FISMA organised a technical workshop aimed at managers of existing EuVECA and EuSEF 
as  well  as  practitioners  who  are  interested  in  offering  these  funds.  Furthermore,  numerous 
bilateral meetings have been held between the Commission services and stakeholders.  

All  analysis,  considerations  and  conclusions  apply  to  both  EuVECA  and  EuSEF,  unless 
explicitly mentioned. 

Section 3 Background to the initiative 

Description of the initiatives and their objectives 

The EuSEF Regulation  

The EuSEF Regulation entered into force on 15 May 2013 and applies from 22 July 2013. It 
meant  to  adress  the  structural  problems  indentified  by  the  2011  IA  in  the  market  of  social 
investment funds targeting social businesses (SEF) which in that time impedes the matching 
of  supply  of  private  capital  from  investors  with  demand  for  such  capital  from  social 
businesses, so such businesses were often strongly dependent on public finance and investors 
were unable to allocate their capital as they might wish.  

The description of the aims of the Regulation is contained in its Recital 3: 

46 

 
 
 
                                                            
 
 
It is necessary to lay down a common framework of rules regarding the use of the designation 
‘EuSEF’ for qualifying social entrepreneurship funds, in particular on the composition of the 
portfolio  of  funds  that  operate  under  that  designation,  their  eligible  investment  targets,  the 
investment tools they may employ and the categories of investors that are eligible to invest in 
them 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  national  level  having  a  direct  negative 
impact  on,  and  creating  obstacles  to,  the  proper  functioning  of  the  internal  market,  since 
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  qualifying  social 
entrepreneurship  funds.  Investors  should,  furthermore,  be  able  to  compare  the  investment 
propositions  of  different  qualifying  social  entrepreneurship  funds.  It  is  necessary  to  remove 
significant obstacles to cross-border fundraising by qualifying social entrepreneurship funds, 
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 for this Regulation is Article 114 of the Treaty on 
the Functioning of the European Union (TFEU), as interpreted by consistent case law of the 
Court of Justice of the European Union. 

The EuSEF Regulation’s general objectives are: 

(a) 

(b) 

Enabling  social  businesses  and  entrepreneurship  to  contribute  to  EU  goals  with 
regards to inclusive, sustainable growth.  
Social businesses should be able to flourish across the EU and fully take part in the 
benefits of the single market. 

The EuSEF Regulation’s specific objectives are: 

(a) 

(b) 

(c) 

Increase the choice, confidence and trust of EU investors in the social investment 
funds offered to them. To this extent design funds with defining characteristics that 
differentiate them from other alternative investment funds. 
Enable social investment funds having better access to interested investors across 
the EU.  
Ensure better allocation of existing capital to social businesses. 

The EuSEF Regulation’s operational objectives are: 

(a) 
(b) 
(c) 

Improve clarity and comparability of social investment funds. 
Improve tools for assessing and analysing social returns. 
Ensure  regulatory  frameworks  across  EU  are  proportionate  and  effective  for 
maximising fundraising opportunities for social investment funds. 

Its purpose is described in Article 1:  

This  Regulation  lays  down  uniform  requirements  and  conditions  for  managers  of  collective 
investment undertakings that wish to use the designation ‘EuSEF’ in relation to the marketing 
of qualifying social entrepreneurship funds in the Union, thereby contributing to the smooth 
functioning of the internal market. 

47 

 
 
 
 
It also lays down uniform rules for the marketing of qualifying social entrepreneurship funds 
to  eligible  investors  across  the  Union,  for  the  portfolio  composition  of  qualifying  social 
entrepreneurship funds, for the eligible investment instruments and techniques to be used by 
qualifying  social  entrepreneurship  funds  as  well  as  for  the  organisation,  conduct  and 
transparency  of  managers  that  market  qualifying  social  entrepreneurship  funds  across  the 
Union. 

The  intervention  logic  below  provides  a  description  -  in  a  summarised  diagram  format  -  on 
how the EuSEF Regulation was expected to work. It is also used in this assessment in order to 
identify particular review questions. 

48 

 
 
 
Create a European system for the cross-border fundraising of social entrepreneurship funds that will: 

Needs: 

Improve legal clarity and simplify cross-border fundraisings 


 Decrease costs for cross-border fundraising 

Objective: 
Facilitate equity 
financing for social 
enterprises and reduce 
financing costs 

Objective: 
Create a common 
regulatory approach 
governing European 
qualifying social 
entrepreneurship funds 

Objective: 
Improve investors' 
portfolio 
diversifications  

Input: 
REGULATION (EU) No 346/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 
April 2013on European social entrepreneurship funds (EuSEF) 

Output: 
Restrictive 
requirements for 
managers that want to 
market EuSEF in the 
Union  

Output: 
Portfolio composition 
rules, eligible 
investment instruments 
and techniques, eligible 
investors 

Output: 
Create a network of 
administrative 
cooperation for 
qualifying EuSEF 

Results: 
Enable EuSEF funds to 
reach critical size 

Results: 
Lower setting-up fees 
and costs 

Impact: 
Take-up of EuSEF funds to enable venture capital financing 
Enhance  the  contribution  of  social  businesses  and  entrepreneurship  to  EU  goals  on  inclusive,  sustainable 
growth 
Foster competition by allowing large managers to register EuSEF funds 

49 

 
 
 
 
 
The EuVECA Regulation  

The EuVECA Regulation entered into force 15 May 2013 and applies from 22 July 2013.  

The description of the aims of the Regulation is contained in its Recital 2: 

It is necessary to lay down a common framework of rules regarding the use of the designation 
‘EuVECA’ for qualifying venture capital funds, in particular the composition of the portfolio 
of funds that operate under that designation, their eligible investment targets, the investment 
tools  they  may  employ  and  the  categories  of  investors  that  are  eligible  to  invest  in  them  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 national level having a direct negative impact on, 
and creating obstacles to, the proper 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  qualifying  venture 
capital funds. Investors should, furthermore, be able to compare the investment propositions 
of different qualifying venture capital funds. It is necessary to remove significant obstacles to 
cross-border  fundraising  by  qualifying  venture  capital  funds,  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 for this Regulation is Article 114 of the Treaty on the Functioning of the European 
Union (TFEU), as interpreted by consistent case law of the Court of Justice of the European 
Union. 

The EuVECA Regulation’s general objective is to make European SMEs more competitive in 
a global marketplace 

The  EuVECA  Regulation’s  specific  objective  is  to  create  a  European  system  for  the  cross-
border fundraising of venture capital funds 

The EuVECA Regulation’s operational objectives are: 

(a) 
(b) 

(c) 

Establish a  notion of what constitutes a qualifying 'venture capital fund' 
Create a common regulatory approach governing qualifying 'venture capital funds' 
and their managers 
Create a network  of administrative cooperation for the effective introduction and 
supervision of managers of European qualifying venture capital funds  

Its purpose is described in Article 1:  

This  Regulation  lays  down  uniform  requirements  and  conditions  for  managers  of  collective 
investment  undertakings  that  wish  to  use  the  designation  ‘EuVECA’  in  relation  to  the 
marketing of qualifying venture capital funds in the Union, thereby contributing to the smooth 
functioning of the internal market. 

It  also  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 

50 

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

The intervention logic below provides a description  - in a summarised diagram format  -  on 
how the EuVECA Regulation was expected to work. It is also used in this assessment in order 
to identify particular review questions. 

51 

 
 
 
Create a European system for the cross-border fundraising of venture capital funds that will: 

Needs: 

Improve legal clarity and simplify cross-border fundraisings 


 Decrease costs for cross-border fundraising 

Objective: 
Facilitate SMEs equity 
financing and reduce 
financing costs 

Objective: 
Create a common 
regulatory approach 
governing European 
qualifying venture 
capital funds 

Objective: 
Improve investors' 
portfolio 
diversifications  

Input: 
REGULATION (EU) No 345/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 
April 2013 on European venture capital funds (EuVECA) 

Output: 
Restrictive 
requirements for 
managers that want to 
market EuVECA in the 
Union  

Output: 
Portfolio composition 
rules, eligible 
investment instruments 
and techniques, eligible 
investors 

Output: 
Create a network of 
administrative 
cooperation for 
qualifying EuVECA 

Results: 
Enable EuVECA funds 
to reach critical size 

Results: 
Lower setting-up fees 
and costs 

Take-up of EuVECA funds to enable venture capital financing 
Make European SMEs more competitive in a global marketplace 
Foster competition by allowing large managers to register EuVECA funds 

Impact: 

52 

 
 
 
 
 
 
The need for a new initiative  

The EuSEF 2011 Impact Assessment reported that social businesses were a significant part of 
the European economy. Approximately one in four businesses founded in Europe would be at 
that  time  a  social  enterprise.  As  mentioned  in  the  Impact  Assessment,  social  businesses 
derived  significant  proportions  of  their  funding  from  grants,  whether  from  foundations, 
individuals  or  from  the  public  sector.  As  businesses,  however,  their  sustainable  growth 
depended on drawing on a wider range of investments and financing sources. In this regard, 
the EU market for investment funds began to play a significant role. A market for investment 
funds whose main objective was investing in social undertakings had taken shape. This also 
reflected the increasing interest of many investors in making investments – typically as part of 
a wider portfolio – that aimed to achieve positive social effects over and above the quest of 
financial returns. Investment funds targeted at social undertakings were one important form of 
such investments.   

The  EuVECA  2011  Impact  Assessment  reported  that  there  a  23  million  SMEs  in  the 
European Union. SMEs are seen as the key drivers for economic growth and the creation of 
jobs in the European Union. SMEs account for nearly 99% of all European businesses.  SMEs 
provide  around  90  million  jobs  (2/3  of  all  private  sector  jobs)  and  contribute  to 
entrepreneurship  and  innovation.  SMEs  are  critical  to  the  development  of  the  European 
economy.  However, one of the  most serious  impediments preventing SMEs from deploying 
their  full  innovation  and  growth  potential  is  the  absence  of  appropriate  forms  of  long-term 
(equity) finance.  

Both EuVECA and EuSEF Impact Assessments presented a situation where raising funds for 
investments in venture capital or social projects remained at sub-optimal levels. This lack of 
size  had  negative  repercussions  on  the  optimal  allocation  of  resources.  In  particular,  the 
relatively  small  sizes  of  European  venture  capital  funds  prevented  the  emergence  of 
economies  of  scale.  These  economies  were,  in  turn,  a  prerequisite  for  the  specialisation 
necessary to operate a successful venture capital fund47. 

Before  the  adoption  of  the  EuVECA  and  EuSEF  Regulations  only  managers  whose  assets 
under  management  were  above  a  threshold  of  €500  million  benefited  from  European 
passporting granted by the AIFMD, i.e.  allowing access to non-retail investors across the EU, 
unless  sub-treshold managers (assets under management of  less  than €500  million) opted in 
the  full  AIFMD  regime.  The  novel  feature  of  the  two  Regulations  was  that  they  opened  up 
passporting  possibilities  to  sub-treshold  managers  of  EuVECA  and  EuSEF  funds  and 
speciffically  created  a  uniform  approach  for  the  categories  of  investors  eligible  to  commit 
capital  to  such  funds.  The  Regulations  were  first  EU  legal  instruments  in  the  asset 
management  area  which  laid  down  two  uniform  "single  rule  books"  ensuring  that  investors 
know exactly what they get when they invest in the funds. 

Section 4  Review Questions 

47  Communication  from  the  Commission  on  Removing  obstacles  to  cross-border  investments  by  venture  capital  funds 
COM(2007) 853 final, 21.12.2007) 

53 

 
 
 
 
                                                            
This section summarises the review questions addressed in our assessment. 

Question 1: What is the current situation? 

Question 2: How effective has the EU intervention been? 

-  To  what  extent  have  the  objectives  been  achieved  and  what  factors  influenced  the 
achievements  observed,  namely  types  of  managers  that  can  manage  and  market  the 
EuVECA  and  EuSEF  funds,  types  of  investors  who  can  invest  in  the  EuVECA  or 
EuSEF  funds  and  range  of  eligible  assets  adequate  for  the  EuVECA  and  EuSEF 
funds? 

Question 3: How efficient has the EU intervention been? 

-  How  affordable  were  the  costs  borne  by  EuVECA  and  EuSEF  managers,  given  the 
benefits they received? In particular is it too expensive to set up EuVECA or EuSEF 
funds? Are there significant differences in costs (or benefits) between Member States 
and what is causing them? Are the costs relating to fund registration proportionate to 
the potential benefits for funds from having the passport? 

-  Are  the  requirements  for  minimum  own  funds  imposed  on  the  EuVECA  or  EuSEF 
managers relating to fund registration proportionate to the potential benefits for funds 
from having the passport?  

Question 4: How relevant is the EU intervention? 

-  To  what  extent  is  the  intervention  still  relevant  and  how  well  do  the  original 

objectives correspond to the needs within the EU? 

Question 5: How coherent is the EU intervention internally and with other (EU) actions? 

-  To what extent is the intervention coherent internally? 
Question 6: What is the EU added value of the intervention? 

-  To  what  extent  the  intervention  changed  situation  and  to  what  extent  do  the  issues 

addressed by the intervention continue to require action at EU level? 

Section 5 Methodology 

This  review  is  based  primarily  on  desk  research  of  Commission  services48  and  stakeholder 
consultations including: 

  numerous bilateral meetings between the Commission services and stakeholders;  

48 The Directorate General for Financial Stability, Financial Services and Capital Markets Union was in charge of 
this review. It was supported by the Directorates General and services which participated in the steering group 
for  the  impact  assessment,  in  particular  the  Secretariat  General  and  Directorate  General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs, Directorate General for  Competition, Directorate General for  Economic 
and  Financial  Affairs,  Directorate  General  for  Justice,  Directorate  General  for  Communications  Networks 
Content and Technology and the Legal Service. 

54 

 
 
 
 
 
 
                                                            
 

three  public  online  consultations:  (i)  the  consultation  on  the  Green  Paper  on  the 
Capital  Markets  Union;  (ii)  the  EuVECA  and  EuSEF  consultation,  and  (iii)  the  Call 
for evidence49; 
technical workshop organised by DG FISMA with managers of existing EuVECA and 
EuSEF funds as well as practitioners who are interested in offering these funds.  
Where possible the conclusions of the review are based on triangulation of information from 
different sources. 

 

Limitations 

The EuVECA and EuSEF Regulations become applicable only  in  mid-2013 (i.e. less than 3 
years of application) therefore the data available for extensive analysis is limited. 

EuVECA  and  EuSEF  funds  are  still  in  the  early  period  of  their  development  and  they  are 
small  and  niche  markets  compared  with  other  more  well-known  and  developed  investment 
funds.  

Although under the AIFMD reporting rules there is a set of information required from the all 
funds to be provided to the National Competent Authorities, the breakdown of the information 
provided  does  not  take  in  to  account  EuVECA  and  EuSEF  funds  specifically.  Moreover, 
ESMA reported that the AIFMD reporting system is not fully operational yet, and the data are 
not immediately comparable.  

Respondents to  the EuVECA and EuSEF consultation  also noticed that the ESMA database 
on EuVECA and EuSEF is not updated on a regular basis and this is not helping to make the 
labels more visible and to compare the progress on registrations in different Member States.  

For all the above reasons, data, and in particular granular data about the costs of setting-up a 
fund  and  of  getting  it  approved,  as  well  as  the  contribution  of  EuVECA  and  Eusef 
Regulations to the funding of the SME market was very difficult to identify.  

Therefore,  for  the  puprose  of  quantifying  impacts,  this  review  makes  very  cautious  use  of 
available  data  which  should  be  rather  understood  as  'anecdotal  evidence'  rather  than  as 
comprehensive. 

Section 6 Implementation state of play (Results) 

The EuVECA and EuSEF Regulations are directly applicable in EU Member States from 22 
July  2013.  Establishing  common  EU  requirements  through  binding  measures  was  aiming  at 
reducing inconsistencies, and hence compliance costs.  

The  Commission  Services  are  not  aware  of  cases  currently  pending  before  national  courts, 
which  eventually  could  also  present  questions  about  interpretation  and  application  of  the 
EuVECA and EuSEF Regulations to the Court of Justice of the European Union.  

49 http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 

55 

 
 
 
 
 
                                                            
Several respondents claim that some Member States has gold plated the provisions of Article 
3,  Paragraph  3,  of  the  AIFMD  by  requiring  that  all  national  AIFMD-authorised  managers, 
including  sub-threshold  managers  (i.e.  also  EuVECA  and  EuSEF  managers),  should  be 
authorized  and  comply  with  the  same  organizational  and  supervisory  requirements.  While 
EuVECA and EuSEF managers are formally registered (not authorized), the conditions to to 
obtain registration are de facto the same as for an authorization under the AIFMD (including, 
for instance, the appointment of a depositary). This results in EuVECA and EuSEF managers 
in  some  Member  States  face  longer  time  to  market  (e.g.  more  than  8  months  to  obtain  the 
registration)  and  incur  heavier  establishment  and  organizational  burdens  than  many  of  their 
EU  competitors.  Moreover,  managers  may  be  “pushed”  to  traditional  AIFM  structures, 
considering  that  no  preferential  treatment  is  granted  to  EuVECA  and  EuSEF  managers  in 
terms  of  registration,  organizational  and  supervisory  requirements.  The  only  advantage  thus 
remains the possibility to market to non-professional investors investing at least €100,000. 

The  legal  form  of  EuVECA  and  EuSEF  instruments  Regulations,  which  do  not  require 
national  transposition  measures.  However,  a  respondent  to  the  EuVECA  and  EUSEF 
consultation  reported  that  some  host  Member  States  are  (considering  or  already)  imposing 
additional  fees  and  charges  and/or  other  requirements  on  EuVECA  or  EuSEF  managers 
looking to use their EuVECA or EuSEF passports and to market in those jurisdictions. These 
costs,  which  are  to  be  paid  in  addition  to  the  home  national  registration  costs,  constitute  a 
substantial  burden  for  such  managers,  contribute  to  regulatory  divergence  and  are  an 
impediment to  cross-border  marketing. In  fact, they are a disincentive to firms  to  operate in 
other  Member  States  and  are  already  discourage  some  fund  managers  from  marketing  in 
certain  jurisdictions,  thereby  restricting  the  free  flow  of  capital  across  EU  borders  and 
undermining the single market. Host marketing fees also discourage managers from marketing 
funds  in  the  whole  EU.  The  benefit  of  marketing  a  fund  in  the  EU  may  become  limited 
compared to the costs, and especially smaller funds may decide not to market a fund in most 
EU  Member  States.  Accordingly,  some  managers  are  reluctant  to  request  extensive passport 
authorization  and  focus  only  on  those  jurisdictions  where  they  consider  having  a  realistic 
prospective investors’ base. 

The burden of completing the forms which many Member States are also requiring (including 
the costs of discovering which forms need to be completed) is significant and should not be 
overlooked. Where a EuVECA or EuSEF manager has been authorised by its ‘home’ Member 
State to use the EuVECA or EuSEF label and to market this fund in other Member States, it 
cannot be obliged to pay any fee or charge to the authorities in any ‘host’ Member State as a 
condition  of  marketing  in  that  jurisdiction.  In  order  to  facilitate  consistent  implementation, 
ESMA  published  on  11  November  2014  Questions  and  Answers  on  the  application  of  the 
EuSEF  and  EuVECA  Regulations  (ESMA/2014/1354).  The  purpose  of  ESMA's  document 
was to promote common supervisory approaches and practices in the application of the two 
Regulations.  The  document  aimed  at  NCAs,  with  a  view  to  ensure  that  in  their  supervisory 
activities their actions are converging. 

Question 1: What is the current situation? 

Venture capital is an important source of funding, alternative to traditional bank loans, which 
could play a growing role in the EU economy.  

56 

 
 
 
However, the take-up is not sufficient. Despite a similar size of economy, the United States 
provide  more  risk  capital  to  companies,  including  SMEs:  in  2013,  European  firms  received 
more  than  5  times  less  capital  from  venture  capital  funds  than  US  firms  (€5  billion vs.  €26 
billion).  Over  the  same  period,  €20bn  was  invested  by  angel  investors  in  US  SMEs,  versus 
only €6bn in Europe.50 The CMU Green Paper reports that if the EU venture capital markets 
were  as  deep  as  in  the  US,  as  much  as  €90  billion  of  funds  would  have  been  available  to 
finance companies between 2008 and 2013. 

Data  from  Invest  Europe  (see  table  1  below)  shows  incremental  funds  raised  by  venture 
capital  funds  in  Europe  in  the  period  between  2011  and  Q3  2015  (preliminary),  with  316 
funds  and  almost  €16  billion.  This  is  to  be  compared  with  data  from  ESMA  at  May  2015 
reporting a total of 32 EuVECA funds intending to raise capital of €1.3 billion in the period 
between 2013 and May 201551. There is not current breakdown of the effective capital raised, 
compared to the committed capital at funds' inception. 

As of beginning of April 2016 there are 70 EuVECA funds registered in the ESMA database. 
These  figures  show  that  while  take-up  of  the  opportunities  presented  by  the  EuVECA 
Regulation is increasing it could still be improved further. 

Table  1:  Incremental  funds  raised  (2011-Q3  2015  preliminary),  by  number  of  funds  and  by 
amount 

Source: Invest Europe/PEREP_Analytics 
Note: This covers all Europe, including Norway and Switzerland. 

As  regards  EuSEF  funds,  there  is  no  such  a  publicly  available  breakdown  for  EuSEF  and 
social investment funds. ESMA data suggest that in March 2016 there was 1 EuSEF fund in 
France and 3 EuSEF funds in Germany, with total assets under management of € 32 million. 

50  AFME  response  to  the  review  of  the  European  Venture  Capital  Funds  (EuVECA)  and  European  Social 

Entrepreneurship Funds (EuSEF) Regulations 

51 Figures for funds registered with the European Securities and Markets Authority (ESMA). There is currently 

no publicly available data to confirm whether these fund raising targets have actually been achieved. 

57 

Firm type  Buyout  Generalist  Venture  Total  Fund stage focus EUR million Number of funds EUR million Number of funds EUR million Number of funds EUR million Number of funds Early Stage Fund 9 1 661 38 8,609 194 9,279 233 Later Stage Venture Fund   247 13 2,474 29 2,720 42 Balanced Fund 399 5 3,154 60 4,889 93 8,442 158 Total VC 409 6 4,062 111 15,971 316 20,442 433 Growth Fund 7,525 47 2,521 32 482 18 10,527 97 Buyout Fund 132,094 245 14,531 49 50 1 146,675 295 Mezzanine Fund 9,867 22 2,305 14 11 1 12,182 37 Generalist Fund 881 13 6,911 152 441 11 8,234 176 Grand Total 150,776 332 30,329 355 16,956 346 198,061 1,033   
 
 
 
                                                            
These  figures  are  clearly  below  the  expectations  as,  according  to  EVPA’s  latest  Industry 
Survey  on  “European  Venture  Philanthropy  and  Social  Investment  2013/2014”,  the  average 
size of European social investment funds - which are not covered by the EuSEF Regulation - 
is €13,8 million52. EuSEF average size is around € 8 million. 

Section 7 Answers to the review questions  

Question 2: How effective has the EU intervention been? 

-  To  what  extent  have  the  objectives  been  achieved  and  what  factors  influenced  the 
achievements observed, namely types of managers that can manage and market the EuVECA 
and  EuSEF  funds,  types  of  investors  who  can  invest  in  the  EuVECA  or  EuSEF  funds  and 
range of eligible assets adequate for the EuVECA and EuSEF funds? 

Given the date of entry into application (i.e. not even 3 years before this review) it is too early 
to  assess  to  what  extent  the  EuVECA  Regulation  achieved  the  general  objectives  to  make 
European SMEs more competitive in a global marketplace and ultimately to contribute to EU 
goals  on  inclusive,  sustainable  growth.  It  is  also  too  early  to  assess  the  specific  general 
objective  of  the  EuSEF  Regulation  to  have  social  businesses  able  to  flourish  across  the  EU 
and fully take part in the benefits of the single market. 

The EuVECA Regulation's specific objective was to create a European system for the cross-
border fundraising of venture capital funds. This objective has been met as according to the 
ESMA  data  at  the  end  of  March  2016,  71%  of  the  EuVECA  funds  are  marketed  cross-
border53.  

The  EuSEF  Regulation's  specific  objectives  were  to  allow  EU  investors  to  have  confidence 
and  trust  in  the  social  investment  funds  offered  to  them.  This  requires  that  such  funds  have 
defining  characteristics  differentiating  them  from  other  alternative  investment  funds.  Also, 
that social investment funds have better access to interested investors across the EU and better 
allocation of existing capital to social businesses. According to the ESMA data at the end of 
March 2016, 75% of the EuSEF funds are marketed cross-border54. However, considering the 
limited  number  of  funds  and  the  small  amounts  of  committed  capital,  these  objectives  have 
not been met yet. 

The two Regulations partially met the operational objectives of creating a common regulatory 
framework  governing  social  investment  funds,  venture  capital  funds  and  their  managers. 
Indeed, the Regulations established the main characteristics of venture and social investment 
funds  and  improved  the  comparability  between  them  (by  standardising  the  portfolio 
composition, defining eligible assets, and requiring reporting). This objective has been met. 

52  This  figure  is  based  on  the  data  collected  from  24  social  investment  fund  managers  representing  37  social 

investment funds. 

53 48 out of the 58 funds are marketed in at least one host Member State on top of their home Member State. 
54 3 out of 4 EuSEF funds are marketed in at least one host Member State on top of their home Member State. 

58 

 
 
 
 
                                                            
The  two  Regulations  also  created  a  network  of  administrative  co-operation  for  the effective 
introduction  and  supervision  of  managers  of  EuVECA  and  EuSEF  funds  (notification 
processes among NCAs as regards cross-border operations, ESMA's supervisory convergence 
role  and  central  database  with  registered  EuVECA  and  EuSEF  managers).    Moreover,  the 
EuSEF  Regulation  provides  a  regulatory  framework  for  assessing  and  analysing  social 
impacts/returns, including the measurement of the extent to which the social undertakings, in 
which  the  EuSEF  funds  invests  achieve  the  positive  social  impact  to  which  they  are 
committed. This objective has been met. 

However,  the  EuSEF  Regulation's  operational  objective  of  ensuring  that  regulatory 
frameworks  across  EU  are  proportionate  and  effective  for  maximising  fundraising 
opportunities for social investment funds has not been fully met – see Question 3 below. 

Invest  Europe  data  (see  graph  2  below)  shows  the  percentage  of  funds  raised  (in  terms  of 
amount) by venture capital funds from investors based within their own country (in dark blue) 
and investors based in Luxembourg (in light blue). 

Graph 2: Cross-border venture capital fundraising in Europe (2011-Q3 2015 preliminary)  

Geographic origin of venture capital funds managed from Europe 

Source: Invest Europe/PEREP_Analytics 

For the vast majority of Member States, European venture capital funds were almost entirely 
relying  for  their  fundraising  on  national  investors  and  investors  based  in  Luxembourg.  The 
Invest Europe assumption is that this money came for the vast majority from the EIF. Only a 
small percentage of the total amounts raised came from investors in another country. Putting 
Luxembourg aside (where much of the small amount of funds raised came from Belgium and 
the United States), only in two Member States did cross-border fundraising by venture capital 
funds  amount  to  20%  or  more:  the  United  Kingdom  and  the  Netherlands.  This  shows  the 
extent of the fragmentation of the European market. 

59 

 
 
 
 
 
 
 
 
In  this  context,  the  fact  that  71%  of  the  EuVECA  funds  and  75%  of  the  EuSEF  funds  are 
marketed  cross-border  shows  the  effectiveness  of  the  fundraising  opportunities  across  EU 
created by these two legal frameworks. 

Several stakeholders reported that there are likely to be a range of barriers which prevent more 
widespread take up of these funds.  A particular concern that has been raised 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  the  funds  in  the  EU.  Another 
specific concern was related to the funds rules which governs the EuVECA and EuSEF funds, 
e.g. the definitions of qualifying portfolio undertaking, the €100,000 minimum entry ticket for 
non-professional investors, etc. 

Limitations on manager 

The EuVECA and EuSEF Regulations are currently designed for management and marketing 
by EU domiciled managers who manage a total portfolio of assets of less than €500 million. 
This  threshold  was  chosen  because  managers  below  this  threshold  do  not  benefit  from  the 
passport  under  the  Alternative  Investment  Fund  Managers  Directive  (AIFMD)55  unless  they 
opt in the full AIFMD regime for large managers. To fill this gap, the Regulations introduce a 
separate  marketing  passport  for  EuVECA  or  EuSEF  only.  According  to  Invest  Europe  data 
(2011),  98%  of  European  venture  capital  managers  manage  a  portfolio  of  venture  capital 
funds that are beneath the €500 million threshold set out in the AIFMD There is no data on 
how many alternative investment fund managers (AIFM) manage venture capital funds as part 
of a broader portfolio.  

Currently,  a  manager  of  either  a  EuVECA  or  a  EuSEF  fund  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,  but  not  the  marketing  and  management 
passports established in these Regulations ("limited grandfathering")56.  

ESMA in a Questions and Answers document on the application of the EuSEF and EuVECA 
Regulations57  maintains  that  there  are  no  prudential  concerns  in  allowing  large  managers 
whose overall portfolio exceeds the AIFMD threshold of €500 million in allowing them to set 
up and market EuVECA and EuSEF funds to professional investors. ESMA explains that from 

55  Directive  2011/61/EU  of  the  European  Council  and  Parliament  of  8  June  2011  on  Alternative  Investment 
Fund Managers. 

56  The  relevant  provisions  read  as  follows:  “Where  the  total  assets  aunder  management  of  managers  of 
qualifying  venture  capital  funds  registered  in  accordance  with  Article  14  subsequently  exceed  the  threshold 
referred to in point (b) of Article 3(2) of Directive 2011/61/EU, and where those managers are therefore subject 
to  authorisation  in  accordance  with  Article  6  of  that  Directive,  they  may  continue  to  use  the  designation 
'EuVECA' in relation to the marketing of qualifying venture capital funds in the Union, provided that, at all times 
in relation to the qualifying venture capital funds that they manage, they: (a) comply with the requirements laid 
down in Directive 2011/61/EU; and (b) continue to comply with Articles 3 and 5 and points (c) and (i) of Article 
13(1) of this Regulation. 
57 ESMA/2014/1354  

60 

 
 
 
                                                            
a regulatory and supervisory perspective, an authorization under the AIFMD is more stringent 
than a registration under the EuVECA and EuSEF Regulations. However, ESMA opinions are 
not legally binding and stakeholders subsequently asked for more legal clarity and certainty. 
Indeed, several bilateral contacts with stakeholders, as well as a recent ESMA consultation on 
the  EuVECA  and  EuSEF  Regulations,  revealed  that  (large)  managers  authorised  under  the 
AIFMD  perceive  the  limitation  on  managers  as  restrictive  prohibiting  them  from  managing 
and marketing EuVECA or EuSEF funds whilst using their respective labels.  

Almost  60%  of  respondents  to  the  CMU  consultation  proposed  specific  changes  to  the 
EuVECA and EuSEF Regulations and also pointed out that above-threshold and restrictions 
on AIFMD–authorised (large) managers are restrictive; they should be equally entitled to set 
up and market EuSEF and EuVECA funds.  

Most  of  respondents  to  the  EuVECA  and  EuSEF  consultation  underlined  that  AIFMD-
authorised  managers  are  already  compliant  with  requirements  which  are  more  onerous  and 
stringent  than  those  in  the  two  Regulations.  Respondents  claimed  that  disallowing  AIFMD-
authorised managers  do  not  benefit  investors:  (a)  as  same  products  are  not  named  the  same 
way, (b) bigger players cannot put more resources in promoting EuVECA or EuSEF products; 
as large managers are not given access to the EuVECA and EUSEF labels, they are not in a 
position to pave the way for smaller players, and hence (c) further promote the development 
and  financing  of  small  and  medium-sized  enterprises.  Other  respondents  argued  that  the 
restriction on managers does not per se increase the number of managers who would manage 
EuVECA and EUSEF funds; and, secondly, large managers are deprived of contributing with 
their experience in managing and marketing venture and social entrepreneurship funds. 

Data collected by EVPA from 24 social investment fund managers representing 37 investment 
social  funds  shows  that  the  existing  social  investment  funds  are  still  rather  small  and  the 
eligible  EuSEF  fund  managers,  who  currently 
typically  manage  only  one  social 
entrepreneurship  fund,  are  far  from  reaching  the  €500  million  threshold  of  aggregate  assets 
under  management.  However,  a  number  of  bigger  players (including  finance-first  AIFMD  –
authorized  managers,  etc.)  are  creating  investment  vehicles  dedicated  to  the  financing  of 
social enterprises.  

There  is  a  general  consensus  that  disallowing  AIFMD-authorised  managers  to  manage 
EuVECA  and  EuSEF  funds  does  actually  not  benefit  from  reduced  transaction  costs  by 
creating economies of scale (in terms of improved efficiencies such as streamlined reporting 
systems,  lower  administrative  costs,  leveraged  knowledge  and  staff  experience  or  enhanced 
attractiveness as an employer). 

Fund rules 

EuVECA and EuSEF funds are subject to specific requirements on the eligible assets they can 
invest  into.  Both  funds  are  subject  to  a  requirement  to  invest  minimum  70%  of  their 
committed  capital  in  qualifying  portfolio  undertakings.  The  EuVECA  Regulation  builds  the 
definition  of  qualifying  portfolio  undertakings  on  the  EU  wide  spread  definition  of  SMEs, 
which include companies in the early stage of development, such as start-ups and innovative 
SMEs i.e. unlisted SMEs 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 EuSEF Regulation 

61 

 
 
 
defines  the  eligible  social  enterprises  as  unlisted  companies  with  the  achievement  of 
measurable, positive social impacts as its primary objective.  

Some of the responses to the CMU Green Paper suggested that the range of products in which 
a EuVECA fund can invest is not sufficient. It should be borne in mind that the primary goal 
of the EuVECA Regulation was to provide funding to very small companies, SMEs that are at 
their  initial  stages  and  have  strong  growth  potential.  This  should  also  be  looked  at  in 
consideration  with  the  EU  programmes  and  policies  of  support  for  SMEs  through  venture 
capital, which currently exclude large buyouts. 

Several  respondents  to  the  EuVECA  and  EuSEF  consultation  claimed  that  the  inability  to 
determine with enough certainty whether the obligation to invest 70% in eligible assets (SMEs 
or  social  undertakings  respectively)  is  achievable  throughout  the  full  life  of  a  fund  (which 
could be even 10 years) is sufficient to discourage them from making an application. In this 
context,  the  respondents  recalled  that  venture  capital  funds  invest  across  a  wide  range  of 
stages from funding start-ups to providing development capital and later stage growth equity.  

The EuSEF definition of qualifying portfolio undertakings (i.e. social undertakings) was not 
criticised  by  the  large  majority  of  the  respondents.  However,  some  suggested  to  rely  on  the 
wider definition of a social enterprise, such as the one used in the Social Business Initiative of 
the European Commission [SBI - COM(2011)682]. 

The SME definition used in the qualifying portfolio undertakings definition in the EuVECA 
Regulation was identified as a potential issue, excluding companies that would be considered 
‘small or medium’ sized by fund managers and investors. A respondent to the EuVECA and 
EuSEF consultation argued that many innovative and rapidly growing SMEs can achieve the 
defined threshold very early on. For example, companies active in the services field (i.e. non-
manufacturing, active in the provision of health and care services, education, etc.) may fairly 
rapidly reach 250 employees but from a financing and business development perspective are 
still ‘early stage’ and looking for funding from venture capital or other active fund investors.  

Large fund managers tend to execute transactions of a larger size, i.e. they look at and invest 
in  companies  that  are  larger  than  those  defined  by  the  EuVECA  Regulation  (but  are  still 
considerably smaller than the size of companies typically involved in large buy-out financings 
elsewhere  in  the  private  equity  market).  As  a  consequence,  the  restriction  on  managers 
discriminates against managers with large amounts of capital to invest. There is an increasing 
number of  managers that  have  funds in  the €100-200 million bracket that do invest  in  early 
stage companies, although often those with more than 250 employees. Moreover, there is still 
a huge size gap between the SMEs, as defined in the EuVECA Regulation, and those which 
are  mature/eligible  to  eventually  go  on  the  SME  exchanges  or  other  listed  markets.  The 
EuVECA Regulation could not have stepped in as a pipe-line of funds that would invest into 
these  companies  up  to  this  stage  of  their  development.  Other  respondents  claimed  that  the 
restriction  impedes  a  manager’s  ability  to  provide  his  portfolio  companies  with  subsequent 
rounds of funding if they grow beyond the SME definition after his early stage investments. 
From the responses received it is the number of employees aspect that is proving to be most 
problematic, rather than the turnover/balance sheet criteria. 

Minimum investment 

62 

 
 
 
Whereas  the  AIFMD  passport  only  covers  marketing  of  funds  to  professional  investors,  the 
passports  in  the  EuVECA  and  EuSEF  Regulations  extend  the  passport  also  to  marketing  to 
certain retail investors defined as those able and willing to commit at least €100,000 of their 
investable  funds  to  them.  This  minimum  "entry  ticket"  was  introduced  to  ensure  consumer 
protection.  However,  the  entry  ticket  has  been  criticised  as  being  prohibitively  high, 
particularly by managers interested in setting up EuSEF funds.  

EuVECA  and  EuSEF  funds  are  marketed  in  Member  States  alongside  domestic  funds  with 
similar  profiles  which  have  lower  minimum  entry  tickets.  For  example,  the  minimum 
investment  in  France  is  €30,000  provided  some  other  fund-related  requirements  are  met.  A 
high threshold does not attract private non-professional investors. A high entry ticket into the 
EuVECA  and  EuSEF  funds  restricts  the  range  of  investors  from  Member  States  with  less 
experience in venture and risk social capital.  

Several  respondents  to  the  EuVECA  and  EuSEF  consultation  were  considering  this  entry 
ticket appropriate. Investors in such funds are typically institutional investors as well as family 
offices and certain types of individuals. Individual investors may include: 

-  Entrepreneurs and other angel investors (many of which are entrepreneurs themselves), 
who  have  traditionally  constituted  an  important  source  of  “intelligent  capital”  to  the 
small funds sector; 

-  Members of management teams running companies in which the fund invests; 
- 
-  Venture capital experts which would include both venture capital executives and other 

Industry sector experts (where the fund has a sector focus); 

professionals connected with the industry; 

-  Finance sector experts; and 
-  High net worth individuals.  

There  is  a  consensus  among  the  respondents  that  the  high  entry  ticket  does  not  need  to  be 
inevitably accompanied by an imposition of further (retail) investor protection requirements. 
The  less  burdensome  investor  protection  requirements  do  not  serve  to  detract  from  the 
ultimate  benefit  of  a  lower  compliance  regime  combined  with  an  EU  passport  that  the 
EuVECA and EuSEF Regulations provide. 

Some  respondents  suggest  that  the  minimum  entry  ticket  does  not  offer  advantages  and 
guarantees  like,  for  instance,  a  maximum  investment  amount,  as  introduced  by  the  UK 
Financial  Conduct  Authority  in  its  crowdfunding  rules  (investors  do  not  face  barriers  to 
investing, but they can only invest a certain percentage of their net investible assets to ensure 
they  are  not  over-exposed  to  one  particular  asset  class).  Other  respondent  pointed  the 
EuVECA and EuSEF frameworks miss criteria which could relate to the investor's income, net 
assets, knowledge, experience, understanding of the risks involves etc.  

Also in the EuSEF framework, the respondent reported that EuSEF funds currently tend not to 
raise  money  from  many  different  individual/non-professional  investors  and  the  €100,000 
threshold  is  not  (yet)  perceived  as  being  restrictive.  This  being  said,  most  of  the  received 
testimonials are pointing to more sensible smaller entry tickets (e.g.  €50,000 or €20,000), as 
private investors (or sometimes foundations) do not usually invest “big” tickets of €100,000. 
Finally, a respondent pointed out that investors in venture capital funds are typically investing 
well  above  the  €100,000  threshold.  Also,  some  of  the  (bigger)  impact  funds  are  applying 

63 

 
 
 
 
higher entry tickets (e.g. €500,000) and are therefore not really impacted by the threshold in 
the existing Regulations (which is a minimum).  

It  appears  there  is  not  a  clear  consensus  on  the  minimum  investment,  but  the  restricted 
population  of  investors  does  not  need  to  be  balanced  against  the  increases  in  administrative 
work this may entail and which, therefore, did not have a negative impact on fund costs.  

Question 3: How efficient has the EU intervention been? 

- How affordable were the costs borne by EuVECA and EuSEF managers, given the benefits 
they received? In particular is it too expensive to set up EuVECA or EuSEF funds? Are there 
significant  differences  in  costs  (or  benefits)  between  Member  States  and  what  is  causing 
them?  Are  the  costs  relating  to  fund  registration  proportionate  to  the  potential  benefits  for 
funds from having the passport? 
-  Are the requirements for minimum own funds imposed on the EuVECA or EuSEF managers 
relating to fund registration proportionate to the potential benefits for funds from having the 
passport?  

The procedure for the registration under the EuVECA and EuSEF Regulations is meant to be a 
much swifter, less burdensome process than under the AIFMD authorisation. In principle the 
EuVECA  or  EuSEF  manager  notifies  its  home  Member  State  competent  authority  of  its 
intention  to  manage  and/or  market  and  EuVECA  or  EuSEF,  the  home  competent  authority 
checks  the  EuVECA  or  EuSEF  meets  the  requirements  of  the  applicable  Regulation  and 
notifies the relevant competent authorities in the host member state. These host Member State 
competent  authorities  would  not  charge  the  manager  additional  fees,  insist  on  a  detailed 
review of the application and the fund documents or insist on the appointment of additional, 
local service providers.  

However,  fund  registration  fees  vary  considerably  between  Member  States  and  may  affect 
take-up  by  fund  managers.  As  already  noted  in  the  2011  EuVECA  and  EuSEF  impact 
assessments,  venture  capital  activities  are  not  homogenously  spread  across  the  European 
Union.  

Moreover, in the framework of the CMU consultation, some respondents referred to different 
treatment  in  some  Member  States  in  relation  to  the  level  of  "own  funds"  (as  specified  in 
Article 10 and Article 11 of the EuVECA and EuSEF Regulations respectively)  required for 
EuVECA and EuSEF managers to be authorised.  

Home Member State 

The  legal  frameworks  resulting  from  the  transposition  of  the  AIFMD  into  Member  States’ 
laws  differ  in  material  aspects  in  the  various  Member  States,  and  this  affects  also  the 
EuVECA  and  EuSEF  registration  procedures.  Respondents  to  the  EuVECA  and  EuSEF 
consultation  claimed  that  registration  requirements  are  perceived  as  a  hindrance  for  small 
managers which sometimes do not even consider an application for registration. Inappropriate 
requirements  from  a  perspective  of  small  managers  include  high  minimum  capital 
requirements,  high  registration  and  marketing  fees,  the  requirement  to  set  up  a  local  IT 
infrastructure or to use local service providers as opposed to well-known international cloud 

64 

 
 
 
 
offerings,  the  requirement  to  hire  an  external  auditor  for  the  manager,  and  finally  the 
separation of roles for micro entities. 

Regarding  fees  and  other  requirements  imposed  by  home  Members  States  to  managers  in 
connection  with  the  marketing  of  their  funds  in  Europe,  Invest  Europe,  an  industry 
association, claimed in its response to the EuVECA and EuSEF consultation the following: 

-  Luxembourg: The CSSF levies fees of 5,000 EUR with respect to the processing of the 

- 

initial registration of EuVECA managers / funds. 
Italy: CONSOB is requesting communication of information and data for the purpose 
of the calculation of fee amount due to the regulator. Pursuant to the Italian laws and 
regulations  implementing  the  AIFMD  and  the  EuVECA  Regulation,  an  Italian 
EuVECA  fund  manager  is  subject  to  almost  the  same  organisational  and  structuring 
requirements  and  burdens  imposed  on  an  Italian  AIFM.  Accordingly,  setting  up  an 
EuVECA fund in Italy is more expensive than in other European jurisdictions. 

-  Germay:  from  a  German  perspective,  the  additional  organisational  requirements 
imposed  by  the  German  competent  authority  (BaFin)  are  substantial  and  are  only 
accepted because otherwise there is no alternative to market for small fund managers. 
However, not all managers can afford these costs and so venture capital funds simply 
refrain from cross-border marketing. 

-  Spain:  The  CNMV  is  requesting  the  payment  of  an  initial  registration  fee  of  EUR 
16/2014 

2,500 
Law 
(http://www.boe.es/boe/dias/2014/10/01/pdfs/BOE-A-2014-9895.pdf). 

pursuant 

(Tarifa 

4.5.1) 

to 

the  respondent  presumes 

-  Czech  Republic:  No  EuVECA  or  EuSEF  fund  has  yet  been  registered  in  the  Czech 
Republic,  therefore,  the  potential  costs  of  fund  registration  can  only  be  estimated. 
Nevertheless, 
the  first 
EuSEF/EuVECA  fund  in  the  Czech  Republic  will  be  quite  high  and  possibly  higher 
than the benefits stemming from having the passport. However, the actual registration 
fees for EuSEF/EuVECA funds will be very low and should not amount to more than 
2,000 EUR for the EuVECA/ EuSEF manager licence fees, and less than 75 EUR for 
the registration of EuVECA/ EuSEF funds. No fees for the funds from other Member 
States are applied. 

that  registration  costs  for 

-  Malta:  The  MFSA  is  requesting  payment  of  notification  and  supervisory  fees  as 

described in the relevant local law.  

The  different  levels  of  fees  for  registration/authorisation  of  the  AIFs  which  are  applied  by 
Member States in the AIFMD framework are not in the scope of this review, but they will be 
analysed in the AIFMD review planned for 2017. 

Total costs, including own funds 

Moreover, in the framework of the CMU consultation, some respondents referred to different 
treatment  in  some  Member  States  in  relation  to  the  level  of  "own  funds"  (as  specified  in 
Article 10 and Article 11 of the EuVECA and EuSEF Regulations respectively) required for 
EuVECA and EuSEF managers to be authorised.  

65 

 
 
 
 
The approach to the minimum own funds requirements, as set out in the two Regulations, i.e. 
merely imposing a general obligation to have sufficient own funds, with no specific amounts 
required,  was  intended  to  allow  flexibility  to  cater  for  a  proportionate  approach  to  these 
smaller  funds.  The  obligation  is  intended  to  be  on  the  manager  to  be  able  to  justify  the 
sufficiency of their own funds to maintain operational continuity. 

However, it seems that in practice some NCAs interpret the requirements for minimum own 
funds  differently  and  as  a  result,  the  level  of  own  funds  requirements  differs  considerably. 
Respondents to the EuVECA and EuSEF consultation reported that some Member States are 
considering imposing on EuVECA and EuSEF managers high capital requirements, along the 
lines of those required under the AIFMD (for example, in Germany the manager is required to 
retain  ¼  of  the  yearly  overhead  costs  (in  line  with  the  AIFMD).  A  similar  case  can  be 
observed  in  Luxembourg,  where  the  own  funds  requirement  amounts  to  €125,000.  In 
Denmark  the  own  funds  requirement  totals  1/8 of  the  costs  for  the  preceding  year, which  is 
considered to be reasonable. In Ireland, under certain circumstances the ¼ can be reduced to 
1/8 of the yearly overhead costs. At the other end, the UK imposes an amount of £5,000). 

Moreover,  the  requirements  are  often  to  a  large  extent  aligned  to  the  requirements  of  the 
AIFMD,  especially  in  terms  of  human  resources  (segregation  between  portfolio  and  risk 
management), infrastructure (including IT) and audit requirement at manager level. 

One  of  EVPA’s  Members  reported  in  the  EuVECA  and  EuSEF  consultation  the  following 
costs for the EuSEF registration of its fund: €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). On top of those +/- €130,000, that same EVPA’s Member 
also  mentioned  additional  costs  (internal  and  external;  exact  amounts  yet  to  be  confirmed) 
arising from post-registration obligations (e.g. ESMA reporting via special interface).  

On the EuSEF framework, respondents to the consultations highlighted that compared to more 
traditional  passive  funds  investing  in  listed  companies,  the  staff  of  socially  driven  funds  is 
usually highly engaged and spends a lot of “hands on” time supporting social enterprises non 
financially (providing coaching, consulting, access to networks, fundraising capability, being 
part of their board, etc.). As shown in the Graph 3 below, social enterprises highly value the 
non-financial  support  they  received  from  their  funders,  considering  it  as  being  at  least  as 
valuable as the financial support they get. 

Graph 3 |Importance of non-financial support (NFS) for social enterprises58 

58  2013-2014  EVPA  Survey.  Question  asked  to  Venture  Philanthropy  Organisations  “Do  VPOs  measure 
investees’ [i.e. the social enterprises] perceived value of non-financial support – and in that case, how 
do  investees  value  non-financial  vs.  financial  support?”  cf.  “A  Practical  Guide  to  Adding  Value 
Through Non-Financial Support”, EVPA, December 2015 

66 

 
 
 
                                                            
Adding the NFS support to the explicit costs it can be very hard for managers of smaller funds 
to  meet  all  the  requirements,  which  are  often  more  modelled  on  trading  funds,  and  risk 
damaging the sector.  

A respondent to the EuVECA and EuSEF consultation provided a country overview based on 
experiences of venture capital managers that have been through the EuVECA process: 

-  Denmark: the fees are relatively limited. 
- 

Ireland: the registration requirements are not a hindrance to setting up new EuVECA 
funds.  Once  the  AIFM  is  registered,  when  a  new  fund  is  established,  no  further 
registration  is  required  unless  the  registered  AIFM  details  are  changed  significantly. 
The registration requirements are moderate and manageable. 

-  Netherlands:  the  registration  requirements  are  not  considered  a  hindrance  for  setting 

up a EuVECA fund.  

-  Germany: the process in is more akin to a full AIFMD authorisation.  
-  UK:  full  AIFMD  authorisation  is  also  required  in  the  UK  but  under  a  very  similar 
licensing regime to the pre-existing domestic authorisation regime, and therefore one 
which is reasonably well understood and manageable.  

-  France: require full-scope AIFMD authorisation. 
- 

Italy: the legislative framework for implementation of the AIFMD has not provided a 
lighter  regulatory  regime  for  sub-threshold  managers,  which  is  different  from  that 
imposed on fully AIFMD compliant and authorised managers. 

-  Finland: managers have been facing local “fit & proper” requirements which were not 

clear at all and took some time to resolve. 

-  Luxembourg:  registration  requirements  are  also  perceived  as  a  hindrance  for  small 
managers  which  sometimes  do  not  even  consider  an  application  for  registration. 
include  high  minimum  capital  requirements,  high 
Inappropriate  requirements 
registration and marketing fees, the requirement to set up a local IT infrastructure or to 
use local service providers as opposed to well-known international cloud offerings, the 
requirement to hire an external auditor for the manager, and finally the separation of 
roles for micro entities. 

Requiring  a  full  AIFMD  authorisation  process  means  that  a  venture  capital  fund  manager 
wishing  to  use  the  EuVECA  designation  and  passport  must  comply  with  a  number  of 

67 

 
 
 
 
 
operational, organisational and transparency requirements, including those related to portfolio 
composition,  and  concerns  regarding  borrowing,  delegation,  conflicts  of  interest  and 
valuation.  These  obligations  and  compliance  requirements  impose  additional  costs  on  the 
setting  up  of  such  funds.  Sub-threshold  managers  who  also  decide  to  obtain  the  EuVECA 
passport must comply with the full set of obligations and requirements under the AIFMD. 

Host Member States’ fees 

One  of  the  key  benefits  of  the  internal  market  passport  offered  by  the  two  Regulations  was 
that it would enhance efficiency at EU level (avoiding multiple time-consuming registrations 
in  each  Member  State)  and  have  neutral  to  positive  cost  effects  in  comparison  to  having  to 
obtain  first  time  or  ongoing  professional  legal  advice  on  a  country-by-country  basis  of 
changes to the national private placement regimes in those Member States where the manager 
wants to market.  

The  level  of  fees  charged  by  some  Member  States  to  managers  in  connection  with  the 
marketing  of  their  AIFs  in  Europe  has  been  noted  by  ESMA  in  the  ESMA's  Opinion  to  the 
European Parliament, Council and Commission and responses to the call for evidence on the 
functioning of  the  AIFMD  EU  passport  and  of  the  National  Private  Placement  Regimes  (30 
July  2015)59.  Indeed,  ESMA  has  identified  divergent  approaches  with  respect  to  marketing 
rules,  including  heterogeneity  of  fees  charged  by  the  NCAs  where  the  AIFs  are  marketed. 
Examples include: 

-  Austria,  where  the  FMA  charges  €1,000  per  AIF  for  processing  documents  required 
for  a  marketing  passport,  plus  €220  for  each  additional  sub-fund  and  €600  annually 
once the fund is marketed; 

-  France, where the AMF charges €2,000 per AIF being marketed; 
-  Germany, where BaFin charges €772 per AIF for processing the passport notification 

and €216 for each amendment; 

-  Luxembourg,  where  the  CSSF  charges  a  flat  fee  of  €2,650  for  AIFs  with  a  single 

compartment and €5,000 for EEA AIFs with multiple compartments; 

-  Malta, where the regulator imposes an application notification fee of €2,500 per AIF 
and an annual supervisory fee of €3,000 per AIF and more if the AIF has sub-funds; 
-  Spain, where the CNMV has recently informed passporting managers that it will also 

require the payment of additional fees. 

The different levels of fees for the marketing of AIFs in the AIFMD framework are not in the 
scope of this review, but they will be analysed in the AIFMD review planned for 2017. 

However, Article 16(2) of the EuVECA Regulation (which corresponds to Article 17(2) of the 
EuSEF Regulation) states: "The host Member States indicated in accordance with point (d) of 
Article 14(1) shall not impose, on the manager of a qualifying venture capital fund registered 
in  accordance  with Article 14, 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." 

59 https://www.esma.europa.eu/file/4763/download?token=IYJr07yR 

68 

 
 
 
                                                            
Question 4: How relevant is the EU intervention? 

-  To  what  extent  is  the  intervention  still  relevant  and  how  well  do  the  original  objectives 
correspond to the needs within the EU? 

Venture capital investors provide finance to companies that are generally very small and new, 
often innovative start-ups, with strong growth potential. This type of investment, which often 
takes  the  form  of  temporary  stakes  in  the  capital  of  the  companies,  entails  high  risk  since 
returns  are  linked  to  the  success  of  newly  created  companies.  For  this  reason  some  venture 
capital  investors  also  provide  important  non-financial  support  to  these  companies,  such  as 
consultancy services, financial advice, marketing strategy and training.  

Social  entrepreneurs  often  tackle  challenges  and  fill  gaps  not  addressed  by  mainstream 
business or via philanthropic work. But to do this they need access to a wider range of finance 
than  is  currently  usually  available.  Venture  capital  funding  which  explicitly  targets  social 
entrepreneurs is one of those sources of funding. Social enterprises are usually small business 
which  target  social,  ethical  or  environmental  goals  as  their  primary  and  explicit  corporate 
objective in what are often highly innovative ways. In common with other SMEs they often 
struggle to get funding. Indeed their challenges are often greater as their business models and 
emphasis  on  social  rather  than  economic  return  is  not  always  understood.  Yet  their  role  in 
focusing  on  areas  that  fall  beyond  the  traditional  boundaries  of  State  responsibilities, 
complementing public policy rather than replacing it, is vital to Europe's economy.  

As  shown  in  graph  4  below,  from  the  latest  ECB  Survey  on  the  Access  to  Finance  of 
Enterprises  in  the  euro  area  (April  to  September  2015)60,  bank-related  products  remain  the 
most relevant source of finance for SMEs vis- - vis market-based products and other sources 
of finance. The survey reports that during the period from April to September 2015, 54% of 
SMEs  considered  bank  loans  to  be  relevant,  while  55%  included  bank  overdrafts. 
Furthermore,  37%  signaled  that  grants  and  subsidised  loans,  which  involve  support  from 
public  sources  in  the  form  of  guarantees  or  other  interventions,  were  relevant  for  their 
financing. Leasing and trade credit were also relevant for 45% and 34% of SMEs respectively. 
Other loans, for example from family, friends or related companies, were important sources of 
financing  for  21%  of  SMEs.  Market-based  sources  of  finance,  as  well  as  factoring,  were 
reported  less  often  as  relevant  instruments.  Internal  funds  played  an  important  role  as  an 
alternative source of finance, as indicated by 25% of SMEs.  

Graph 4: Financing structure of euro area SMEs 

60https://www.ecb.europa.eu/pub/pdf/other/accesstofinancesmallmediumsizedenterprises201512.en.pdf?2c146594df6fe424c7

adb001e1306c73 

69 

 
 
 
                                                            
Source: EBC 

High  bank  dependency  means  that  enterprises,  and  particularly  SMEs,  have  difficulties 
accessing  alternative  funding  sources  when  they  cannot  get  credit  from  banks.  For  many 
companies, particularly in vulnerable Member States, access to finance has become markedly 
more difficult with the financial crisis. Difficulty in accessing finance is one of the obstacles 
that  prevent  SMEs  from  launching  new  products,  broadening  their  activities  and  markets, 
strengthening their infrastructure and taking on more employees. This situation is equally true 
for  well-established  SMEs  and  those  innovating  ones  that  are  small  and  rapidly  expanding. 
Financing conditions remain tight in countries whose economies have been hit most severely 
by the crisis and especially for start-ups, SMEs and/or innovative companies. 

The  EuVECA  objectives  to  (i)  make  European  SMEs  more  competitive  in  a  global 
marketplace and to (ii) create a European system for the cross-border fundraising of venture 
capital  funds;  as  well  as  the    EuSEF  objectives  of  (i)  having  the  contribution  of  social 
businesses and entrepreneurship to EU goals on inclusive, sustainable growth should be fully 
realised and (ii) having social businesses able to flourish across the EU and fully take part in 
the benefits of the single market, are aligned with the objectives of the Capital Markets Union 
(CMU) initiative.  

Indeed, the CMU initiative has three main objectives61: 

-  The CMU will broaden the sources of financing in Europe towards non-bank financing 
by giving a stronger role to capital markets. It will offer to borrowers and investors a 
broader set of financial instruments to meet their respective needs62. 

61 See: SWD(2015) 183 final  

70 

 
 
 
 
                                                            
-  The  CMU  will  help  deepen  the  single  market  for  financial  services.  Capital  markets 
will benefit from the size effects of the single market and become deeper, more liquid 
and more competitive, for the benefit of both borrowers and investors. 

-  The CMU will help promote growth and financial stability. By facilitating companies' 
access to finance, in particular SMEs, the CMU will support growth and jobs' creation. 
At the same time, by promoting more diversified funding channels to the economy, it 
will help address possible risks stemming from the over-reliance on bank lending and 
intermediation in the financial system. By diversifying the risks, it will make the whole 
system  more  stable  and  help  financial  intermediaries  granting  more  funding  to  the 
economy. 

Non-bank financing does not merely substitute for investment that was previously funded by 
banks,  but  it  enables  additional  investment  that  banks  would  not  be  ready  to  fund.  Market 
financing  is  usually  regarded  to  being  better  at  dealing  with  uncertain  environments  and 
therefore  better  suited  to  fund  riskier  investment  projects  (with  a  higher  required  rate  of 
return).  

Deep, liquid and efficient capital markets bring advantages to borrowers and investors. They 
have three main advantages for companies seeking finance: (i) improve their access to funds; 
(ii) reduce their capital costs by creating competition among investors; and (iii) reduce the risk 
of  disruption  in  financing  by  diversifying  their  funding  sources.  On  the  investors'  side,  by 
increasing the investment opportunities, efficient capital markets offer investors a broader set 
of  financial  products  to  (i)  meet  their  investment  objectives,  (ii)  diversify  and  manage  their 
risks, and (iii) optimise their risk-return profile, while respecting their investment constraints – 
whether  in  terms  of  risk,  duration,  or  other  assets'  characteristics.  Overall,  capital  markets 
(especially  equity  markets)  facilitate  entrepreneurial  and  other  risk-taking  activities,  which 
have a positive effect on economic growth. 

Large and well-integrated capital markets can contribute to jobs and growth through a number 
of  channels.  They  can  contribute  to  allocative  efficiency  by  opening  up  investment  and 
diversification opportunities for investors across Europe, improving access to risk capital for 
borrowers,  and  allowing  greater  competition  (unleashing  corresponding  benefits  such  as 
productivity  gains,  lower  costs,  greater  choice,  financial  innovation,  etc.).  Unobstructed 
capital  flows  within  the  single  market  should  allow  financial  resources  to  reach  the  most 
profitable investments.  

Question 5: How coherent is the EU intervention internally and with other (EU) actions? 

- To what extent is the intervention coherent internally? 

With  assets  under  management  of  more  than  €17  trillion,  the  European  asset  management 
industry plays a pivotal role in channelling investors' money into the economy. A great deal of 
this  success  is  the  direct  result  of  Europe's  investment  funds  frameworks.  The  UCITS 
(Undertakings  for  Collective  Investment  in  Transferable  Securities)63  framework  for  mutual 

62 The term "borrower" is here used for the counterpart that demands funding independent on whether funding is 

requested in the form of debt or equity.  

63 Directive 2014/91/EU 

71 

 
 
 
 
                                                                                                                                                                                          
funds is a recognised international standard, while the AIFMD has created a framework within 
which European alternative investment managers are able to operate.  

The EuVECA and EuSEF Regulations created voluntary marketing passports for managers to 
market funds under the EuVECA and EuSEF labels across the EU. The EuVECA and EuSEF 
Regulations  are  complementary  to  the  AIFMD  and  they  do  not  overlap  with  other  legal 
frameworks in the asset management sector, in particular the UCITS Directive.  EuVECA and 
EuSEF  funds  offer  entrepreneurs  wider  fund  raising  options  by  bringing  together  investors 
and  unlisted  SMEs  (as  well  as  other  mid-range,  small  or  start-up  companies)  and  by 
increasing  non-bank  finance.  The  main  purpose  of  the  EuVECA  Regulation  is  stimulate 
economic  growth,  contribute  to  the  creation  of  jobs  and  capital  mobilisation,  foster  the 
establishment and expansion of innovative undertakings, increase undertakings investment in 
research  and  development  and  to  foster  entrepreneurship,  innovation  and  competitiveness. 
The  EuSEF  Regulation  provides  a  common  framework  for  providing  funding  to  social 
enterprises that are acting as drivers of social change by offering solutions to social problems. 

EuVECA and EuSEF funds can only be designed and managed by sub-threshold managers of 
alternative  investment  funds,  i.e.  managers  who  manage  an  overall  portfolio  of  assets  of 
below €500 million. Investors must invest at least €100,000. Importantly, every fund using the 
EuVECA and EuSEF labels has to invest a high percentage of investments (at least 70% of 
the capital commitments) in supporting so-called qualifying portfolio undertakings, i.e. young 
and innovative companies or social enterprises respectively.  

Question 6: What is the EU added value of the intervention? 

- To what extent the intervention changed situation and to what extent do the issues addressed 
by the intervention continue to require action at EU level? 

In terms of the EU added value, EuVECA and EuSEF Regulations covered a gap that existed 
in  legislation  before  by  introducing  a  new  framework  aiming  to  address  the  need  of  small 
managers  to  market  funds  cross  border  and  to  increase  the  amount  of  non-bank  capital 
available  for  investment  in  start-ups  and  social  enterprises.  The  novel  feature  of  the  two 
Regulations  was  that  they  opened  up  passporting  possibilities  to  sub-treshold  managers  of 
EuVECA and EuSEF funds and speciffically created a uniform approach for the categories of 
investors  eligible  to  commit  capital  to  such  funds.  The  Regulations  were  first  EU  legal 
instruments in the asset management area which laid down two uniform "single rule books" 
ensuring that investors know exactly what they get when they invest in the funds. 

Apart from tackling the issue of market fragmentation, the EuSEF and EuVECA frameworks 
were motivated by a preventive approach - trying to address certain issues before they emerge 
into full view. The pre-emptive approach is motivated by several considerations: (i) historic 
experience  in  the  area  of  investment  funds  and  (ii)  recent  experience  gained  in  the  more 
mature area of venture capital funds and (iii) experience in the field of investor protection.   

The  European  legislator  did  not  await  significant  proliferation  of  divergent  retail  schemes 
before embarking on the UCITS Directives. As early as 1985, a common approach to investor 
protection was taken in UCITS. Action in harmonising the key features of retail investment 
funds were therefore taken already in the run-up to the creation of a single market by the end 
of 1992. Experts in the field of investment management services would converge in agreeing 

72 

 
 
 
that  a  common  UCITS  brand  could  no  longer  have  been  introduced,  with  any  promise  of 
success in take-up, at a later stage, say in 2000.   

Experience therefore militates in favour of early action, when markets are still emerging and 
when differences in regulatory cultures have not yet taken hold. Especially when regulation at 
EU level aims to launch a new market (such as UCITS did for pan-European retail investment 
funds  which  were  safe  and  liquid  enough  to  be  suitable  for  all  retail  clients  across  Europe) 
intervention  has  to  be  times  carefully  so  as  to  achieve  maximum  effect  and  take-up  in  the 
market.    This  issue  of  potential  take-up  is  crucial  for  voluntary  schemes,  such  as  UCITS, 
which  coexist  alongside  national  schemes  and  apply  only  to  those  operators  who  wish  to 
engage in cross-border activities.   

Both the EuVECA and EuSEF Regulations lay down uniform "single rule books" governing 
the  marketing  of  funds  under  the  EuVECA  and  EuSEF  designations.  The  two  funds  are 
defined  by  three  essential  requirements:  1.  they  invest  70%  of  the  capital  committed  by  its 
sponsors eligible assets (SMEs and social undertakings respectively); 2. they provide equity 
or  quasi-equity  finance  to  these  SMEs  and  social  undertakings;  and  3.  they  do  not  use 
leverage (i.e. the funds do not invest more capital than that committed by investors so is not 
indebted).  All  funds  that  operate  under  these  designations  must  abide  by  uniform  rules  and 
quality  standards  (including  disclosure  standards  to  investors  and  operational  requirements) 
when they raise funds across the EU. The "single rule book" ensures investors know exactly 
what they get when they invest in EuVECA and EuSEF funds. 

The EuVECA and EuSEF Regulations also maintain a uniform approach for the categories of 
investors  which  are  eligible  to  commit  capital  to  EuVECA  and  EuSEF  funds,  investors 
including  retail  able  and  willing  to  commit  at  least  €100,000  of  their  investable  assets  in 
EuVECA  and  EuSEF  funds.  The  uniform  rules  on  such  investors  make  sure  that  marketing 
can be tailor-made to the needs of these investor categories. 

The  Regulations  provide  all  managers  of  EuVECA  and  EuSEF  funds  with  a  European 
marketing  passport  allowing  access  to  eligible  investors  across  the  EU.  This  is  a  market 
improvement  -    the  passport  provided  under  AIFMD  is  only  applicable  to  managers  whose 
assets under management are above a threshold of €500 million.  

Moreover,    the  EuSEF  Regulation  requires  EuSEF  funds  to  give  an  account  of  their 
investment strategies, screening criteria for selecting target undertakings and their criteria for 
measuring  the  social  impacts  achieved  by  their  target  undertakings.  On  this  basis, 
measurement  tools  and  methodologies  to  precisely  determine  social  impacts  can  be 
developed. Here again, if disclosure requirements are allowed to develop in an uncoordinated 
manner,  they  will  be  of  little  value  as  a  basis  for  developing  a  common  approach  to  social 
impacts and the metrics used for their measurement. 

Section 8 Conclusions 

On the effectiveness of the EuVECA and EuSEF Regulations, figures of the current situation 
show  that  while  take-up  of  the  opportunities  presented  by  the  EuVECA  Regulation  is 

73 

 
 
 
 
satisfactorily increasing, it could still be improved further (as of beginning of April 2016 there 
are 70 EuVECA funds registered in the ESMA database, the limited take-up of EuSEF funds 
is  clearly  unsatisfactory  (ESMA  registered  1  EuSEF  fund  in  France  and  3  EuSEF  funds  in 
Germany).  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 
was related to the funds rules which governs 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  the  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,  seems  to  constitute  an  impediment  to  setting  up  EuVECA  or  EuSEF  funds  and 
enabling cross-border investment. 

In  terms  of  relevance,  both  fund  frameworks  are  designed  to  channel  money  from  private 
investors  into  SMEs  and  so  to  boost  job  creation  and  growth.  They  have,  therefore,  been 
recognised as integral to the work on the CMU. The EuVECA and EuSEF Regulations form 
part  of  the  Commission's  initiative  to  increase  non-bank  finance  for  the  economy,  and  are 
aligned  with  the  objectives  of  President  Junker's  Investment  Plan  for  Europe,  to  increase 
competitiveness and to stimulate investments for the purpose of job creation. 

The  internal  coherency  is  achieved  given  the  EuVECA  and  EuSEF  Regulations  were 
proposed and adopted to offer managers that are below the AIFMD threshold to benefit from 
the possibility to market funds cross border, provided that they respect the fund rules of the 
two  Regulations.  The  EuVECA  and  EuSEF  Regulations  are  intended  to  be  proportionate 
regimes which ensure that small managers have access to a managing and marketing passport 
without having to comply with all the AIFMD requirements. 

In terms of the EU added value, EuVECA and EuSEF Regulations covered a gap that existed 
in  legislation  before  by  introducing  a  new  framework  aiming  to  address  the  need  of  small 
managers  to  market  funds  cross  border  and  to  increase  the  amount  of  non-bank  capital 
available  for  investment  in  start-ups  and  social  enterprises.  The  novel  feature  of  the  two 
Regulations  was  that  they  opened  up  passporting  possibilities  to  sub-treshold  managers  of 
EuVECA and EuSEF funds and speciffically created a uniform approach for the categories of 
investors  eligible  to  commit  capital  to  such  funds.  The  Regulations  were  first  EU  legal 
instruments in the asset management area which laid down two uniform "single rule books" 
ensuring that investors know exactly what they get when they invest in the funds. 

74 

 
 
 
 
 
12.  ANNEX  5  (review  clauses  of  the  EuVECA  and  EuSEF 

Regulations) 

The EuVECA and EuSEF Regulations include a list of items that must be reviewed by 22 July 
2017.  

Articles 26 and 27 of the EuVECA Regulation describe the issues that must be review. These 
are: the extent to which the EuVECA designation has been used in different Member States; 
the geographical and sectoral spread of investments used by EuVECA; the appropriateness of 
the information requirements in Article 13; whether there is a need to amend the definition of 
qualifying  investments;  whether  it  should  be  extended  the  marketing  to  retail  investors;  the 
effectiveness,  proportionality  and  application  of  administrative  penalties;  the  impact  of  the 
Regulation on the venture capital market; should third country managers be allowed to use the 
EuVECA designation; the appropriateness of adding a depositary regime; a review of barriers 
impeding the use of the EuVECA designation and the interaction of the Regulation with the 
Alternative Investment Fund Managers Directive. 

In the EuSEF Regulation it is Articles 27 and 28 that set out the issues to be reviewed. These 
are: the extent to which the EuSEF designation has been used in different Member States; the 
geographical and sectoral spreads of investments used by EuSEF; the appropriateness of the 
information  requirements  in  Article  14;  the  use  of  different  qualifying  investments  and  the 
impact  on  the  development  of  social  undertakings  in  the  EU;  the  appropriateness  of 
establishing  a  European  label  for  'social  enterprises';  should  third  country  managers  be 
allowed to use the EuSEF designation; the practical application of the criteria for identifying 
qualifying portfolio undertakings and its impact on social enterprises and their positive social 
impact;  an  analysis  of  the  procedures  put  in  place  by  managers  to  measure  social  impact; 
whether  it  should  be  extended  the  marketing  to  retail  investors;  whether  EuSEF  should  be 
eligible  assets  under  the  UCITS  Directive;  if  a  depositary  regime  is  appropriate;  an 
examination  of  tax  obstacles  and  an  assessment  of  the  possibility  of  tax  incentives  to 
encourage  social  entrepreneurship;  a  review  of  barriers  impeding  the  use  of  the  EuSEF 
designation  and  the  interaction  of  the  Regulation  with  the  Alternative  Investment  Fund 
Managers Directive. 

75 

 
 
 
 
 
13.  ANNEX 6 (EU legal frameworks for investment funds) 

13.1.1. The UCITS Framework 

The UCITS Directive 2009/65/EC, as amended, establishes a harmonized legal framework for 
the  creation,  management  and  marketing  of  collective  investment  schemes  with  a  focus  on 
investors’  protection  and  product  regulation.  This  harmonized  framework  enables  UCITS 
funds,  once  registered  in  a  home  Member  State,  to  be  freely  marketed  to  retail  and 
professional  investors  across  borders.  It  creates  a  single  set  of  rules  covering  investment 
policies  (diversification,  risk  exposure)  or  safekeeping  that  can  accommodate  investment 
strategies involving shares, bonds, money market instruments or strategies based on tracking 
diversified  and  widely  recognised  indices.  Likewise,  the  UCITS  framework  can  also 
accommodate  so-called  'mixed'  funds  which  engage  in  a  mixture  of  the  above  mentioned 
investment strategies.  

The UCITS Directive includes rules on, in particular: 

  The authorisation of UCITS; 
  Conduct  of  business  (fair  treatment  of  investors,  conflicts  of  interest,  remuneration, 

risk management, valuation, disclosure to investors and regulators); 

  Regulatory capital, namely initial capital, 'own funds'; 
  European passport for managers and cross-border marketing of UCITS; 
  Notification procedures; 
 
Investment policies; 
  Key Investor Information Document (KIID); 
  Mergers and master-feeder structures; 
  Mandatory appointment of depositaries; or 
  Controls over delegation of certain tasks. 

13.1.2. The AIFMD framework 

The AIFMD Directive 2011/61/EU establishes a uniform framework that comprises managers 
of  a  variety  of  alternative  investment  funds,  ranging  from  hedge  funds,  private  equity 
operators,  real  estate  funds,  venture  capital  funds  and  those  that  specialise  in  commodities. 
While the AIFMD comprises  a large variety of alternative asset classes, it essentially limits 
itself  to  regulating  fund  managers  and  not  funds.  Managers  whose  aggregate  assets  under 
management  are  above  €500  million  are  subject  to  authorisation  and  compliance  with  the 
reporting  and  operational  requirements  set  out  in  the  AIFMD.  In  exchange  for  compliance, 
these  managers  benefit  from  a  European  passport  that  ensures  they  can  manage  and  market 
alternative investment funds to professional investors on cross-border basis. Managers below 
this  threshold  are  only  subject  to  a  set  of  minimum  rules  but  also  do  not  benefit  from  the 
passport, unless they opt-in.  

The AIFMD includes rules on, in particular: 

  The authorisation or, alternatively, registration of the AIF manager; 
  Conduct  of  business  (fair  treatment  of  investors,  conflicts  of  interest,  remuneration, 

risk management, valuation, disclosure to investors and regulators); 

  Regulatory  capital,  namely  initial  capital,  'own  funds'  and  professional  indemnity 

insurance requirements; 

  Mandatory appointment of depositaries; 
  Controls  over  delegation  of  certain  tasks,  including  portfolio  management  and  risk 

management; 

76 

 
 
 
  The marketing of AIFs to professional investors; or 
  The  use  of  leverage  by  AIFMs  for  all  AIFs  under  management.  Supervisors  are 
empowered  to  intervene,  place  restrictions  on  leverage  and  pursue  other  supervisory 
restrictions where needed to avoid the build-up of systemic risk. 
13.1.3. The European long-term investment fund framework 

The ELTIF Regulation created a voluntary marketing passport for managers to market funds 
under a European long-term investment fund (ELTIF) label across the EU.  

An  ELTIF  may  specialise  in  variety  of  investments,  such  as  unlisted  companies,  listed 
companies up to infrastructure investment, investments in or in airplane or marine financing. 
Only managers authorised under the AIFMD can design and manage an ELTIF. As an ELTIF 
is not a UCITS fund but an AIF within the meaning of the AIFMD, its manager must fulfil the 
requirements set out by the AIFMD. ELTIFs may be marketed to both professional and retail 
investors  across  the  EU.  Authorised  AIF  managers  are  able  to  make  use  of  an  EU-wide 
passport, subject to  a  notification  procedure  established  under  the  AIFMD.  An  ELTIF  must 
among other things invest at least 70% of its capital in eligible investment assets, not engage 
in short selling and observe strict limitations on its use of leverage and derivatives. 

ELTIFs do  not  offer redemption rights  before the end of the fund’s life. An ELTIF  may be 
marketed to retail investors. In this context, an ELTIF manager has to undertake a suitability 
test to confirm that investment is suitable for the retail investor and to provide that investor 
with "appropriate investment advice." The manager must ensure that a retail investor with a 
portfolio  of  up  to  €500,000  does  not  invest  more  than  10%  of  their  portfolio  in  ELTIFs, 
provided that the initial amount invested in one or more ELTIFs is not less than €10,000. 

The ELTIF Regulation includes rules on, in particular: 

  The  authorization  (only  an  EU  AIF  may  be  authorised  as  an  ELTIF  and  only  an 

 

authorised ELTIF may be marketed as an ELTIF in the EU); 
Investment  policies  (eligible  investment  assets,  qualifying  portfolio  undertaking, 
diversification and concentration, investment and borrowing restrictions); 

  Redemption, disposal and distribution (the life of an ELTIF must be consistent with its 
long-term  nature  and  must  be  sufficiently  long  to  cover  the life-cycle  of  each  of  the 
fund’s individual assets; redemption to investors must commence on the day following 
the end of the ELTIF’s life and investors must always have the option to be repaid in 
cash); 

  Transparency,  marketing  and  depositaries  when  an  ELTIF  is  marketed  to  retail 
investors  (costs  disclosures,  ELTIF’s  prospectus,  its  KID  (where  it  is  marketing  to 
retail investors), information on the facilities). 
13.1.4. The  European  venture  capital  fund  (EuVECA)  and  social  entrepreneurship 

fund (EuSEF) frameworks 

The EuVECA and EuSEF Regulations created voluntary marketing passports for managers to 
market  funds  under  the  EuVECA  and  EuSEF  labels  across  the  EU.  EuVECA  and  EuSEF 
funds  offer  entrepreneurs  wider  fund  raising  options  by  bringing  together  investors  and 
unlisted  SMEs  (as  well  as  other  mid-range,  small  or  start-up  companies)  and  by  increasing 
non-bank  finance.  The  main  purpose  of  the  EuVECA  Regulation  is  stimulate  economic 
growth,  contribute  to  the  creation  of  jobs  and  capital  mobilisation,  foster  the  establishment 
and expansion of innovative undertakings, increase undertakings investment in research and 
development  and  to  foster  entrepreneurship,  innovation  and  competitiveness.  The  EuSEF 

77 

 
 
 
Regulation provides a common framework for providing funding to social enterprises that are 
acting as drivers of social change by offering solutions to social problems. 

EuVECA and EuSEF funds can only be designed and managed by sub-threshold managers of 
alternative  investment  funds,  i.e.  managers  who  manage  an  overall  portfolio  of  assets  of 
below €500 million. Investors must invest at least €100,000. Importantly, every fund using the 
EuVECA and EuSEF labels has to invest a high percentage of investments (at least 70% of 
the capital commitments) in supporting so-called qualifying portfolio undertakings, i.e. young 
and innovative companies or social enterprises respectively.  

Scope of the EuVECA Regulation 

The EuVECA Regulation builds the definition  of the qualifying  portfolio undertakings on a 
widely  spread  SME  definition  (and  is  aligned  with  the  definition  of  an  SME  under  the 
AIFMD), namely the undertaking is not listed on a regulated market, as defined by the MiFID 
Directive  2004/39/EC,  employs  less  than  250  persons  and  has  either  an  annual  turnover  of 
less  than  €50  million  or  a  an  annual  balance  sheet  of  less  than  €43  million,  is  neither  a 
collective investment undertaking itself nor a credit institution, insurance undertaking etc. The 
regulation  prohibits,  for  the  fund  managers,  the  use  of  any  method  that  would  increase  the 
exposure  of  the  fund  whether  through  borrowing  of  cash  or  securities,  engagement  into 
derivatives positions or any other mean with an exception of short-term borrowing to provide 
liquidity to cover the gap between call and reception of commitments. 

The EuVECA Regulation further stipulates obligations towards good conduct of business on 
managers  such  as  due  skill,  care  and  diligence  in  conducting  their  activities,  appropriate 
policies  and  procedures  for  preventing  malpractices,  the  best  interest.  The  manager  is  also 
obliged to identify, avoid and, when necessary, disclose the conflict of interests. The manager 
shall have sufficient own funds and shall use adequate and appropriate human and technical 
resources.  The  valuation  is  to  be  made  according  to  the  rules  stated  in  the  statutory 

78 

 
 
 
 
documents. The EuVECA Regulation also introduces specific disclosure requirements to the 
competent authorities and investors.  

Scope of the EuSEF Regulation  

The EuSEF Regulation follows the EuVECA Regulation model with the difference in relation 
to the tailored definition of the qualifying portfolio undertaking. The definition is built on two 
main features,  namely the undertaking has to  have the achievement of  measureable positive 
social  impact  as  primary  objective  and  uses  profits  to  achieve  this  primary  objective.  The 
undertaking must be managed in an accountable and transparent way. 

79 

 
 
 
 
 
 
14.  Annex 7 (Results of the consultations) 

1. Consultation on the review of the EuVECA and EuSEF Regulations 

Below  are  the  results  of  the  public  consultation  on  the  review  of  the  EuVECA  and  EuSEF 
Regulations which ran from 30 September 2015 to 6 January 2016. 

This  feedback  statement  presents  a summary  of  responses to  each  of the  eighteen  questions 
raised  in  the  consultation  paper.  The  tables  provide  a  quick  overview  of  the  respondents' 
opinions.  These  opinions  have  been  categorized  wherever  possible.  Some  respondents  have 
also provided qualitative commentary to supplement or nuance their 'yes/no' answers. 

The  responses  received  are  from  private  individuals,  organisations/companies  and  public 
authorities/public  organisations.  Most  of  the  replies  have  been  drafted  by  industry 
associations and private companies. 

a private individual 

an organisation or a company 

a public authority or an international organisation 

No answer 

Type of organisation: 

Academic institution 

Company, SME, micro-enterprise, sole trader 

Consultancy, law firm 

Consumer organisation 

Industry association 

Media 

Non-governmental organisation 

Think tank 

Trade union 

Other 

No Answer 

80 

Answers  Ratio 

3 

30 

13 

0 

6.52% 

65.22% 

28.26% 

0% 

Answers  Ratio 

0 

7 

1 

1 

0% 

15.22% 

2.17% 

2.17% 

15 

32.61% 

0 

1 

0 

0 

5 

0% 

2.17% 

0% 

0% 

10.87% 

16 

34.78% 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Type of public authority 

International or European organisation 

Regional or local authority 

Government or Ministry 

Regulatory  authority,  Supervisory  authority  or  Central 
bank 

Other public authority 

No answer 

Answers  Ratio 

1 

0 

4 

5 

3 

2.17% 

0% 

8.7% 

10.87% 

6.52% 

33 

71.74% 

Where are you based and/or where do you carry out your activity? 

Answers  Ratio 

Austria 

Belgium 

Bulgaria 

Croatia 

Cyprus 

Czech Republic 

Denmark 

Estonia 

Finland 

France 

Germany 

Greece 

Hungary 

Iceland 

1 

9 

0 

0 

0 

1 

1 

0 

2 

4 

2 

0 

0 

0 

2.17% 

19.57% 

0% 

0% 

0% 

2.17% 

2.17% 

0% 

4.35% 

8.7% 

4.35% 

0% 

0% 

0% 

81 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ireland 

Italy 

Latvia 

Liechtenstein 

Lithuania 

Luxembourg 

Malta 

Norway 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

Switzerland 

The Netherlands 

United Kingdom 

Other country 

No answer 

2 

3 

0 

0 

0 

3 

0 

0 

0 

0 

0 

0 

1 

1 

0 

1 

3 

10 

2 

0 

Field of activity or sector (if applicable): 

Accounting 

Auditing 

Banking 

Credit rating agency 

4.35% 

6.52% 

0% 

0% 

0% 

6.52% 

0% 

0% 

0% 

0% 

0% 

0% 

2.17% 

2.17% 

0% 

2.17% 

6.52% 

21.74% 

4.35% 

0% 

82 

Answers  Ratio 

2 

2 

14 

2 

4.35% 

4.35% 

30.43% 

4.35% 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Insurance 

Pension provision 

Investment management (e.g. hedge funds, private equity 
funds,  venture  capital  funds,  money  market  funds, 
securities) 

Market infrastructure operation (e.g. CCPs, CSDs, Stock 
exchanges) 

Social entrepreneurship 

Other 

Not applicable 

No answer 

QUESTION 1 

6 

5 

23 

6 

8 

13 

4 

0 

13.04% 

10.87% 

50% 

13.04% 

17.39% 

28.26% 

8.7% 

0% 

Should managers authorised under the AIFMD be able to offer EuVECA to their clients? 

Opinions expressed  Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

Yes 

No 

Don’t 
know  / 
no 
opinion 
/ 
not 
relevant 

No 
answer 

  36 

78.3%  10 

0 

6 

0% 

13.% 

2 

1 

22 

4 

2 

1 

4 

8.7%  2 

2 

24 

5 

2 

There  is  widespread  support  across  industry  and  public  authorities  for  broadening  the 
range  of  managers  able  to  market  EuVECA  to  include  managers  fully  authorised  under 
AIFMD. No respondent opposed this. 

Many  respondents  point  out  that  authorised  AIFMs  are  already  compliant  with 
requirements that are more onerous and stringent than those set out in the EuVECA and 
EuSEF  Regulations,  so  could  easily  comply  with  the  obligations.  They  noted  that 

83 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
authorised  managers  would  often  have  the  resources  required  to  develop  the  necessary 
expertise to invest in venture capital and social enterprises – in doing so they would add 
their own brand reputation, may be able to raise larger amounts of funds and could target a 
wider investor base due to the scale of their existing business. 

Most respondents agree that the full set of AIFMD requirements should continue to apply 
to authorised AIFMs where they market and / or manage EuVECAs. 

The large majority of respondents agree that the main advantage for authorised AIFM will 
be the ability to manage and market EuVECAs to high net worth individuals on a cross-
border  based.  This  will  improve  the  cross-border  distribution  of  AIFs  and  will  allow 
investors  to  reap  the  benefits  of  competition  (i.e.  lower  prices,  more  choice  and  higher 
quality products).  

QUESTION 2 

Should managers authorised under the AIFMD be able to offer EuSEF to their clients? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

  31 

67.4%  4 

1 

8 

2.17%   

17.4%  1 

6 

13% 

2 

1 

25 

1 

6 

6 

27 

1 

7 

6 

While  one  respondent  does  not  support  the  view  that  AIFMs  authorised  under  the  AIFMD 
should be allowed to manage and markets EuSEFs, there is otherwise widespread support for 
this, with the same arguments made in favour as for EuVECA.  

Moreover, one reply notes that the average size of European social investment funds is €13.8 
million.  This  figure,  which  is  based  on  the  data  collected  from  24  social  investment  fund 
managers representing  37 investment funds, shows that the existing social investment  funds 
are still rather small and the eligible EuSEF fund managers, who currently typically manage 
only  one  social  entrepreneurship  fund,  are  far  from  reaching  the  500  MEUR  thresholds  of 
aggregate  assets  under  management.    However,  this  respondent  observes  that  a  number  of 
bigger  players  are  creating  investment  vehicles  dedicated  to  the  financing  of  social 
enterprises.  This  movement  could,  over  time,  further  help  to  develop the  market  for  private 
social investment in the EU as the social objective requirement remains safeguarded. 

84 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
QUESTION 3 

Do  you  favour  a  reduction  in  the  minimum  €100,000  investment  have  on  the  take-up  of 
EuVECA? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

21 

10 

9 

45.7%  6 

21.7%  3 

19.6%   

13 

7 

8 

2 

1 

6 

13% 

2 

1 

3 

15 

7 

9 

3 

45.7% of  respondents are in favour of reducing the minimum €100,000 threshold required to 
invest in EuVECA in order to broaden the range of potential investors and increase choice for 
this  group,  with  21.7%  against  such  a  proposal.  A  significant  proportion  of  respondents 
(32.6%)  either have no opinion or have not answered this question. 

Other respondents from both industry and public authorities express scepticism over lowering 
the  investment  threshold,  arguing  that  the  risk  profile,  contractual  obligations  and  illiquid 
nature  of  investing  in  venture  capital  and  social  enterprises  are  not  necessarily  suitable  for 
private investors with less capital. Moreover, investors in venture capital funds are typically 
investing  well  above  the  €100,  000  threshold  so  a  surge  in  subscriptions  would  not  be 
anticipated.  One sceptical respondent also notes that the administrative overhead from having 
large numbers of smaller investors may lead to an increase in fund costs, unless the manager 
could offset this through a technology 

Suggestions  for  a  new  threshold  range  between  €0  and  €50,000.  Several  respondents  argue 
that a reduction in the investment threshold would need to be accompanied by other measures 
in order to protect retail investors at the European or domestic level. A number of respondents 
propose taking  a  similar  approach  to  that  of  the  ELTIF  regulation,  for example  limiting  the 
proportion of a  retail investor's  portfolio that may be invested in  a EuVECA (10% or  20%) 
and requiring an appropriateness test. 

The addition of investor protection methods would be acceptable to some respondents but not 
others, who argue that these requiremnts would detract  from the ultimate benefit of a lower 
compliance regime combined with an EU passport that EuVECA provides. These respondents 
argue that the associated burden on managers would probably not be mitigated by increased 
take-up by private individuals. 

85 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 

3 

10 

4 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

No reply has quantified the potential impact in term of business development.  

QUESTION 4 

Do  you  favour  a  reduction  in  the  minimum  €100,000  investment  have  on  the  take-up  of 
EuSEF? 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

45.7%  6 

2 

8.7%  1 

28.3%  3 

21 

4 

13 

12 

3 

8 

1 

2 

Industry  Consumer  Other  Total 

8 

17.4%  3 

1 

4 

As with responses for EuVECA in question 3, views are divided over reducing the investment 
threshold  for  EuSEF  funds,  with  45.7%  of  respondents  in  favour.  Only  8.7.%  oppose  this, 
although nearly half of respondents (45.7%) either have no opinion or have not answered this 
question. 

Similar  arguments  to  those  in  question  3  are  made  in  favour  and  against  reducing  the 
threshold,  with  the  impact  on  retail  investors  of  investing  a  significant  proportion  of  their 
savings in  funds where  they may not  properly estimate the financial risk highlighted. Many 
respondents underline that the lack of tax incentives for EuSEF is a major issue limiting the 
willingness of retail investors or high net worth individuals to invest. 

QUESTION 5 

Are  the  costs  relating  to  fund  registration  proportionate  to  the  potential  benefits  for  funds 
from having the passport? 

Opinions 
expressed 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

Yes 

9 

19.6%  2 

7 

7 

86 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

9 

18 

19.6%  1 

39.1%  5 

1 

1 

7 

8 

3 

7 

11 

10 

21.7%  4 

1 

5 

0 

5 

Views are split evenly across replies from industry. Seven industry organisations consider the 
costs  relating  to  fund  registration  as  being  proportionate  to  the  potential  benefits  for  funds 
from having the passport. Seven other industry organisations take the opposite view.  Initial 
registration costs and marketing fees vary considerably across Member States. 

Those respondents accepting the costs as proportionate take the view that they are worth the 
benefits, with the EuVECA label and EuSEF labels set to become a “stamp of quality" that 
will  become  the  norm  internationally  for  the  venture  capital  industry  and  social 
entrepreneurship. There is an inherent cost attached to this comfort. However each manager 
would need to  carry out a cost benefit analysis in relation to the timing  of compliance with 
EuVECA and EuSEF. The cost of compliance relative to being a MiFID regulated manager or 
an  authorised  AIFM  is  considerably  lower  and  the  EuVECA/EuSEF  route  will  therefore  be 
attractive  to  certain  managers  which  otherwise  may  have  needed  to  use  these  regimes  to 
establish and market their funds. 

One  other  respondent  considers  that  registration  fee  should  not  present  an  obstacle  to  new 
EuSEF  manager  registrations,  particular  if  the  manager  is  looking  to  take  advantage  of  the 
passport regime. If there were additional benefits to becoming a EuSEF or EuVECA manager, 
such  as  tax  incentives,  then  these  benefits  would  further  outweigh  the  registration  fees.  In 
addition, this respondent notes that once an EuSEF or EuVECA manager is registered under 
the applicable Regulation, it simply needs to complete a form and to notify its supervisor of a 
new EuVECA or EuSEF under management in order to manage and market that fund.  

Other respondents argue that for smaller AIFMs these costs (regulatory fees, legal and other 
professional  advisory  fees)  are  more  significant  to  bear.  For  many  sub-threshold  AIFMs 
seeking to market in only one or a few Member States, the costs of compliance may outweigh 
the  benefits  of  the  passport.  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. 

One asset manager argues that the Commission should not focus on costs when analysing why 
the uptake of EuSEF and EuVECA isn't higher. This respondent considers the reasons  to be: 

87 

 
 
 
 
 
 
 
 
 
 
 
-  The restriction to a category of asset managers, very small firms, that are not the best 

equipped to handle a large number of investors;  

-  The EuSEF framework is not appealing as an investment on financial grounds;  

-  EuVECA is not the only type of AIF that is able to invest in venture capital and small 

firms, but is more constrained than  other venture capital AIFs;  

-  Crowdfunding is more attractive for investors accepting risk as they get to choose their 

investments. 

Another  respondent  argued  that  the  cost  of  setting  up  a  EuSEF  remains  prohibitive  for  the 
following reasons:  

1)  pre-  and  post-registration  obligations  generate  costs  which  are  challenging  and  in 
some cases even prohibitive for socially driven funds ;  the average size of a European 
social  investment  fund  is  13.8M  EUR  and  as  a  consequence,  such  funds  only  have 
limited human and financial resources at their disposal.  

2)  Compared to more traditional passive funds investing in listed companies, the staff of 
socially  driven  funds  is  usually  highly  engaged and  spends a  lot  of  “hands  on”  time 
supporting social enterprises non financially (providing coaching, consulting, access to 
networks, fundraising capability, being part of their board, etc.). 

3)  Additional  and  sometimes  inappropriate  fees  are  sometimes  being  charged  by  both 
home  and  host  National  Competent  Authorities  (NCAs)  for  registering  a  fund  as  a 
EuSEF,.  

This respondent illustrated such costs for a typical EuSEF registration64:  

-  40 kEUR (external costs),  

-  25 kEUR (legal advice),  

-  14 kEUR (costs related to the NCA and ESMA),  

-  50 kEUR (estimation of costs supported by the fund management internally).  

-  130  kEUR,  (internal  and  external  arising  from  post-registration  obligations  (e.g. 

ESMA reporting via special interface)).  

Another  respondent  underlines  that  the  proportionality  question  arises  not  only  in  terms  of 
cost but also in terms of timing as registration can be more time consuming in some countries 
than others. 

A number of respondents consider it difficult to give a general answer to this question. Each 
manager needs to understand the respective fees charged by NCAs in Member States where 

64 These figures have been provided by one member of an industry association. 

88 

 
 
 
 
                                                            
marketing  is  proposed,  and  compare  these  to  the  costs  of  complying  with  national  private 
placement regimes the amounts that are expected to be raised. 

QUESTION 6  

Are the registration requirements for EuVECA a hindrance to the setting up of such funds in 
your Member State? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

8 

10 

18 

17.4%  2 

21.7%  5 

39.1%  4 

6 

4 

10 

3 

1 

1 

6 

4 

13 

10 

21.7%  3 

1 

6 

0 

6 

Most replies do not have a clear opinion on whether registration requirements are a hindrance 
for  EuVECA  funds.  Concerns  were  expressed  by  a  few  respondents  around  reporting 
requirements  being  burdensome  and  the  time  taken  by  national  authorities  to  register  the 
funds. Article 8 of the AIFMD stipulates that the national competent authority has to inform 
the  manager  of  an  AIF  within  three  months  of  the  submission  of  a  complete  application 
whether  authorisation  has  been  granted  or  not.  However,  there  is  no  similar  rule  in  the 
EuVECA  Regulation  that  stipulates  a  maximum  time  the  national  competent  authority  may 
take to process a EuVECA fund’s registration. That registration may take longer for smaller 
AIF than for large ones seems disproportionate to some respondents. 

One  respondent  considers  a  possible  cause  for  this  to  be  overstretched  national  authorities 
focusing  more  on  AIFMD  than  EuVECA  and  EuSEF  –  where  regulatory  knowledge  and 
experiences is also thin. This situation makes the registration process, where at all possible, 
more complicated and burdensome – with difficulty in determining what the requirements are. 

Another  respondent  notes  that  the  divergence  of  interpretation  in  the  registration  process 
across  NCAs  is  costly  and  suggests  having  clear  guidelines  in  order  to  improve 
standardisation  (e.g.  definition  of  own  funds,  number  of  employees  in  the  management 
company, etc.). 

QUESTION 7 

89 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Are  the  registration  requirements  for  EuSEF  a  hindrance  to  the  setting  up  of  such  funds  in 
your Member State? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

6 

9 

20 

13% 

1 

19.6%  5 

1 

5 

3 

43.5%   

5  1 

14 

0 

5 

3 

14 

11 

24% 

3 

1 

4 

3 

7 

The views set out in question 6 are mirrored in the registration requirement for EuSEF. 

,Some  respondents  note  that  while  some  NCAs  may  have  had  some  knowledge  and/or 
previous regulatory experience from the private equity and venture capital sectors, hardly any 
of  them  had  any  previous  experience  from  the  more  recent  field  of  investing  in  social 
enterprises. They note that this lack of knowhow around the EuSEF Regulation and general 
framework in the public sector is currently visible in several Member States, where it is still 
difficult to identify, within the NCA, the right counterpart in charge of the implementation of 
the  EuSEF  Regulation.  This  situation  makes  the  registration  process,  where  at  all  possible, 
more complicated and burdensome. In consequence, these respondents argue that it is not the 
registration requirements for EuSEF as such that make it difficult, but the lake of transparency 
of the requirements themselves. 

Many  respondents  mention  that  the  interpretation  of  the  EuSEF  Regulation  by  NCAs  can 
differ. For example, it remains confusing for eligible EuSEF fund managers to know whether  
they have the obligation to register their fund with their NCA under the AIFMD  and whether 
such registration can be done in combination with applying for the EuSEF marketing label.  

These respondents express a strong need to increase and harmonise the understanding of the 
EuSEF  Regulation  among  national  regulators  across  the  EU.  In  consequence,  they  suggest 
further  guidance  from  the  Commission  and  or  ESMA  on  the  applicability  of  the  national's 
existing venture capital regimes (including fiscal regime) also to EuSEF funds. There is a role 
for  ESMA  to  ensure  a  better  coordination  and  exchange  of  best  practices  between  the 
different NCAs in  each Member State, enhancing their  knowhow and motivation to quickly 
adopt and implement the EuSEF regulation.  

One  respondent  considers  the  ESMA's  XML  interface  for  the  reporting  requirements  to  be 
more difficult than necessary to use, with a proportionate approach not taken.  

90 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
However,  other  industry  organisations  consider  the  registration  process  to  be  relatively 
straightforward, with the requirements probablly necessary to ensure the NCAs collect all the 
information needed to ensure compliance with the requirements of the EuSEF Regulation. 

QUESTION 8 

 Are  the  requirements  for  minimum  own  funds  imposed  on  the  managers  relating  to  fund 
registration proportionate to the potential benefits for funds from having the passport? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

9  19.6%  2 

8  17.4%  2 

1 

7 

5 

21 

45.7%   

6  1 

11 

3 

7 

5 

14 

8 

17.4%  3 

1 

4 

0 

4 

The table above does not reflect the comments made by the respondents, which provide 
further insight.  The vast majority of respondents agree that the approach to own funds set 
out  in  the  EuVECA  and  EuSEF  Regulations  is  proportionate  and  reasonable.  However, 
respondents  note  that  Competent  Authorities  have  different  interpretations  of  "sufficient 
own  funds"  –  with  some  interpreting  this  requirement  as  being  similar  to  the  AIFMD 
requirements – and others applying a proportionate approach. 

While  respondents  agree  that  a  flexible  approach  should  be  maintained,  respondents 
argued that it would be helpful to undertake a comprehensive assessment of any additional 
obligation not foreseen in the EuVECA/EuSEF Regulations that are being introduced by 
NCAs.  This is an area where ESMA's supervisory convergence function could be used, 
helping NCAs to reach a common understanding of 'sufficient own funds".   

QUESTION 9 

Should the use of the EuVECA Regulation be extended to third country managers and if so, 
under what conditions? 

Opinions 
expressed 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

Yes 

        14

30.4%  4 

1 

8 

1 

9 

91 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

11 

13 

23.9%  3 

2 

28.3%   

3 

8 

17.4%  3 

2 

6 

8 

5 

6 

10 

5 

A  number  of  respondents  are  in  favour  of  extending  EuVECA  and  EuSEF  to  third  country 
managers  in  order  to  foster  the  market  in  Europe,  where  they  argue  there  is  a  lack  of 
sufficiently  experienced  venture  capitalists  and  social  entrepreneurs.  Extending 
the 
framework to third country managers may help foster venture capital market development by 
attracting experienced third country fund managers (e. g., from the U.S.) to (co-)invest in the 
European  market  and  thereby  improve  the  overall  quality  and  quantity  of  venture  capital 
supply.  

These respondents also note that by also providing access to assets outside the EU, this could 
also help meet European investors' needs for geographical diversification. They argue that the 
market should therefore be extended to those countries to which ESMA has determined there 
are no obstacles to the extension of the AIFMD passport. 

Respondents  in  favour  consider  that  conditions  for  third  country  managers  to  use  the 
EuVECA Regulation should be similar to the conditions for third country managers to use the 
AIFMD.  They  believe  that  the  rights  to  manage  and  market  EuVECA  and  EuSEF  funds 
should  be  extended  to  AIFMs  in  third  countries  which  demonstrably  operate  equivalent 
proportionate supervisory standards  – specifically those third countries to  which ESMA has 
determined there are no obstacles to the extension of the AIFMD passport. 

However, other respondents do not believe that extension to third country managers should be 
a  priority.  They  argue  that  a  general  principle  of  reciprocity  should  apply  to  third  country 
managers  in  order  to  be  admitted  to  the  EuVECA  and  EuSEF  regimes.  Moreover,  they 
consider that third country managers should not be allowed to benefit without bearing all the 
administrative burdens of being EU registered (not only regulatory - but reporting, taxation, 
etc.). They also argue that there is a need to ensure a level playing field, meaning that third 
country  managers  should  in  no  event  have  easier  access  to  the  EuVECA  Regulation  than 
EEA-based managers. 

Lastly, several respondents note that extension to third country managers could be regarded as 
premature, given that it is not yet functionally successfully within the EU, and recognition of 
the label has yet to be established.  

QUESTION 10 

92 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Should  the  use  of  the  EuSEF  Regulation  be  extended  to  third  country  managers  and  if  so, 
under what conditions? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

       10   21.7%  3 

13 

14 

28.3%  3 

30.4%   

4 

1 

2 

9 

19.6%  3 

1 

2 

5 

8 

8 

6 

6 

8 

10 

6 

The same views were expressed over extension of the EuSEF Regulation as were set out 

 in response to question 9. 

QUESTION 11 

Is  the  current  profile  of  eligible  portfolio  assets  conducive  to  setting  up  EuVECA  funds?  In 
particular, does the delineation of a “qualifying portfolio undertaking” (unlisted, fewer than 
250 employees, annual turnover of less than €50 million and balance sheet of less than €43 
million) hinder the ability to invest in suitable companies? 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

 13 

  28% 

3 

12 

10 

26.1%  3 

21.7%   

2 

1 

2 

9 

7 

6 

2 

9 

7 

8 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
not 
/ 

93 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
relevant 

No 
Answer 

11 

24% 

6 

4 

1 

5 

Many  respondents  consider  the  current  restriction  of  eligible  assets  to  investment  in  SMEs 
(defined as unlisted, fewer than 250 employees, annual turnover of less than €50 million and 
balance sheet of less than €43 million) to be too restrictive and inflexible. They argue that this 
limits  take-up  of  EuVECA  funds  and  reduces  their  ability  to  support  their  ventures  as  they 
continue to grow. This is particularly problematic for high-growth digital companies as well 
as those in labour intensive companies such as those in the services sector which can have a 
very  high  employee  count  while  remaining  very  small  businesses  in  the  early  stage  of 
development. 

Responses also stressed a potential concern that when a EuVECA manager is considering an 
application to establish a EuVECA, they may not be confident that they can guarantee finding 
the  number  of  attractive  qualifying  investments  that  are  necessary  to  stay  within  this  limit 
during the life of the fund and also achieve a balanced portfolio. 

Responses proposed included modifying the requirement that 70% of funds be committed to 
qualifying  investments,  widening  the  definition  of  SMEs  (for  example  doubling  the  250 
employee  threshold),  applying  a  “2  out  of  3”  rule  to  the  asset  criteria,  or  permitting 
investment in funds of funds and in SMEs listed on growth markets. A further suggestion was 
to  allow  EuVECA  funds  to  be  able  to  continue  to  use  their  EuVECA  status  as  their  target 
investments grew beyond the initial SME criteria. 

Some other respondents viewed the current eligible assets criteria as appropriate, noting that 
the  role  of  venture  capital  is  particularly  to  invest  in  new  but  uncertain  technologies  or 
business  ideas.  These  kinds  of  investments  are  typically  related  to  small  and  medium  sized 
enterprises.  Broadening  the  range  of  eligible  assets  could  dilute  the  focus  on  smaller 
companies and open the framework to wider private equity activity. 

QUESTION 12 

Does a EuVECA’s inability to originate loans to a qualifying portfolio undertaking in which 
the  EuVECA  is  not  already  invested  hinder  the  attractiveness  of  the  scheme  for  potential 
managers of such funds? 

Opinions 
expressed 

Yes 

No 

Don’t 
know 

/ 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

15

32.6%  4 

5 

10.9%  3 

1 

1 

13  28.3%   

2  1 

10 

1 

8 

2 

10 

1 

10 

94 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

13 

28.3%  5 

7 

1 

8 

30% of respondents agreed that the restriction on originating loans where the EuVECA is not 
already invested hinders the attractiveness to potential managers, 10% did not agree, and the 
remaining  respondents  either  did  not  know  or  did  not  answer  this  question.  Respondents  in 
favour  of  removing  this  restriction  argued  that  loan  origination  could  be  an  alternative  to 
equity  investment  –  either  where  traditional  equity  investment  is  not  available  -  or  as  an 
advantageous exit mechanism. 

However, other respondents note that is no evidence that the loan origination restriction has 
reduced  the  attractiveness  of  the  scheme  for  potential  managers  of  such  funds.  In  addition, 
one respondent notes that the current drafting facilitates the alignment of interest which is an 
important aspect in the venture capital model. 

QUESTION 13 

In  this  context,  does  the  rule  that  a  EuVECA  can  only  use  30%  of  the  aggregate  capital 
contributions and uncalled committed capital for loan origination reduce the attractiveness of 
the scheme? 

Opinions 
expressed 

Yes 

No 

/ 

Don’t 
know 
no 
opinion 
/ 
not 
relevant 

No 
Answer 

Answers  Ratio  Public 

Citizens  Organisations 

authority   

Industry  Consumer  Other  Total 

13  28.3%  4 

9  19.6%  3 

1 

1 

 13 

28.3%   

3  1 

11 

23.9%  4 

3 

8 

5 

6 

7 

8 

5 

9 

7 

30%  of  respondents  are  in  favour  of  greater  flexibility  over  the  30%  cap  of  the  aggregate 
capital contributions and uncalled committed capital for loan origination. 20% of respondents 
think the cap should remain, with the remaining respondents either not sure or not answering 
this question.  

95 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Respondents calling for greater flexibility suggest that this limitation on financing is contrary 
to  the considerable need for investment  flexibility  on the part  of SMEs. In  particular, many 
small  funds  (and  private  equity  funds  in  general)  provide  mezzanine  capital  to  fund  their 
portfolio  companies.  Moreover,  several  respondents  believe  that  the  30%  limitation 
discourages those managers that are unwilling to lose the flexibility to find the right mix of 
debt and equity as determined by market conditions and the circumstances of each portfolio 
company. While equity is at the heart of venture capital,  they argue that companies also need 
access  to  debt  and  their  venture  capital  investors  should  also  be  seen  as  potential  debt 
providers They also note that loans are in many cases are used when the company needs funds 
quickly but the valuations that are essential for determining an equity investment may not be 
ready or may still be very uncertain given the profile and potential of such companies or when 
co-investors  have  not  yet  been  able  to  decide  whether  they  can  or  want  to  inject  additional 
equity but the company needs urgent financing.  

The respondents argue that loan notes, convertibles and warrants help to mitigate down-side 
risk and offer some protection for the fund should the portfolio company become insolvent or 
where  there  is  a  need  to  urgently  provide  additional  funding  while  accurate  valuations 
necessary for an equity investment are being worked out.  

Other respondents view investment in the form of equity as providing a stable source of start-
up financing as it creates long term commitment to the company. The ability for 30% of the 
aggregate  capital  contributions  and  uncalled  committed  capital  can  be  used  for  loan 
origination creates flexibility for the fund. They argue that loan origination is as an ancillary 
activity for a venture capital fund and strictly connected to the equity investment that has to 
remain the prevalent activity in order to avoid misuse and abuse of the EuVECA scheme. In 
consequence, if loan origination is the main activity of the fund, this fund should be regulated 
as  a  loan  fund  rather  than  as  a  EuVECA.  Thus,  limiting  the  share  of  aggregate  capital 
contributions a EuVECA fund may use for debt financing seems prudent. 

QUESTION 14 

What are the key issues or obstacles when setting up and marketing EuVECA or other types of 
venture capital funds across Europe? 

Among the replies received to this open question, the main key issues or obstacles that have 
been mentioned by respondents are:  

-  Discriminatory tax treatment.  

-  Cross-border  distribution  barriers,  in  particular  fees  paid  to  host  Member  States  in 

addition to the fees paid to the home Member State. 

-  Gold  plating  measures  introduced  by  some  Member  States.  For  example,  some 
Member  States  require  fulfilment  of  CRR  capital  adequacy  requirements  or 
compliance with domestic regimes. 

-  Lack of communication regarding the benefits of the EuVECA label. 

96 

 
 
 
 
QUESTION 15 

What are the key issues or obstacles when setting up and marketing EuSEF or other types of 
venture capital funds across Europe? 

In addition to the arguments made in response to question 14, one respondent notes the need 
to  crystallise  how  an  investor  can  expect  to  make  a  financial  return  from  an  investment  in 
EuSEF, particularly through changes to the definition of a “qualifying portfolio undertaking”.. 
Evidence  from  sources  such  as  the  Social  Impact  Investment  Taskforce  set  up  by  the  G8 
suggests  that  more  entrepreneurs  are  seeking  to set themselves  up  as  businesses  where  they 
“lock  in”  their  social  mission,  without  using  a  lock  on  profit  or  asset  distribution.  These 
businesses  are  not  currently  covered  by  EuSEF  and  their  exclusion  could  limit  the 
effectiveness of this passport. 

QUESTION 16 

What other measures could be put in place to encourage both fund managers and investors to 
make greater use of the EuVECA or EuSEF fundraising frameworks? 

A  number  of  potential  measures  have  been  proposed  by  respondents.  These  cover  a  wide 
range of activity and are sometimes in contradiction with each other. 

The most commonly made suggestions are: 

-  Apply tax incentives to create investor appetite 

-  Foster  investment  in  EuVECA/EuVECA  by  injecting  public  money  in  particular  via 

European Investment Bank 

-  Avoid  the  requirement  for  double  registration  as  both  AIFM  and  EuVECA/EuSEF 

manager 

-  Prohibit gold plating measures 

-  Remove cross-border barriers 

Other suggestions have been been made by a few respondents: 

-  EuVECA  and  EuSEF  Regulations  should  be  "decoupled"  and  not  be  considered 
alongside each other. It is argued that there are significant differences between models 
for social investment and venture capital investment. Most notably, social investment, 
also  known  as  ‘impact  investment’,  does  not  necessarily  follow  the  venture  capital 
model  of  investing  in  a  range  of  undertakings  over  a  fixed  period  with  a  view  to 
disinvestment  at  a  fixed  point.  It  would  be  worth  considering  adapting  the  EuSEF 
model to incorporate open ended funds and funds that are not of a fixed lifecycle – this 
would  be  more  aligned  to  the  structures  traditionally  adopted  by  funds  investing  in 
social enterprises. 

97 

 
 
 
 
-  EuVECA/EuSEFs  that  reaches  the  500  M  EUR  threshold  should  not  be  required  to 

apply the full AIFMD requirements. 

-  EuSEF/EuVECA funds should be UCITS eligible assets. 

-  EuVECA should apply to all registered AIFMs whatever their investment strategy is. 

-  EuVECA should more focus on technology, economic and social innovation. 

QUESTION 17 

What  other  barriers  exist  to  the  growth  of  EuVECA  and  EuSEF?  Please  specify.  Are  there 
other changes that could be made to the EuVECA and EuSEF regulations that would increase 
their up-take? 

Views were the same as set out in question 16.. 

QUESTION 18 

What changes to the regulatory framework that govern EuVECA or EuSEF investments (tax 
incentives,  fiscal  treatment  of  cross-border  investments)  would  make  EuVECA  or  EuSEF 
investments more attractive? 

Most of the respondents reply that: 

-  Allow  EuSEF  funds  to  benefit  from  the  tax  incentives  available  in  many  Member 
States  for  investing  into  venture  capital  or  early  stage  companies.  These  incentives 
should be at two levels - for investors to invest in EuSEF and for EuSEF to invest in 
social enterprises. Other helpful incentives for impact investors could be the ability to 
benefit  directly  from  the  same  tax  and  fiscal  benefits  as  mainstream  investments  or 
receiving complementary tax treatments (e.g. the Social Investment Tax Relief scheme 
introduced in the UK). 

-  Ensure tax neutrality for EuSEF funds. In most Member States, interest expenses are 
tax-deductible but equity disbursements are not. Re-moving the resulting debt bias in 
national taxation laws could, therefore, strengthen the demand for equity finance and 
thus  the  demand  for  investments  through  EuVECA  funds.  In  Belgium,  for  example, 
the  introduction  of  an  “allowance  for  equity”  resulted  in  a  reduction  of  leverage  in 
domestic  companies  (Pricen  2012).  A  similar  measure  has  been  proposed  by  the 
“German Council of Economic Experts” for Germany (Sachverständigenrat 2013). 

-  Exempt  EuVECA/EuSEF  funds  from  the  Prospectus  Directive.  These  respondents 
suggest  that  EuVECA  funds  should  be  exempted  from  the  Prospectus  Directive 
requirements  where  these  funds  are  marketed  only  to  professional  and  “semi-
professional” investors, i.e. those who invest a minimum of €100,000 and understand 
the nature/risk of the investment, as defined in the EuVECA Regulation. 

-  Review  the  calibration  of  the  prudential  legislation  such  as  Solvency  II,  CRD  IV  / 
CRR  or  IORPD  in  order  to  facilitate  investment  in  particular  by  pension  funds, 
insurance companies and other institutional investors 

98 

 
 
 
-  Simplify the EU framework by creating a unique AIFMD regime which applies to all 

managers, with several "product labels" grafted to it. 

2. Technical workshop on EuVECA and EuSEF, 27 January 2016  

On 27 January 2016, the Directorate-General for Financial Stability, Financial Services and 
Capital Markets Union organised a targeted technical workshop aimed at managers of existing 
EuVECA and EuSEF, together with practitioners, supervisors and other stakeholders 
interested in offering these funds. The purpose of the workshop was to analyse the practical 
challenges posed in offering and running these funds. It also considered what practical 
challenges exist to successful cross-border marketing.  

The  Chair  opened  the  workshop  by  recalling  the  context  of  the  EuVECA  and  EuSEF 
Regulations  and  explained  that  the  two  fund  schemes  have  had  a  slow  take-up  up  to  now; 
which is why the review of both Regulations is taking place. Moreover, the review is part of 
the  CMU  Action  Plan  with  a  package  of  measures  to  support  venture  capital  and  equity 
financing in the EU, including catalysing private investment using EU resources through pan-
European funds-of-funds, and the promotion of best practice on tax incentives. 

The Chair gave the floor to the key note speaker Sir Ronald Cohen. Mr Cohen explained that 
the EU venture capital's ecosystem is weaker than in the US and there is a need to find a way 
around  that  challenge.  Mr  Cohen  made  an  example  with  Israel,  which  uses  the  NASDAQ 
instead  of  trying  to  set-up  its  own  capital  market  for  venture  capital  (VC)  companies.  The 
speaker highlighted that there is still fragmentation in the EU VC regulatory frameworks and 
the harmonisation will take some time. In the meantime there are three proposals: (i) a single 
legal structure for companies below € 500 million; (ii) a single passport for fundraising across 
the EU; and (iii) extend incentives to VC funds, including for their IPOs. 

Mr Cohen explained that VC should focus on young companies, no matter what the size and 
the number of employees is. Also, that there should be a unique structure for social and non-
social companies. The main problem for EU investors is the returns, for example the first fund 
in  1981  invested  only  in  US  firms.  To  be  successful,  the  funds  should  be  able  to  invest 
globally and be tax-transparent. Ability to raise money across the EU is also a very important 
factor. 

Workshop 1. EuVECA and the AIFMD. Interactions and the implications of reform  

A  participant  stressed  that  ESMA  interpretation  of  the  Regulation  is  not  sufficient  to  give 
legal certainty to larger manager. Moreover, the label only for small managers, may be seen 
as  a  "bad  label",  given  it  has  lower  governance  and  criteria.  EuVECA  has  to  become  a 
positive label, thus fully comply with the AIFMD. 

Another  participant  explained  that  funds  investing  in  social  enterprises  currently  are  (i) 
regulated  under  the  AIFMD,  (ii)  regulated  under  EuSEF,  or  (iii)  not  regulated  at  all.  The 
participant  explained  that  EuSEF  is  good  to  push  small  social  asset  managers  into  the 
regulated  framework.  However,  the  social  investors  are  not  familiar  with  the  asset 

99 

 
 
 
 
management  framework.  Moreover,  there  are  differences  in  national  regulations  and  in  tax 
treatment for the different investee companies.  

Another  participant  agreed  that  already  authorised  AIFM  should  be  allowed  to  manage 
EuVECA  and  EuSEF.  For  smaller  managers  that  grow  beyond  the  AIFMD  threshold,  there 
could be a "test" before the AIFMD authorisation become compulsory, for instance a longer 
time extension. 

A  participant  explained  that  the  AIFMD  threshold  is  one  issue,  but  also  the  difference 
between  the  AIFMD,  being  a  Directive,  and  EuVECA  and  EuSEF  being  Regulations  is  an 
issue.  

Several participants confirmed that the possibility to market to some retail investors (i.e. the 
retail  marketing  passport)  is  an  incentive  of  the  two  Regulations  compared  to  the  AIFMD. 
Lowering  the  threshold  would  be  a  further  incentive  to  help  increase  the  recognition  of  the 
brands. A participant mentioned that the difference between UCITS and AIFs is clear, while 
now  some  products  which  are  not  complex  (e.g.  some  social  funds)  are  still  AIFs.  The 
participant asked for a review of the UCITS, to include EuSEF as eligible assets. 

Another  participant  summarised  the  three  main  incentives:  (i)  access  to  a  broader  investor 
base,  including  some  retailers;  (ii)  lower  administrative  costs  and  regulatory  burdens;  and, 
(iii) the value of the brand. 

A  participant  highlighted  the  main  problems  which  would  arise  if  EuVECA  had  to  comply 
with  the full  AIFMD requirements:  (i)  the minimum own  funds, which  differe considerably 
between  Member  States;  (ii)  the  depositary;  (iii)  the  valuation  process;  and  (iv)  the  control. 
Another  participant  mentioned  that  a  more  harmonised  and  lighter  process  for  registration 
would be better to avoid goldplating. 

There was a general consensus that given the small size of the venture capital market and of 
the social investment market, they do not pose financial stability issues. 

A couple of participants mentioned the example of ELTIF, where the AIFMD rules apply to 
the mangers, but there are specific rules on the funds. 

It was concluded that there is general consensus that AIFMD-authorised mangers should be 
allowed to set-up and manage EuVECA and EuSEF funds. If the managers grows beyond the 
AIFMD threshold, the full AIFMD requirements should apply, to avoid regulatory arbitrage. 

Workshop  2.  Who  are  the  investors?  Does  the  €100,000  minimum  work  and  what  are  the 
consumer protection implications of the alternatives  

A  participant  mentioned  that  in  some  Member  States,  notably  France,  there  are  unregulated 
entities with lower minimum investment requirements, but overall the participant judges this a 
"little price to pay" for the EuSEF label. 

Another  participant  argued  that  EuVECA  take-up  would  be  easier  with  a  lower  minimum 
investment,  but  the  reduction  would  not  be  worth  if  more  restrictions  are  imposed  on  the 
managers. For instance the 70% requirement for unlisted SMEs is a bigger constraint. 

Another participant  mentioned there is  growing interest  for smaller  retail  investors in social 
investments. Some Member States allow some AIF to be marketed also to retail investors with 
lower minimum requirements. If EuSEF is open to AIFM, there is the need to consider this 
aspect to avoid regulatory arbitrage. 

100 

 
 
 
Another  participant  suggested  that  some  employee  pension  scheme  should  be  allowed  to 
invest in EuSEF, and that would considerably increase the take-up. 

Another participant presented some results of a survey of the social investment industry where 
out the 24 mangers, the average fund size is below € 14 million. The minimum investment is 
not a limitation today, but it may become one day if the sector grows. 

Another made the examples of 90/10 social funds in France, which invest ten per cent of their 
capital in social non-listed organisations. These funds are not UCITS, but they are more than 
€ 500 million invested in France alone. The participant argued that allowing UCITS to invest 
in  these  funds  would  be  a  stronger  incentive  than  reducing  the  minimum  investment  for 
smaller retailers. 

Participants  agreed  that  if  the  minimum  investments  have  to  be  reduce,  other  requirements 
would need to be put in place. For instance, minimum diversification requirements, like the 
one in ELTIF. Other participant asked to make it voluntary for the managers who do not want 
to offer to smaller retails, so that they can avoid the extra rules.  

It  was  concluded  that  the  minimum  investment  requirement  is  appropriate,  as  it  is  also 
consistent with the MIFID definition of professional investors. A lower minimum investment 
would  possibly  increase  the  investor  base,  but  the  new  requirements  to  ensure  adequate 
investors protection would introduce costs which will be higher than the benefits. 

Workshop  3.  Eligible  assets.  Are  the  current  definitions  too  restrictive.  What  are  the 
consequences of widening them and possible overlaps with ELTIF? 

A participant asked to open EuSEF eligible undertakings, not only having a social objective, 
but also a social impact. Another participant asked to remove the "exclusivity" requirement to 
provide financial support to social undertakings. Having a lower requirement (e.g. minimum 
70%) would allow more banks to become eligible to EuSEF funds. 

Another participant focused on EuVECA, where the limit of 250 employees is too restrictive. 
The  limitation  does  not  allow  the  fund  to  follow-on  on  growing  investments  once  the 
companies  increase  above  the  SME  definition.  Also,  the  fund  should  be  able  to  invest  in 
projects or products, not only in undertakings. The participant mentioned the example of a VC 
fund in Finland which invested in a computer game, not in the company. 

Another participant confirmed that the 70% minimum for eligible assets is not a problem for 
EuSEF. The SME definition in EuVECA is instead a limit: imagining a funds with an average 
size of € 40  million, doing  10 investments, the average investment size is  € 4  million. This 
amount could be enough to target companies above the SME definition. However, is difficult 
to open the definition, as the sectorial (e.g. R&D focused, technology focused etc.) or stage 
limitations (e.g. pre-profit companies) are also too restrictive not a workable alternative.  

Other  participants  asked  for  more  access  to  debt  investing  for  EuVECA,  i.e.  increasing  the 
maximum 30% debt investment. A participant claimed that this could induce more wrappers 
and saving schemes to invest in EuVECA. 

It was concluded that more rules are added, more complexity is added and less attractive is the 
framework.  The  EuSEF  definition  has  little  restrictions.  The  EuVECA  definition  has  more 
issues. In particular the SME definition seems too restrictive.  

Workshop 4. Other issues: cross border distribution, notifications, possible incentives 

101 

 
 
 
It was asked if EuSEF can be a compartment of an umbrella funds. Also, the leverage, which 
is allowed only for short term, was mentioned by a participant as a limitations for EuSEF. 

Another  participant  mentioned  the  different  fees  imposed  by  regulators,  where  some 
guidelines could be helpful for national competent authorities. The same comment was made 
in  respect  to  the  requirement  of  own  funds  to  set-up  the  funds,  which  varies  considerably 
across  the  Member  States.  Also,  the  distributors  face  different  treatment  among  different 
Member States. 

Another  participant  mentioned  that  in  the  case  of  social  investments  outside  the  EU,  the 
managers have to make sure that tax regimes - for instance of 5 Africa countries where they 
want to invest- are compliant with all the EU Member States where they want to market the 
EuSEF. 

A  participant  underlined  that  the  EIF  never  required  social  funds  to  be  EuSEF  and  venture 
capital  funds  to  be  EuVECA.  Another  participant  mentioned  that  investor  protection  is  one 
aspect, however it is more important the investor education. 

On  allowing  third  countries  manager  to  manage  EuVECA  and  EuSEF  there  was  consensus 
that it is too early to open the frameworks to foreign managers. 

Finally,  tax  incentives  would  be  a  great  incentive,  but  this  would  require  a  pan-European 
approach. 

102 

 
 
 
 
 
15.  Annex 8 (The SME life cycle and financing need) 
Table  5  -  SME  finance.  intermediation  through  financial  institutions  and  financial 
markets as % of GDP (2013, 2014 or 2015) 

Source: EC (2015), European Semester Thematic Fiche. SME's Access to Finance. 

The financial needs and the financing options open to SMEs vary depending on the stage in a 
firm’s lifecycle. The types of financing sources that are used on average by SMEs during their 
life  cycle  include  internal  equity  finance,  represented  by  owner-manager  personal  savings, 
internally  generated  profits;  venture  capital;  external  equity,  i.e.  business  angels;  debt 
financing, e.g. mezzanine; trade credit; bank funding; and securities market or governmental 
and international funds. 

Chart 6 - SME life cycle 

103 

 
 
 
 
Source: 
statistics/analysis/part-iii/analysis_-_figure_iii.2.3.pdf, access on 10-02-2016.   

http://ec.europa.eu/research/innovation-union/pdf/competitiveness-report/2011/data-and-

At  the  initial  stages,  promoters  of  SMEs  often  rely  on  their  own  resources,  loans  or  equity 
provided  by  family  and  friends.  Loans  from  banks  and  other  financial  institutions  can  be 
tapped into.  

At the second phase of survival during the start-up stage, external sources of funding become 
necessary. At this stage, the investment in SMEs is still regarded as high risk and the business 
is  not  large  enough  to  attract  the  attention  of  venture  capitalists.  Wealthy  individuals  like 
business angels can step in.  

Chart 7 - Changes in the need for equity capital (April to September 2015) for SMEs in 
the EU. 

Source: DG GROW, Survey on the access to finance of enterprises (SAFE), 2015. 

At  the  later  stage,  venture  capitalists  play  a  role  in  alleviating  financing  obstacles.  Venture 
capitalists  scrutinize  such  firms  intensively  before  providing  capital  and  then  monitor  them 
closely  afterwards.  At  this  stage  the  SME  does  not  qualify  for  debt  financing  due  to  its 
reliance on intangible assets, inability for investors to assess its future growth prospects, low 
profitability and short track record. 

15.1.1.  Structural issues behind the lack of equity financing 

104 

 
 
 
 
 
 
The  primary  reason  for  SMEs  lack  of  access  to  finance,  and  in  particular  its  lack  of  equity 
capital,  is  the  lack  of  information  pertaining  to  innovative  start-up  SMEs  as  an  asset  class. 
Therefore, in addition to the tightening of credit standards in general, another problem is the 
discrepancy between borrowing costs of SMEs vis-à-vis those of large enterprises which has 
recently  widened  significantly.65  As  knowledge  about  these  companies,  their  strategies  and 
their prospects is  more difficult to  research, potential investors face higher transaction costs 
when  investing  in  SMEs  as  compared  to  more  mature  assets.  Transaction  costs  are  indeed 
mostly  due  to  difficulties  in  gathering  reliable  information  on  the  business  prospects  of  a 
particular  SME  and  the  absence  of  financial  intermediaries  that  can  perform  a  valuable 
screening function. This leads to a wide spread risk aversion among potential venture capital 
investors. 

Chart 8 - Types of external financing preferred to realise growth ambitions for SMEs in 
the EU-28, for the period 2009-2015. 

Source: DG GROWTH, Survey on the access to finance of enterprises (SAFE), 2015. 

The  existence  of  a  general  financing  gap  creates  an  environment  in  which  innovative 
undertakings  are  also  prone  to  having  a  less  than  optimal  financing  structure.  This,  in  turn, 
will  make  it  difficult  for  undertakings  to  create  and  capture  the  value  of  their  new  and/or 
innovative idea. A theory put forward in late 1980s’66 predicted that firms with highly specific 
assets and low amounts of equity relative to debt will suffer from poor performance. A more 
recent study builds on this concept67 and empirically confirms its thesis. The study provides 
evidence which shows a  correlation between firms’  lack of equity  capital  and its poor,  sub-
optimal performance or even failure. Concretely, it finds that as the misalignment between a 
start-up  firm’s  capital  structure  and  its  asset  specificity  increases,  the  firm  is  more  likely  to 
exit/fail to capture its idea or to experience lower profitability. 

To remedy this information and equity gap, venture capital operators can act as intermediaries 
between the supply and demand of capital resources and, through specialisation, facilitate the 

65  Orçun  Kaya  (2014),  SME  financing  in  the  euro  area.  New  solutions  to  an  old  problem,  Deutsche  Bank 
Research. 
66 Williamson, Oliver E. (1988) “Corporate Finance and Corporate Governance,” Journal of Finance 43(3): 567-
591.  Williamson  argues  that  firms  engaged  in  projects  requiring  highly  specific  assets  are  more  likely  to  be 
financed with equity. He suggests that a firm’s financial structure is akin to a governance structure and predicts 
that a firm’s equity ratio will be positively correlated with asset specificity. 
67 A. Robb and R. Seamans, 2011. Entrepreneurial Finance and Performance: A Transaction Cost Economics 

105 

 
 
 
 
                                                            
flow of appropriate capital to SMEs.68 Indeed, the classical 'venture capitalist' business model 
aims to decrease the information gap between investors and entrepreneurs and/or SMEs and 
can  play  a  crucial  role  in  reducing  the  equity  financing  gap  that  currently  plagues  young, 
innovative and high-growth start-up firms.69 

68 See also EVCA Survey (2002) on the function and value of VC investments in early stage and expansion stage 
companies,  where  some  95%  of  the  companies  replying  to  the  survey  stated  that,  without  venture  capital 
investment,  they  could  not  have  existed  or  would  have  developed  more  slowly  and  where  almost  60%  of 
respondents said that the company would not exist today without the contribution of venture capital. 
69  Chan,  Y.S.,  1983.,  On  the  Positive  Role  of  Financial  Intermediation  in  Allocation  of  Venture  Capital  in  a 
Market with Imperfect Information. Journal of Finance 38, 5, 1543-1568 

106 

 
 
 
 
 
 
 
                                                            
16.  Annex  9  (Key  characteristics  of  venture  capital  and 

social venture market ) 

Venture capital funds remain a niche player in the fund industry largely on account of their 
focus on SMEs at the very riskiest stage of their development. Due to their focus on small and 
innovative SMEs, it is often challenging for venture capital funds to create returns that would 
mobilise average investors' interest.  

Table 9 – Venture Capital – Fundraising geographic breakdown 

Countries 

European Countries 

% of total amount (2014)  % of total amount (2013) 

France, Belgium, Luxembourg, Netherlands 

46.1% 

United Kingdom, Ireland 

Sweden, Finland, Norway 

Germany, Switzerland, Austria 

Spain, Portugal 

East European Countries 

Non-European Countries 

North America 

Austria, Asia 

Rest of world 

10.2% 

8.4% 

8.4% 

6.8% 

0.9% 

12.6% 

0.2% 

0.3% 

43.6% 

19.5% 

7.9% 

9.6% 

3.5% 

1% 

11.8% 

2.4% 

0.1% 

Source: EVCA, 2014 European Private Equity Activity 

Chart 10 - All Private equity fundraising, investments and divestments (2000-2015) 

Source: Invest Europe 

Venture capital funds invest in order to provide equity start-up capital for a new but uncertain 
technology or business idea. A typical private equity fund, on the other hand, is much more 
diversified  and  consists  in  investments  in  more  established  and  commercially  successful 
companies.  Private  equity  focuses  on  companies  in  a  later  stage  of  their  development,  in 
restructuring and in buyouts of established suppliers. A private equity investment thus entails 
a lower risk than an investment in venture capital. The steep rise and success of certain private 

107 

 
 
 
 
 
 
 
 
equity fund strategies, such as leveraged buy-outs, during last decade did not help to boost the 
attractiveness  of  venture  capital  funds'  attractiveness  (see  Private  equity  and  venture  capital 
fundraising  and  investments  (2003-2010)).  In  addition,  European  venture  capital  funds 
consistently generate lower returns than European or US buy-out funds (see Performance of 
venture capital vs. private equity). 

Table 11 – Performance of venture capital vs. private equity 

As a result, the past decade has seen less investment flow towards European venture capital 
funds.  In  consequence,  venture  capital  fund  managers  are  experiencing  difficulties  in 
attracting investors' interest in new venture capital funds. While this trend will have certainly 
produced negative effects on already underperforming venture capital funds, it also represents 
a  serious  challenge  to  the  prospects  of  newly  launched  venture  capital  funds.  Furthermore, 
existing venture capital funds, on account of the lower returns associated with venture capital, 
may  be  tempted  to  shift  their  investment  focus  toward  investments  in  more  developed 
undertakings at a much later stage in their business cycles. 

Venture capital funds remain a niche player in the fund industry largely on account of their 
focus on SMEs at the very riskiest stage of their development. 

In 2015 the total fundraising reached €47.6bn, nearly matching the level of 2014. The number 
of funds raised (274) reduced by 15% compared to 2014, but is still above the level of 2012 
and  2013.  European  private  equity  and  venture  capital  raised  in  the  past  three  years  (2013-
2015) was 70% more than in the years 2010-2012. 

Table 12 – 2015 Investments – Market statistics – Amount and number of funds 

108 

 
 
 
 
 
Institutional investors, led by governement agencies (30%) represent the vast majority of the 
funds raising in 201. Private indivudals and family office represent less than 15%.   

Chart 13 – Funds raised by types of investors 2007-2014 

Source Invest Europe 

Social venture funds 

The  number  of  social  investment  funds  is  increasing.  Some  of  these  funds  are  independent 
while others are affiliated with large banks or development institutions. Funds might focus on 
certain  sectors,  geographies  or  investment  stages.  They  typically  target  market  returns, 
investing through a mix of grants, subsidized loans and equity investments.70 

Chart 14 - Total assets under management by stage of business  

70  OECD  (2015),  “Social  Impact  Investment.  Building  the  Evidence  Base.  ”,  World  Economic  Forum  (2013), 
“From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities 
to Engage Mainstream Investors”. 

109 

 
 
 
  
 
 
 
                                                            
Source: Saltuk, Y., A. Idrissi, A. Bouri, A. Mudaliar, and H. Schiff (2014), “Spotlight on the Market: The Impact 
Investor Survey”, Global Social Finance, J.P. Morgan 

Chart 15 - Growth of European managed funds incorporating environmental, social and 
governance factors (€ billion) 

Source: World Economic Forum (2014), “Charting the Course: How Mainstream Investors can Design Visionary 
and Practical Impact Investing Strategies”, GACR = compound annual growth rate. 

Social  venture  funds  also  act  as  key  intermediaries  -  they  minimise  the  information 
asymmetry.  The  problem  of  social  businesses  is  that  it  does  not  speak  the  language  of 
traditional  investors.  Investors  are  increasingly  seeking  to  achieve  positive  social  or 
environmental or other goals with their investments. As the Global Impact Investing Network 
(GIIN)  puts  it,  social  investments  "aim  to  solve  social  or  environmental  challenges  while 
generating financial profit". The focus on 'social returns' by some investors makes the funds a 
natural target for these investors.   

Investments in social business aim to generate positive social or environmental consequences. 
These  externalities  can  be  characterised  in  a  variety  of  ways  –  environmental,  social,  or 
ethical  impacts,  such  as  reduced  use  of  pollutants,  jobs  for  excluded  sections  of  society.71 
While  all  business  activity  produces  a  range  of  impacts  on  society,  social  businesses 
specifically target positive social or environmental outcomes. These 'social businesses' offer a 
focal point for investors seeking social returns. 

Chart 16 – Source of Funds for Impact Investment Fund Managers 

71  For  more  externalities  and  their  importance  in  relation  to  conceptualising  social  entrepreneurship,  see 
http://www.socialenterpriseportal.org/files/Library/Social-Entrepreneurship-Felipe-Santos.pdf, p.17-20. 

110 

 
 
 
 
 
 
                                                            
Source: World Economic Forum (2013), “From the Margins to the Mainstream: Assessment 
of the Impact Investment Sector and Opportunities to Engage Mainstream Investors”. 

While investors in social businesses are seeking social returns, this is not to the exclusion of 
financial  returns.  For  instance,  while  social  businesses  will  typically  not  offer  dividends  to 
investors,  but  will  re-invest  any  financial  surpluses  in  the  business,  this  does  not  mean  that 
there  will  be  no  financial  return  for  investors  over  and  above  the  return  of  capital.  Social 
impact investors invest in various stages of the social enterprise life cycle. Investors in social 
businesses  are  happy  to  make  a  'trade-off'  between  expected  financial  returns  and  'social 
returns'  (which  can  be  characterised  as  taking  on  more  risk  for  the  same  returns  or  lower 
returns for the same risk).   

By  way  of  comparison,  VC  assets  under  management  were  around  €50  billion  and  private 
equity  (PE)  assets  under  management  were  around  €500  billion  at  the  end  of  2010  (social 
ventrue funds are mostly a subset of these figures). Even the most aggressive assessment of 
the  size  of  the  social  investment  market  puts  it  at  less  than  10%  of  the  size  of  the  ventrure 
capital  market,  and  less  than  1%  of  the  size  of  the  PE  market;  a  more  realistic  assessment 
would be around 2% and 0.2% respectively. 

It is also important to note that social venture  funds have a more targeted focus on investing 
in a select group of social enterprises which makes them different from the more general set 
of funds that claim to be supporting 'socially responsible investment' (SRI). Average sizes of 
social venture funds are small. The largest funds are clustered in either France or the United 
Kingdom.  For  example,  BridgesVentures  (€115  million)  is  located  in  the  UK,  Alter  Equity, 
Citizen  Capital,  NEF  Capital  éthique  (€30-50  million)  are  all  located  in  France,  and  BAC 
Partenaires, Catalyst, and the Social Enterprise Investment Fund (€15-25 million) are located 
in  France  (BAC)  or  the  UK.  The  only  substantial  social  investment  fund  domiciled  outside 
these  two  countries  that  Commission  research  indicates  as  exceeding  the  €25  million 
threshold  is  Karmijn  Capital  in  the  Netherlands  (€50  million).    It  appears  that  the  largest 
Italian venture capital fund is Oltre Capital with only €10 million in assets under management 
while  all the  examples for Germany (BonVenture, Social Venture Fund) do not  exceed  €10 
million.    Member  States  with  a  smaller  investor  base  generally  have  no  social  investment 
funds  of  any  notable  size  domiciled  in  their  territories  (there  are exceptions,  such  as  a  fund 
operating in Hungary). 

111 

 
 
 
 
The following table shows some of the most important EU social venture funds and the range 
of their investment activities: 

Table 16 – some of the most important EU Social venture funds 

112 

 
 
 
 
 
Source: EIF 

The investor base is currently largely professional rather than retail, though retail funds that in 
part  target  social  businesses  are  sold,  for  instance,  in  the  French,  Luxembourg,  Dutch  and 
Belgian markets. The French retail market is large; while the funds are not limited to targeting 
social businesses, in practice fond solidaire often act as conduits for social businesses.  

Stakeholders  and  consultation  respondents  suggest  that  existing  inflows  are  mostly  derived 
from  high  net  worth  individuals  (HNWI),  who  traditionally  have  been  a  mainstay  of  the 
philanthropic  sector.  The  social  business'  need  for  'patient  capital'  sits  at  the  core  of  its 
demand on  capital markets, yet  such capital exhibits low degrees of liquidity and long time 
periods before returns are likely.  

113 

 
 
 
 
 
 
 
17.  ANNEX 10 (Venture capital business model) 
The term "venture capital" does not always have the same meaning. Differences are observed 
in  the  main  venture  capital  markets:  the  US  and  EU.72  The  US  has  a  more  distinctive 
approach to venture capital funds as comprising nearly exclusively investments in seed, start-
up and expansion stage of a company. US understanding of  venture capital does not include 
any  form  of  buy-out  activity,  this  is  a  preserve  of  private  equity  investment  strategies.  This 
has just been confirmed by the US Securities and Exchange Commission adopting rules that 
define venture capital.73 In Europe, due to its development, venture capital is understood as 
more  of  a  subset  of  private  equity  and  as  a  concept  it  includes  commitments  to  unquoted 
companies, with financing focus on their early stages of development. However, other forms 
of investments and other stages of companies are not excluded.74 It is thus not an exception 
to  find  a  European  venture  capital  fund  investing  portion  of  funds'  capital  in  buy-out 
transactions75.  

The remainder of this chapter though tries to identify the key aspects and characteristics of the 
funding activities that, in the EU, are generally grouped under the heading of venture capital 
and how these activities differ from other types of financing, mainly those of private equity – 
especially buy-outs. 

A venture capital fund's engagement follows several financing rounds. Each financing round 
is  conditional  upon  the  target  or  "portfolio"  company  achieving  certain  milestones.  Usually 
these financing rounds correspond to the evolution of the portfolio company:  

- 

- 

- 

the very first round of financing is supplied to a company that aims to prove the value 
of a new idea (also known as seed financing);  

the next round of financing is linked to marketing and product development (usually 
referred to as start-up financing);  

a subsequent round of financing aims to provide working capital is to companies who 
start selling product but are not yet turning a profit.  

Up  until  this  stage  of  financing,  the  capital  provided  to  companies  in  these  early  stages  is 
usually equity capital. Venture capital funds are also active providers of mezzanine financing, 
which  is  used  predominantly  in  the  expansion  stage  of  SMEs  but  also  in  start-ups  and  is  a 
helpful financing structure for innovation. Mezzanine finance is a collective term for hybrid 
forms of finance: it has features of both debt and equity. There are various types of mezzanine 
finance,  each  having  its  own  unique  characteristics.  On  the  positive  side,  choosing  the 
appropriate form of mezzanine financing SMEs can retain control over the company without 
surrendering ownership rights and the cost of it for SMEs compared to pure equity is usually 

72 M. Bender, Spatial Proximity in Venture Capital Financing, 2010, chapter 2.1.1. 
73 See Annex VII: The US Securities and Exchange Commission adopted  in July 2011 final rules that implement the Dodd-
Frank act, among others on definition of venture capital fund; http://www.sec.gov/rules/final/2011/ia-3222fr.pdf 
74 A. Rigaut: The development of venture Capital fundraising in Europe; 2001; page 10 
http://aloys.rigaut.free.fr/pdf/Thesis_Coleurop.PDF or  G. Baygan and M. Freudenberg, DSTI/DOC(2000)70: The 
Internationalisation of Venture Capital Activity in OECD Countries: Implications for Measurement and Policy, page 11 
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/DOC%282000%297&docLanguage=En 

75 See Annex VIII: Examples of selected venture capital firms and their strategic focus 

114 

 
 
 
                                                            
lower. The most common form of mezzanine finance76 is the subordinated loan, which is an 
unsecured  loan  with  a  lower  ranking  in  case  of  bankruptcy  compared  to  senior  debt.  
Participating  loans  are  normal  loans,  but  rather  than  there  being  a  fixed  return,  their 
remuneration is contingent upon the results of the business. Silent participation is closer to a 
stockholding  than  a  subordinated  or  participating  loan.  There  are  also  equity  related 
mezzanine finance instruments. These instruments present a greater risk profile to the lender 
and, in turn offer a higher rate of return. Mezzanine products with profit participation rights 
are  more  related  to  equity  and  under  company  law  the  holder  is  entitled  to  rights  over  the 
company’s profits. A further equity mezzanine financing instrument is the convertible bond. 
In addition to the usual right to fixed interest payments and repayment of principal, holders of 
convertible  bonds  or  bonds  with  warrants  have  the  right  to  acquire  shares  in  the  company 
instead of accepting repayment of the bond. Another equity mezzanine financing instrument is 
the  bond  with  warrants,  which  in  principal  is  similar  to  the  convertible  bond.  The  main 
difference is that the warrants (subscription rights) are separate from the bond and thus can be 
traded independently.  Finally, venture capital funds can also provide bridge financing. It is a 
short term loan that usually facilitates portfolio company transition to an IPO or another stage 
of  financing.  A  bridge  loan  can  also  be  is  assorted  with  an  option  to  convert  the  loan  into 
equity. 

The business objective of venture capital fund as an investor is to steer its portfolio companies 
towards  a  profitable  sale  and  thereby  realise  a  profit  that  should  considerably  exceed  the 
investments  made  to  the  company  throughout  fund's  time  of  engagement  in  it.  There  are 
number of possible exit routes, including, for example, a sale to management, repayment of 
principal. The two most common exits are the portfolio company's listing on a stock exchange 
(the so called initial public offering – IPO) or the sale of the portfolio company to a strategic 
buyer - either a private equity firm or a corporation (the so called trade sale).  

Venture  capital,  being  a  very  risky  type  of  asset  class,  is  a  preserve  of  institutional  and 
qualified  investors.  According  to  the  latest  industry  data,  the  share  of  such  these  investors 
(e.g.,  banks,  capital  market  experts,  endowments  and  foundations,  government  agencies, 
corporations, fund of funds, insurance companies, asset managers, pension funds or sovereign 
wealth  funds)  in  European  venture  capital  comprises  nearly  50%  of  assets  collected  by 
venture capital funds.  The investments by private individuals and family offices account for 
roughly 15% of assets managed by European venture capital funds.  This percentage is double 
the percentage that private investors contribute to financing of private equity.77 Most Member 
States  allow  for  certain  private  individuals  (e.g.  high  net  worth  individuals)  to  invest  in 
venture  capital,  as  long  as  certain  conditions  are  met.  These  conditions  may  involve  a 
minimum investment limit or some form of appropriateness test to ensure that such investors 
are  aware  of  and  accept  the  inherent  risks  associated  with  investments  in  venture  capital 
operations. 

Data  shows  that  venture  capital  funds  make  limited  use  of  leverage.  Leverage  can  occur  at 
two  levels,  at  the  level  of  the  fund  and  the  portfolio  company.  (i)  At  fund  level,  neither 
venture  capital  nor  private  equity  funds  use  extensively  leverage  or  in  other  terms  borrow, 

76 See Annex IX: Overview of different forms of SMEs mezzanine financing from Roundtable between bankers and SMEs, 
Mezzanine finance,  http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=1065 

77 The remaining 30% is unknown – data assembled by the industry EVCA. 

115 

 
 
 
                                                            
 
unless  for  a  very  short  period  of  time,  and  for  practical  purposes  –  usually  to  cover  their 
liquidity  needs  between  committed  capital  from  investors  that  has  been  called  but  takes 
usually couple of weeks before the fund receives it on its accounts. (i) At portfolio company 
level,  debt  can  be  used  for  different  purposes.  Usually  venture  capital  equity  investment  in 
early stages of company's life is not accompanied by debt financing from other sources as no 
other  viable  financing  alternative  exists  at  that  stage.  However,  European  venture  capital 
funds  do  engage  in  buy-out  transactions  where  the  venture  fund  provides  only  a  part  of  the 
total  acquisition  with  the  remainder  being  matched  by  borrowing  from  a  bank  whereby  the 
assets of the portfolio company serve as the collateral to the lender. Lastly, unrelated to the 
venture capital investment activity, portfolio companies borrow money in the ordinary course 
of their business. 

Based on these key characteristics of venture capital funds, multitude of fund types emerge. 
Some  venture  capital  funds  may  be  focused  on  investing  in  new  ideas  –  in  new  and  early 
stages  of companies,  some  may prefer to  invest in  already more established firms that  need 
support in order to expand or become publically traded firms. Other funds may on the other 
hand  focus  solely  in  certain  industries  and  as  such  their  financing  would  cut  across  all  the 
stages  of  portfolio  companies'  life-cycle  before  their  successful  exit  is  realised.  Additional 
dimension  is  funds'  geographical  focus,  some  are  local/regional  others national  or  operating 
world-wide. The situation in Europe is now characterised by the move from locally focused 
ventures  towards  more  sector  specific  venture  capital  firms  looking  out  for  opportunities 
globally.  

How do we define Venture Capital? 

Invest Europe statistics define whether a GP (fund manager) is a venture capitalist on a firm 
or  a  fund  level,  and  not  by  specific  reference  to  the  size  of  the  portfolio  companies  it  is 
investing in. 

The definitions used in the statistics below (and also in the Invest Europe Yearbook) are: 

  Early-stage  funds:  Venture  capital  funds  focused  on  investing  in  companies  in  their 

primary development stage. 

  Later-stage funds: Venture capital funds focused on investing in later-stage companies 

in need of expansion capital. 

  Balanced funds: Venture capital funds focused on both early-stage and development, 

with no particular concentration on either. 

Figure 17 

116 

 
 
 
 
 
 
 
 
 
 
 
Private  equity  and  venture  capital  fund  managers  (or  ‘firms’  as  they  are  called  in  our 
statistics) will very often have multiple funds pursuing multiple investment strategies. A firm 
that declares itself as being a venture capital firm may also manage funds pursuing more of a 
growth strategy; on the other hand, a buyout firm may also manage funds pursuing a venture 
capital strategy. 
Table 2 below shows that it is not only venture capital firms that raise venture capital funds. 
Buyout and generalist firms can and do raise funds with a venture capital investment strategy. 
In  fact,  a  quarter  of  the  funds  with  a  venture  stage  focus  are  managed  by  generalist  fund 
managers.  In  terms  of  amount,  this  represents  a  fifth  of  the  total  capital  raised  by  venture 
capital funds. 

Table 18: Incremental funds raised (2011-Q3 2015 preliminary), by number of funds and by 
amount 

117 

 
 
 
 
 
Source: Invest Europe/PEREP_Analytics 
Note: This covers all Europe, including Norway and Switzerland. 

118 

Firm type  Buyout  Generalist  Venture  Total  Fund stage focus EUR million Number of funds EUR million Number of funds EUR million Number of funds EUR million Number of funds Early Stage Fund 9 1 661 38 8,609 194 9,279 233 Later Stage Venture Fund   247 13 2,474 29 2,720 42 Balanced Fund 399 5 3,154 60 4,889 93 8,442 158 Total VC 409 6 4,062 111 15,971 316 20,442 433 Growth Fund 7,525 47 2,521 32 482 18 10,527 97 Buyout Fund 132,094 245 14,531 49 50 1 146,675 295 Mezzanine Fund 9,867 22 2,305 14 11 1 12,182 37 Generalist Fund 881 13 6,911 152 441 11 8,234 176 Grand Total 150,776 332 30,329 355 16,956 346 198,061 1,033   
 
 
 
 
 
 
 
18.  Annex 11 (Invest Europe statistics) 

Note: Unless stated otherwise, all data below are from Invest Europe/PEREP_Analytics. 

1.  What  is  the  size  of  the  venture  capital  industry  (in  terms  of  Assets  under 

Management, AuM) in the EU? 

Table 18 shows the size and spread of the EU venture capital industry by region, both in terms 
of number of headquarters and assets under management. 

Almost 75% of the venture capital industry in the EU, in terms of assets under management, 
is  based  in  Western  Europe,  with  an  almost  even  split  between  the  three  main  regions: 
Germany and Austria; France and Benelux; and the UK and Ireland. The Nordics (Denmark, 
Finland and Sweden) are also well represented. 

While  Southern  Europe  and  the  CEE  region  are  also  home  to  many  venture  capital  firms, 
these usually have smaller amounts of assets under management. 

Table  18:  Overview  of  the  venture  capital  industry  across  EU  regions,  by  number  of 
headquarters (HQ) and assets under management 

2.  What  is  the  evolution  of  the  venture  capital  market  in  Europe  over  the  last  10 

years? 

Graph 19 shows the amount of venture capital investments in European companies from the 
beginning of the crisis in 2007 to Q3 2015 (preliminary only). 

In this context, venture capital investments (at the level of the portfolio company) are defined 
as: 

119 

Distribution of HQs of venture capital firms by region Number of Headquarters % of total EU Assets under Management (EUR million as of 31.12.2014) % of AuM CEE 54 7% 1,436 3% Germany and Austria 154 20% 10,173 21% France &Benelux 164 22% 12,364 25% Nordics 116 15% 7,128 14% Southern Europe 108 14% 4,565 9% UK&Ireland 156 21% 13,520 27%   
 
 
 
 
 
 
 
 
  Seed:  Financing  provided  to  research,  assess and  develop an  initial  concept  before  a 

business has reached the start-up phase. 

  Start-up:  Financing  for  product  development  and  initial  marketing.  Companies  have 

not sold their product commercially and are in the process of being set up. 

  Later-stage venture: Financing for the expansion of an operating company. Later-stage 

venture tends to finance companies already backed by venture capital firms. 

Although  it  is  to  be  expected  that  most  venture  investments  into  portfolio  companies  are 
conducted by funds with a venture capital focus, funds with a broader strategy such as growth 
or generalist funds also make venture capital investments from time to time. 

The amount of venture capital invested into companies has been relatively stable over the last 
couple  of  years  while  fundraising  has  differed  from  year  to  year  (Graph  20),  a  not  so 
surprising trend for a long-term industry where fundraising and investment cycles follow each 
other. 

Graph 19: Venture capital investments in European companies (all Europe) - EUR million 

Graph 20: Venture capital fundraising (all Europe) - EUR million 

120 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: Invest Europe/PEREP_Analytics 

By comparison: 

Graph 21: All types of private equity and venture capital investments in Europe (EUR billion) 

Source: Invest Europe/PEREP_Analytics 

Graph 22: All types of private equity and venture capital fundraising in Europe (EUR billion) 

121 

 
 
 
 
 
 
 
 
 
 
 
 
 
Source: Invest Europe/PEREP_Analytics 

3.  What is the number and size of managers in terms of AuM? 

122 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 23: Private equity and venture capital firms by location and number of headquarters, 
and assets under management 

Source: Invest Europe/PEREP_Analytics 

Note: This excludes HQs outside the EU. 

Table  23  shows  the  breakdown  of  private  equity  and  venture  capital  firms  by  number  of 
headquarters and AuM.  

As a reminder, a generalist fund is a fund with either a stated focus of investing in all stages 
of venture capital and private equity, or with a broad area of investment activity.  

123 

PE/VC firms Number of Headquarters Assets under Management (EUR million as of 31.12.2014) HQ Location Buyout Generalist Venture Buyout Generalist Venture Austria 19 12 17 1,151 639 470 Belgium 20 18 28 3,753 3,646 1,563 Bulgaria   2   45 Croatia 1 3 1 34 249 21 Czech Republic 3 2 2 119 196 28 Denmark 16 5 22 4,580 1,331 2,732 Estonia 3 5 4 67 213 89 Finland 14 12 27 2,117 2,392 1,343 France 89 119 72 43,630 39,619 7,771 Germany 75 47 137 17,677 6,002 9,703 Greece 2 3 7 329 131 171 Hungary 3 8 11 80 405 348 Ireland 4 8 18 457 558 1,075 Italy 50 25 16 9,728 3,833 994 Latvia 1 2 2 48 18 18 Lithuania 2  3 73  40 Luxembourg 7 7 4 2,175 503 706 Netherlands 45 33 60 11,565 4,166 2,324 Poland 14 4 21 3,416 282 617 Portugal 2 14 9 119 4,230 313 Romania 1 1 1 - 179 11 Slovakia 2  3 86  88 Slovenia 1 2 4 - 26 131 Spain 31 30 76 7,173 4,035 3,086 Sweden 38 29 67 42,776 2,075 3,053 United Kingdom 198 63 138 223,547 24,123 12,444 Grand Total 641 452 752 374,704 98,852 49,186   
 
 
 
 
 
 
 
A  buyout  fund  is  a  fund  whose  strategy  is  predominantly  to  acquire  controlling  stakes  in 
established companies. 

The  United  Kingdom,  Germany  and  France  are  the  “largest”  venture  capital  countries,  in 
terms  of  both  assets  under  management  and  number  of  headquartered  firms,  followed  by 
Spain and Sweden. 

Many  CEE  countries  have  practically  no  venture  capital  fund  managers  based  within  their 
borders. 

4.  How  many  funds  that  are  actually  managed  by  authorised  AIFMs  can  have  the 

EuVECA label as it is in the actual definition?  

Table 24 shows the kinds of companies (by size) that above-AIFMD threshold fund managers 
invested  in  during  the  period  2011  -  Q3  2015  (preliminary).  51%  of  the  companies  that 
received  investment  from  above-threshold  managers  were  SMEs  (based  solely  on  the 
employee criterion).   

Table  24:  Percentage  of  investments  by  EU  above-AIFMD  threshold  fund  managers,  by 
equity amount and number of companies, broken down by portfolio company size 

Source: Invest Europe/PEREP_Analytics 

5.  Venture capital (cross-border) investor base: Where are the investors into European 

venture capital funds coming from? 

124 

Assets under management / Number of employees in portfolio company at initial investment of the PE firm Number of PE/VC Firms Number funds Total amount invested (Equity, EUR million) Number of companies that received investments 500+ EUR million 156 529 97,712 2,267 0-19 6% 8% 1% 7% 20-99 14% 18% 3% 21% 100-199 15% 16% 7% 16% 200-249 9% 8% 4% 7% 250-499 17% 16% 13% 15% 500-999 16% 13% 20% 13% 1,000-4,999 16% 15% 36% 17% 5,000+ 7% 6% 16% 4% “SME” subtotal 45% 50% 15% 51% “Non-SME” subtotal 55% 50% 85% 49%   
 
 
 
 
 
 
 
 
 
 
There is great diversity in the base of investors (institutional and other) providing funding to 
venture capital funds. While most of them are based in Europe, a proportion (around 10%) of 
the investment into venture capital funds is coming from outside Europe. 

Table  25:  Fundraising  (2011-Q3  2015  preliminary)  for  European  venture  capital  funds: 
Geography of investors into venture capital (within and outside Europe) 

          Source: Invest Europe/PEREP_Analytics 

Tables 26 and 27 below show the geographic origin and concentration of investors (described 
as  LPs or  limited partners)  investing in  European venture capital funds. The tables describe 
the same situation but from a different point of view: 

  Table 26 gives an overview of the origin (geographic location) of the different types of 

funding sources (i.e. investors) into European venture capital funds. 

  Table 27 provides an overview of the different types of investor into European venture 

capital on a country by country basis (i.e. broken down by origin). 

There are a few conclusions that can be drawn from each table. 

125 

  Geography of investor   Institutional investor type: Within Europe Outside Europe Unknown Grand Total Academic institutions 1% 0% 0% 1% Banks 3% 0% 0% 4% Capital markets 1% 0% 0% 1% Corporate investors 9% 1% 0% 11% Endowments and foundations 2% 1% 0% 3% Family offices 4% 0% 0% 4% Fund of funds 5% 2% 0% 7% Government agencies 29% 0% 0% 29% GP commitment 0% 0% 0% 0% Insurance companies 2% 0% 1% 3% Other 1% 0% 0% 1% Other asset managers (including PE houses other than fund of funds) 2% 0% 0% 2% Pension funds 6% 1% 0% 7% Private individuals 8% 0% 2% 10% Sovereign wealth funds 0% 1% 0% 1% Unknown 0% 0% 17% 17% Grand Total 74% 7% 20% 100%   
 
 
 
 
 
 
 
 
Table  26  gives  valuable  indications  as  to  the  importance  of  some  national  markets  in 
providing specific types of funding for European venture capital funds. For example: 

  95% of capital markets funding into European venture capital came from the UK, with 
virtually no other venture capital funding from capital markets in the rest of Europe. 
  51%  of  corporate  investors’  money  going  into  European  venture  capital  funds  came 
from  France  and  Germany  (25%  and  26%  respectively),  with  another  24%  from  the 
UK and the United States (13% and 11% respectively). 

  The  vast  majority  of  funding  from  endowments  and  foundations  came  from  the  UK 

and the United States (54% and 33% respectively). 

  Pension funds and funds of funds located in the United States are the main providers 

of this type of venture capital funding (18% and 25% respectively). 

  The majority of funding provided by academic institutions (66%), private individuals 
(53%),  insurance  companies  (36%)  and  government  agencies  (35%)  came  from 
France. 

  All  funding  provided  by  sovereign  wealth  funds  came  from  outside  of  Europe:  74% 

from Australasia and 26% from the United States. 

Table  27  shows  which  types  of  investors  were  most  important  to  fund  managers  in  each 
Member State (i.e. what is the investor base on a country-by-country basis). Not surprisingly, 
the bigger the venture capital market, the more diverse is the funding base. 
For example: 

  While the investor base for European venture capital funds is very diverse, the sources 

 

of funding also differ significantly from one Member State to another. 
In most cases, and with the exception of larger markets, funding into venture capital 
funds  is  mostly  coming  from  two  or  three  types  of  investors,  which  –  again  -  differ 
from country to country. 

  While  most  capital  market  funding  came  from  the  UK  (as  shown  in  Table  7),  only 

 

14% of the funding coming from UK investors had its origin in capital markets. 
In  line  with  Table  7,  47%  of  the  funding  coming  from  Australasia  was  provided  by 
sovereign wealth funds. 

126 

 
 
 
 
 
 
 
 
Table 26: Geographic origin of investors investing in European venture capital funds, broken down by investor type (2011-Q3 2015 preliminary) 

Source: Invest Europe/PEREP_Analytics 

127 

 
 
 
 
 
 
Table 27: Type of investor investing in European VC funds, broken down by country of origin (2011-Q3 2015 preliminary) 

Source: Invest Europe/PEREP_Analytic 

128 

 
 
 
 
 
 
6.  Cross-border venture capital investments  
Table 28 shows the total cross-regional venture capital investments in European portfolio companies (by amount and by percentage). 
It should be noted that, as explained above, venture capital investments can also be made by non-venture capital funds. 
Over the last five years, as demonstrated by Table 28, a large part of venture capital investments was regional, i.e. venture capitalists making an 
investment into a portfolio company located in the same region (from 66% for the UK and Ireland to 87% for France and Benelux).  
Table 28: Venture capital investments in European companies (2011-Q3 2015 preliminary) 

Source: Invest Europe/PEREP_Analytics 

129 

Region of the portfolio company that receives the investment CEE  DACH  France&Benelux  Nordics  Southern Europe  UK&Ireland  All Europe  Region of office that makes the investment EUR million % total EUR million % total EUR million % total EUR million % total EUR million % total EUR million % total EUR million % total CEE 338 80% 26 1% 0 0% 2 0% 0 0% 7 0% 372 2% DACH 20 5% 3,135 69% 190 5% 88 4% 55 5% 214 6% 3,702 23% France&Benelux 3 1% 424 9% 3,630 87% 87 4% 108 10% 335 9% 4,586 28% Nordics 10 2% 139 3% 57 1% 1,928 79% 11 1% 167 4% 2,310 14% Southern Europe 0 0% 18 0% 13 0% 5 0% 730 71% 24 1% 790 5% UK&Ireland 40 9% 310 7% 148 4% 228 9% 82 8% 2526 66% 3,334 20% Outside of Europe 10 2% 484 11% 159 4% 113 5% 43 4% 533 14% 1,342 8% Grand Total 420 100% 4,535 100% 4,196 100% 2,450 100% 1,028 100% 3,806 100% 16,436 100%   
 
 
 
 
Note that  this  table covers all  of  Europe,  including  Norway, Switzerland, Ukraine and some non-EU CEE countries like Serbia, Montenegro, 
Macedonia and Bosnia-Herzegovina. 

7.  What is the institutional investor base, in terms of size and average investment? 
Table 29 below describes the sources of funding by region. 
Please also refer to Question 10 for more detailed geographical information on the investor base of venture capital funds. 
Table 29: Sources of funds (LP/Investor type) by region of  European venture capital funds raised (percentage of incremental amounts raised 
between 2011-Q3 2015 preliminary) 

Source: Invest Europe/PEREP_Analytics 

130 

LP type CEE DACH France&Benelux Nordics Southern Europe UK&Ireland Grand Total Academic institutions 0% 0% 1% 0% 0% 1% 1% Banks 15% 8% 4% 3% 12% 1% 5% Capital markets 4% 0% 0% 0% 0% 8% 2% Corporate investors 8% 23% 13% 2% 15% 9% 13% Endowments and foundations 0% 0% 0% 3% 3% 12% 3% Family offices 0% 6% 4% 6% 7% 7% 5% Fund of funds 3% 7% 6% 16% 3% 16% 9% Government agencies 40% 33% 45% 40% 25% 22% 36% GP commitment 0% 0% 0% 1% 0% 1% 0% Insurance companies 2% 1% 7% 2% 6% 0% 4% Other asset managers (including PE houses other than fund of funds) 1% 3% 2% 2% 3% 1% 2% Pension funds 6% 3% 3% 19% 22% 15% 8% Private individuals 20% 17% 14% 5% 5% 5% 11% Sovereign wealth funds 0% 0% 0% 1% 0% 3% 1% Grand Total 100% 100% 100% 100% 100% 100% 100%   
 
 
 
 
8.  What  is  the  retail  investor  base  (family  offices  and  HNWI),  by  size  and  average 

investment? 

In  2014,  family  offices  represented  5.9%  of  the  incremental  amount  raised  and  private 
individuals 7.2%.  

It is also important to remember that many academic institutions and foundations, as well as 
some  corporate  investors,  will  also  be  considered  as  retail  investors  under  the  MiFID  II 
definition.  While  these  investors  are  recognised  as  semi-professionals  under  the  EuVECA 
Regulation,  applying  this  definition  to  other  pieces  of  legislation  -  and  thereby  allowing 
fundraising to sophisticated investors at European level - would make sense. 

In the absence of a stronger EU framework for marketing to sophisticated investors, important 
differences  between  national  regimes  are  the  main  reasons  behind  the  fact  that  80%  of  the 
overall  amount  is  raised  from  private  individuals  and  family  offices  in  only  4  countries 
(France, Germany, the UK and the Netherlands) and 70% of the amount raised from private 
individuals  in  only  two  (France  and  Germany).  Should  marketing  to  these  investors  be 
allowed  across  Europe,  there  is  no  doubt  that  more  capital  would  flow  to  venture  capital 
funds. 

As regards Table 30, it is important to note that we do not know how many private individuals 
and family offices are actually behind this. We are not therefore in a position to calculate how 
much a private individual/family office would normally invest on average. 

We  can  only  calculate  the  ‘average’  investment  made  by  the  category  of  investors  labelled 
‘private  individuals’  and/or  ‘family  offices’.  This  does  not  tell  us  what  a  private 
individual/family office would invest on average. 

131 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 30: Commitments by family offices and private individuals to European venture capital 
funds raised between 2011 and Q3 2015 (preliminary) 

Source: Invest Europe/PEREP_Analytics 

9.  EuVECA - Implications of the SME Definition & 70/30 Rule 

132 

  Family offices Private individuals Total   Fund location Amount EUR million Number of VC funds Amount EUR million Number of VC funds Amount EUR million Number of VC funds CEE   65.21 6 65.21 6 Bulgaria   4.370 1 4.37 1 Czech Republic   39.85 2 39.85 2 Lithuania   1.57 1 1.57 1 Poland   19.42 2 19.42 2 DACH 195.51 7 587.77 26 783.28 27 Austria   20.55 5 20.55 5 Germany 181.51 6 488 17 669.51 18 Switzerland 14 1 79.22 4 93.22 4 France&Benelux 233.56 25 918.45 95 1,152.01 100 Belgium   2 1 2 1 France 113.16 17 820.22 80 933.38 81 Luxembourg   20 3 20 3 Netherlands 120.4 8 76.23 11 196.63 15 Nordics 101.42 16 81.18 15 182.6 25 Denmark 11.95 1 14.12 1 26.07 2 Finland 11.76 4 41.11 8 52.87 9 Norway 67.21 10 21.06 3 88.27 11 Sweden 10.5 1 4.89 3 15.39 3 Southern Europe 61.46 5 38.05 8 99.51 11 Italy   27.5 3 27.5 3 Spain 61.46 5 10.55 5 72.01 8 UK&Ireland 271.63 12 178.13 13 449.76 20 Channel Islands   24.3 1 24.3 1 Ireland 8.5 1 13.75 3 22.25 3 United Kingdom 263.13 11 140.08 9 403.21 16 Grand Total 863.58 65 1,868.79 162 2,732.37 188   
 
 
 
 
 
 
The  data  suggest  that  the  use  of  the  EU  SME  definition78  to  determine  whether  or  not  an 
individual company is a qualifying investment for an EuVECA fund could have a meaningful 
negative impact on the attractiveness of the regime to a fund manager. 

Across  the  full  range  of  potentially  eligible  managers  (i.e.  those  with  total  AuM  below  the 
500m EUR  threshold set  out in  the AIFMD) Invest  Europe data show that only  55%  of the 
capital they invested went into SMEs (as defined solely using the 250-employee criterion79). 
In other words, 45% of the total amount invested was dedicated to non-SMEs – far above the 
30% threshold set in the EuVECA Regulation. 

Table 31: Percentage of investments by EU sub-AIFMD threshold fund managers, by equity 
amount and number of companies, broken down by portfolio company size (2011-2015 YTD 
preliminary) 

As  Table  31  demonstrates,  a  very  large  majority  of  the  companies  (85%)  into  which 
EuVECA-eligible  managers  invest  are  SMEs.  But  where  they  find  an  attractive  investment 
opportunity  these  relatively  small  managers  will  also  invest  into  companies  that  have  more 
than  250  employees.  Such  investments  are  relatively  few  in  number,  but  are  likely  to 

78 i.e. the company is unlisted; it has fewer than 250 employees; it has an annual balance sheet total of no more than EUR 43 
million or an annual turnover of no more than EUR 50 million. 

79  Invest  Europe  data  only  captures  the  number  of  employees  in  portfolio  companies  and  not  the  size  of  that  company’s 
balance sheet or its turnover. (Access to robust accounting figures for small and young companies is challenging to 
collect across Europe due to different standards and practices across Member States.) It is therefore possible that 
the  number  of  SMEs  being  backed  by  eligible  managers  would  be  even  lower  once  the  full  definition  used  in 
EuVECA was applied. Table 1 therefore represents a best case. 

133 

Assets under management / No. of employees in portfolio company at initial investment of the firm Total amount invested (Equity, EUR million) Number of companies that received investments 0-499 EUR million 25,652 6,134 0-19 employees 6%1 32% 20-99 22% 35% 100-199 20% 14% 200-249 7% 4% 250-499 16% 7% 500-999 11% 4% 1,000-4,999 16% 4% 5,000+ 2% 0% “SME” subtotal 55% 85% “Non-SME” subtotal 45% 15%                                                        1 The percentages used in Table 1 (and Table 2) were computed on the investments with “known” employment values. This information was available for about 50% of the cases. However, the absolute amounts show the full investment amount for the period of 2011-Q3 2015, excluding EU funds that are captive or fully owned and operated by the public sector.  
 
 
 
 
 
 
 
                                                            
represent  a  larger  proportion  of  the  fund’s  capital  (unsurprisingly,  as  a  company  with  more 
than 250 employees is likely to be bigger and to need a correspondingly larger investment). 

These data underscore how arbitrary the formal SME definition is likely to appear to a fund 
manager  who  will  wish to  retain  the  flexibility  to  invest  in  companies  in  their  fund’s  target 
sector  and/or  geography  without  having  to  be  bound  by  an  SME  definition  that  reflects 
regulatory rather than commercial imperatives. 

With 45% of the capital being invested by eligible managers going to companies that do not 
meet the regulatory definition of an SME it becomes apparent that the requirement to invest 
70%  of  an  EuVECA’s  capital  into  qualifying  portfolio  undertakings  could  limit  the 
attractiveness of the EuVECA regime. It seems to be too far removed from the actual practice 
of  many  smaller  (i.e.  sub-500m  EUR  AuM)  fund  managers  and  therefore  to  represent  too 
much of a restriction on their freedom to invest. Even those managers with a clear focus on 
smaller companies (as demonstrated by the sheer number of such companies they back) risk 
failing to meet the ‘capital invested’ criterion. 

10. Comparison with the US 
By comparison, as demonstrated by Table 32, US firms with assets under management below 
EUR 500 million (i.e. below the EU AIFMD threshold and therefore of essentially the same 
size as those EU funds that are EuVECA eligible) dedicated more than half of the total equity 
that  they  invested  in  Europe  to  larger  portfolio  companies  with  between  1,000  and  5,000 
employees. 

This  further  suggests  that  the  EU  regulatory  definition  of  an  SME  may  not  capture  that 
segment of European companies that are looking to venture capitalists for backing. 
Table 32: US firms and funds (less than EUR 500m AuM) investing in European companies 
(2011-Q3 2015 preliminary) by employment size of the company 

Employment bracket 

Number 
of US 
firms  

Number 
of US 
funds  

% equity invested 

% number of 
companies 
financed 

0-19 

20-99 

100-199 

200-249 

250-499 

500-999 

14% 

22% 

18% 

4% 

14% 

8% 

12% 

25% 

21% 

4% 

12% 

7% 

134 

2% 

4% 

6% 

0% 

6% 

12% 

16% 

32% 

17% 

3% 

12% 

5% 

 
 
 
 
 
 
 
 
1,000-4,999 

5,000+ 

SME share 

16% 

4% 

58% 

16% 

4% 

61% 

51% 

19% 

12% 

Grand Total 

32 

43 

Amount of equity 
invested: 4,592 
(EUR million) 

13% 

3% 

67% 

122 

Source: Invest Europe/PEREP_Analytics 

135 

 
 
 
 
 
 
19.  ANNEX  12  (Stakeholders'  Contribution  to  the  Public 

Consultation) 

Appendix: statistical tables  

Considering the period 2012-2014, data based on the National Venture Capital Associations 
statistics  showed  that  the  Italian  venture  capital  market  is  the  smallest  (both  in  terms  of 
amount  invested and  companies  financed)  among  the  main  European  ones:  UK,  France  and 
Germany are the most developed countries in the venture capital activity. 

In  2014,  the  amount  invested  in  Italy  was  equal  to  43  Euro  Mln  involving  84  companies 
(figure 32 and 33). In line with the above considerations, another noteworthy aspect is that, in 
the same year, the average invested amount in the most developed VC markets (UK, France 
and Germany) was double the Italian one (figure 34). Concerning the number of players, in 
2014,  25  venture  capitalists  were  active  in  our  market,  with  respect  to  151  in  UK,  110  in 
France, 160 in Germany and 154 in Spain (figure 35).  

Figure 32: Amount invested in venture capital (Euro Mln) 

2012

2013

2014

 708  

 642  

 626  

 442  

 443  

 378  

 716  

 646  

 567  

 135  

 81  

 43  

 110  

 107  

 89  

UK*

France

Italy

Germany

Spain

*£ Mln 
Source: AFIC (France), AIFI-PwC (Italy), ASCRI (Spain), BVCA (UK), BVK-PEREP_Analytics (Germany) 

136 

 
 
 
 
 
 
 
 
 
 
 
Figure 33: Number of venture backed companies 

780 

740 

712 

510 

434 

469 

438 

369 

365 

106 

108 

84 

193 

202 

170 

UK

France

Italy

Germany

Spain**

2012

2013

2014

**Number of investments 
Source: AFIC (France), AIFI-PwC (Italy), ASCRI (Spain), BVCA (UK), BVK-PEREP_Analytics (Germany) 

Figure 34: Average amount invested (Euro Mln, 2014) 

 1,43  

 1,02  

 0,91  

 0,51  

 0,63  

UK*

France

Italy

Germany

Spain**

*£ Mln 
**related to investments and not to companies financed  

137 

 
 
 
 
 
 
 
 
Source: AFIC (France), AIFI-PwC (Italy), ASCRI (Spain), BVCA (UK), BVK-PEREP_Analytics (Germany) 

Figure 35: Number of venture capitalists (2014) 

151 

160 

154 

110 

25 

UK

France

Italy

Germany

Spain

Source: AFIC (France), AIFI-PwC (Italy), ASCRI (Spain), BVCA (UK), BVK-PEREP_Analytics (Germany) 

138 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20.  Annex 13 (Anecdotal evidence on the EuVECA regime) 

Stakeholders  shared  the  following  experiences  as  to  the  use  of  the  EuVECA  regime  in 
different Member States as compare with the AIFMD regime. This is purely anecdotal and the 
views expressed below are not necessarily representative of the full venture capital industry. 
Rather, they are based on personal opinions and experiences of stakeholders. 

 Part 1 – Venture capital firms using the EuVECA passport 

Case Study 1 from Continental Europe 

Being  a  very  small  firm,  the  member  conducted  the  talks  with  the  national  regulator  about 
EuVECA  registration  himself.  In  all,  he  spent  about  a  third  of  his  time  on  this  for  about  9 
months. 

 Previously,  they  had  received  a  proposal  from  one  of  the  very  few  lawyers  who  could 
understand the matter for EUR 50,000. 

 In theory, the total costs linked to EuVECA registration could therefore have easily amounted 
to EUR 55,000 including: 

- EUR 50,000 legal costs (as per above) 

- EUR 5,000 other costs (Consulting on Risk and Conflicts of Interest) – this amount was paid 

In addition, the venture capital manager has been asked by a few host jurisdictions to pay for 
additional  charges.  [Cf.  the  Invest  Europe  response  to  the  EuVECA  consultation  for  a 
complete overview] 

The management charges for this particular fund amounted to EUR 30,000 including: 

- EUR 10,000 per annum - Independent Risk and Conflict of Interest Controller imposed by 
the national regulator (although not a requirement under the EuVECA Regulation) 

- EUR 20,000 – Auditor 

Finally, they have had to increase the capital of their manager to EUR 150,000. 

Case Study 2 from the UK 

The member estimates that they spent around £20,000-£30,000 in legal fees assessing the best 
options in terms of EuVECA, national placement rules or full AIFMD compliance.  

139 

 
 
 
 
 
The regulatory fees paid to the UK FCA amounted to £750 and, thus far, they have not paid 
anything to other country regulators. 

They  prepared  the  EuVECA  application  to  the  FCA  in-house,  rather  than  use  lawyers  or 
advisers. They estimate that they spent approximately 20 hours drafting the application form 
and preparing supporting material. 

They will also have incurred additional legal fees in relation to updating the prior fund PPM 
(Private  Placement  Memorandum)  and  limited  partnership  agreement  to  ensure  that  it 
complies  with  the  EuVECA  investment  and  investor  restrictions.  However,  they  cannot  yet 
estimate how much those incremental costs might be. 

Part 2 – Why have our venture capital members not signed up for EuVECA? 

One member confirmed not to have looked closely enough at EuVECA since it did not seem a 
roadblock  during  fundraising.  Raising  a  first  time  fund  is  an  uphill  battle,  and  they 
concentrated their resources on other topics that were bigger priorities in that process. 

Quite  a  few  members  manage  corporate  venture  funds  so  they  do  not  need  a  cross-border 
passport  for  fundraising.  They  have  a  single  LP  (investor),  and  therefore  do  not  need  to 
market their funds throughout Europe. 

Other members mentioned that they have a national focus and have mostly targeted domestic 
investors  so  far.  They  were  therefore  not  in  need  of  a  European  passport  and  stuck  to  the 
notification as a sub-threshold AIF. 

One  member  very  honestly  admitted  that  they  did  not  apply  for  EuVECA  as  they  had  the 
perception  that  EuVECA  would  only  bring  extra  compliance  costs  (e.g.  related  to  the 
engagement  of  extra  advisors,  consultants  and  auditors,  etc.)  and  paperwork  (with  no 
substantial added benefit). 

One  member  said  that  their  LPs  paid  more  attention  to  specific  geographies  and  strategies, 
rather than to the status of the fund. 

Some members confirmed that they expect to apply for and to use the EuVECA label but have 
not had to market a fund since the Regulation came in. 

Others indicated that the Regulation was too restrictive and that they would like to use it and 
are more likely to if its scope is widened. 

Part 3 – VC firms operating under the AIFMD regime 

We also received feedback from a venture capital firm functioning under the AIFMD regime. 
They  have  had  to  hire  a  third  party  consultant/service  provider  to  help  them  prepare  all  the 

140 

 
 
 
 
documents that had to be filed with the national regulator. The total cost was EUR 60,000* 
(EUR 72,000 with VAT) but they wouldn’t have been able to go through this process on their 
own because of lack of resources. 

Even  with  the  support  of  the  service  provider,  all  back  office  team  members  had  to  be 
involved  as  the  preparation  of  the  documents  had  to  do  with  all  sides  of  the  business 
(accounting, investment processes, legal matters, reporting to LPs, remuneration, etc.). 

In terms of time commitment, this is their estimation: 

o    3 weeks full time for the CFO of the firm; 
o    3 weeks for the person responsible of reporting to LPs; 
o    1 week for the financial controller; 
o    2 weeks for the person in charge of the legal affairs related to the portfolio; 
o    1 week for the director of legal operation; and 
o    1 week for the person in charge of information systems. 

In addition, they have to comply with annual reporting requirements to the national regulator, 
which  is  very  time  consuming  and  particularly  challenging,  especially  as  the  deadline  to 
provide the information is end of January of each year. In addition, they are very often being 
asked questions by the regulator that are in many cases not relevant for venture capital. 

* It should be noted that this amount only relates to pursuing the actual authorisation and does 
not take into account the on-going compliance costs of operating under the AIFMD. 

141 

 
 
 
 
 
21.  Annex 14 (Venture Capital in Europe) 

What is Venture Capital? 

Venture capital is funding typically invested in small entrepreneurial, innovative businesses to 
help them grow. Alongside their investment, providers of venture capital also provide direct 
support and expertise to the business. A business usually receives further investment through 
a number of funding rounds before venture capital investors realise their profit.  The two most 
common exits for investors are the company's listing on a stock exchange (the so called initial 
public offering – IPO) or the sale of the company to a strategic buyer - either a private equity 
firm or a corporation (the so called trade sale).  

Within  Europe,  venture  capital  is  usually  considered  to  be  a  subset  of  private  equity  –  the 
much  broader  provision  of  funding  to  companies  of  any  size,  and  which  can  include,  for 
example buy-out activity.  

Why is more Venture Capital needed in the EU? 

Equity  investment  –  including  in  the  form  of  venture  capital  is,  for  small  business,  an 
alternative  to  traditional  bank  loans.  Although  equity  only  represents  a  small  percentage  of 
overall sources of finance to SMEs, it is important in facilitating the accelerated growth and 
development of high-growth innovative companies.  

Following  the  global  economic  and  financial  crisis,  banks  are  becoming  more  risk-averse, 
especially for start-ups investing in innovation. This trend has been exacerbated by regulation 
requiring banks to hold more capital for risk investments. This has made it more likely that 
innovative  firms  embrace  alternative  financing  forms,  including  external  equity.  The  long-
term  view  required  by  investors  in  highly  innovative  firms,  which  often  only  realise  full 
returns after several years, is conducive to equity financing.  

Demand  for  Venture  Capital  fluctuates  during  the  economic  cycle,  but  has  remained  high 
during the economic and financial crisis.  However, while demand has remained high, supply 
has  been  more  erratic,  with  some  investors  leaving  the  market  due  to  low  returns.  There  is 
strong evidence that many private sector investors no longer invest in Venture Capital. This 
trend began with the “dot com crash” (early 2000s) and accelerated during the economic and 
financial  crisis  (2007-2009)  and  the  sovereign  debt  crisis  of  2011-2013.  Fluctuations  in  the 
supply of risk capital have become more frequent and pronounced, although the industry has 
only really existed since the early 1980s and there were fluctuations then. 

Many private investors remain wary of investing in European Venture Capital because of low 
profitability  and  historical  under-performance.  Private  pension  funds  and  institutional 
investors  remain  largely  absent  from  the  market.  Venture  Capital  funds  instead  attract 
investment from private equity groups, high net worth individuals and from the EIF and other 
public investors at national and regional level. 

There  is  evidence  to  suggest  that  since  2012,  European  fund-raising  has  plunged  by  33 
percent, while in comparison, 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. US fund-rising in 2014 was c. €25bn. 

142 

 
 
 
 
Structural  weaknesses  in  the  European  Venture  Capital  market  explain  some  of  this 
difference. They include: 

o  Relatively small average fund sizes. For example the average size of EU based VC 
fund is estimated at c. €50 million. In comparison, the average US-based venture 
capital fund is estimated to around €120 million. This reduces the benefits of scale. 
o  Fragmentation  and  geographic  imbalances  –  the  EU  VC  market  is  highly 
concentrated,  with  up  to  90%  of  venture  capital  firms  concentrated  in  eight 
member states. 

o  A lack of cross-border investment. In the period 2007-2010, funds raised outside a 
venture capital fund’s home jurisdiction only accounted for 12% of funds raised in 
the venture capital sector. 

The  EuVECA  and  EuSEF  fund  structures  have  been  created  to  offer  new  opportunities  for 
market  participants  to  raise  and  invest  capital  in  small  companies  throughout  Europe  in  a 
simplified way. 

143 

 
 
 
 
 
22.  Annex  15  (ESMA  registered  EuVECA  and  EuSEF  as  of 

April 2016) 

Management 
Company 

Speed 
GmbH 

Invest 

Venionaire 
Investment 
GmbH 

Alps 

Energy 

Energy 

VAVE 
EuVECA Invest 
GmbH 
i4g 
Management 
GmbH 
New 
Solutions 
Management 
ApS 
New 
Solutions 
Management 
ApS 
NCP-IVS 
GP ApS 
Seed 
Capital 
Management III 
I/S 
Sunstone 
Management 
A/S 
Breega Capital 

TV 

III 

EUVECA 

Fund Name 

HOME MS 

HOST MS 

Speedinvest 
II 
EuVECA GmbH & Co 
KG 
To  be  defined  (in  the 
course of formation) 

VAVE 
EuVECA 
Invest  GmbH  &  Co 
KG 
Alps 250 Industry Fund 
GmbH & Co KG 

AUSTRIA 

GERMANY 

AUSTRIA 

AUSTRIA 

BELGIUM, 
GERMANY, 
DENMARK, 
ESTONIA,  FINLAND,  FRANCE,  IRELAND, 
ITALY, CROATIA, LUXEMBOURG, MALTA, 
NETHERLANDS,  POLAND,  PORTUGAL, 
SWEDEN,  SLOVENIA,  SPAIN,  CYPRUS, 
UNITED KINGDOM 
GERMANY, UNITED KINGDOM 

AUSTRIA 

GERMANY,  CZECH  REPUBLIC,  SLOVAK 
REPUBLIC, UNITED KINGDOM 

P/S  New 
Solutions  

Energy 

DENMARK 

DENMARK, UNITED KINGDOM 

New  Energy  Solutions 
II K/S 

DENMARK 

DENMARK, UNITED KINGDOM 

NCP-IVS Fund III K/S  DENMARK 

DENMARK 

Seed  Capital  Denmark 
III K/S 

DENMARK 

DENMARK, SWEDEN, LUXEMBOURG 

Kommanditselskabet af 
11. nocember 2015 

DENMARK 

Breega Capital Venture 
One 

FRANCE 

ENGLAND, 
SWEDEN, 
DENMARK, 
FINDLAND,  GERMANY,  LUXEMBOURG, 
HOLLAND 
AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
FINLAND,  
ESTONIA, 
DENMARK, 
GERMANY, 
HUNGARY,  
GREECE, 
IRELAND,  ITALY,  LATVIA,    LITHUANIA, 
LUXEMBOURG,  MALTA,  NETHERLANDS, 
POLAND, 
ROMANIA, 
PORTUGAL, 
SLOVAKIA,  SLOVENIA,  SPAIN,  SWEDEN, 
UNITED KINGDOM 
GERMANY, UNITED KINGDOM 

Trust 

Avala 
GmbH 
eCAPITAL 
Entrepreneurial 
Partners AG 

Avala III GmbH & Co. 
KG 
eCapital 
Technologies 
Gmbh & Co. KG 

IV 
Fonds 

GERMANY 

GERMANY 

AUSTRIA, FRANCE, NETHERLANDS 

144 

 
 
 
 
 
Motu  Ventures 
Management 
GmbH 

Motu  Ventures  Fund  I 
GmbH & Co. KG 

GERMANY 

DENMARK, 

FRANCE, 
AUSTRIA, 
GERMANY, 
LUXEMBOURG, 
NETHERLANDS,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
GERMANY 

GERMANY 

PINOVA 
CAPITAL 
GMBH, 
MUENCHEN 
PINOVA 
CAPITAL 
GMBH, 
MUENCHEN 
PINOVA 
CAPITAL 
GMBH, 
MUENCHEN 

Pinova  GmbH  &  Co. 
Beteiligungs 
Erste 
Parallel KG 

Pinova 
GmbH & Co. KG 

I  Co-Invest 

GERMANY 

GERMANY 

Pinova  GmbH  &  Co. 
Beteiligungs II KG 

GERMANY 

AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
HUNGARY, 
GERMANY, 
GREECE, 
IRELAND, 
LITHUANIA, 
LUXEMBOURG,  NETHERLANDS,  POLAND, 
SLOVAKIA, 
ROMANIA, 
PORTUGAL, 
SLOVENIA,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
GERMANY 

LATVIA, 

AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GERMANY, 
HUNGARY, 
GREECE, 
IRELAND,  ITALY,  LATVIA,  LITHUANIA, 
LUXEMBOURG,  MALTA,  NETHERLANDS, 
ROMANIA, 
PORTUGAL, 
POLAND, 
SLOVAKIA,  SLOVENIA,  SPAIN,  SWEDEN, 
UNITED KINGDOM 
AUSTRIA,  BELGIUM,  FINLAND,  FRANCE, 
LUXEMBOURG, 
GERMANY, 
NETHERLANDS,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GERMANY, 
HUNGARY, 
GREECE, 
IRELAND,  ITALY,  LATVIA,  LITHUANIA, 
LUXEMBOURG,  MALTA,  NETHERLANDS, 
POLAND, 
ROMANIA, 
PORTUGAL, 
SLOVAKIA,  SLOVENIA,  SPAIN,  SWEDEN, 
UNITED KINGDOM 
AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GERMANY, 
HUNGARY, 
GREECE, 
ITALY,  LATVIA, 
ICELAND, 
LUXEMBOURG, 
LITHUANIA, 
NETHERLANDS,  POLAND,  PORTUGAL, 
ROMANIA, 
SLOVENIA, 
SLOVAKIA, 
SWEDEN, UNITED KINGDOM 

IRELAND, 

PINOVA 
CAPITAL 
GMBH, 
MUENCHEN 
SHS 
Gesellschaft  für 
Beteiligungsma
nagement mbH 

Pinova  GmbH  &  Co. 
Erste Beteiligungs KG 

GERMANY 

SHS 
IV  Medtech 
Investments  GmbH  & 
Co. KG 

GERMANY 

Sirius  Venture 
Partners GmbH 

Sirius 
Düsseldorf 
GmbH & Co. KG 

Seedfonds 
Zwei 

GERMANY 

VCDE  Venture 
Partners  GmbH 
& Co. KG 

venturecapital.de  VC 
GmbH & Co. KGaA 

GERMANY 

ACT  Venture 
Capital Limited 

V 

ACT 
Capital 
Partnership 

Venture 
Limited 

IRELAND 

145 

 
 
 
Atlantic  Bridge 
III GP Ltd 

Atlantic  Bridge  III  Ltd 
Partnership 

IRELAND 

Delta  Partners 
Limited 
PANAKES 
PARTNERS 
SGR 
OLTRE 
SICAF 
EUVECA SPA 

II 

Delta Equity Fund IV 

IRELAND 

PANAKES FUND 

ITALY 

OLTRE 
EUVECA SPA 

II 

SICAF 

ITALY 

AVM 
GESTIONI 
SGR 
P101 SGR 

EuVECA 
Livonia 
Partners 

N.A. 

ITALY 

101 

PROGRAMMA 
SICAF 
KS  EuVECA  Livonia 
Partners Fund I 

LATVIA 

ITALY 

ITALY 

MOJO.CAPIT
AL 

MOJO  DIGITAL  ONE 
S.C.SP 

LUXEMBOU
RG 

CRESTBRIDG
E 
MANAGEME
NT 
COMPANY 
S.A. 
EXPON 
CAPITAL 

LEVEL-UP 15 (SCA) 

LUXEMBOU
RG 

EXPON 
SICAR 

I 

(S.C.A.) 

LUXEMBOU
RG 

Cipio  Partners 
S.à r.l. 

Cipio  Partners  Fund 
VII SICAR 

LUXEMBOU
RG 

146 

BELGIUM,  DENMARK,  FINLAND,  FRANCE, 
GERMANY, 
IRELAND,  LUXEMBOURG, 
NETHERLANDS,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
IRELAND, 
KINGDOM 
ITALY 

LUXEMBOURG, 

UNITED 

BULGARIA, 
BELGIUM, 
AUSTRIA, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GERMANY, 
HUNGARY, 
GREECE, 
IRELAND,  ITALY,  LATVIA,  LITHUANIA, 
LUXEMBOURG,  MALTA,  NETHERLANDS, 
POLAND, 
ROMANIA, 
PORTUGAL, 
SLOVAKIA,  SLOVENIA,  SPAIN,  SWEDEN, 
UNITED KINGDOM 
ITALY 

AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
HUNGARY, 
GREECE, 
GERMANY, 
IRELAND,  ITALY,  LATVIA,  LITHUANIA, 
LUXEMBOURG,  NETHERLANDS,  POLAND, 
PORTUGAL, 
SLOVAKIA, 
ROMANIA, 
SLOVENIA,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GREECE, 
GERMANY, 
HUNGARY,  ICELAND,  IRELAND,  ITALY, 
LATVIA,  LIECHTENSTEIN,  LITHUANIA, 
POLAND, 
NETHERLANDS, 
MALTA, 
SLOVAKIA, 
ROMANIA, 
PORTUGAL, 
SLOVENIA,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
BELGIUM,  FRANCE,  GERMANY,  ITALY, 
NETHERLANDS,  POLAND,  SPAIN,  UNITED 
KINGDOM 

GIBRALTAR, 

FRANCE, 
DENMARK, 
BELGIUM, 
GERMANY, ITALY, NETHERLANDS, SPAIN, 
SWEDEN, UNITED KINGDOM 
AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  NETHERLANDS,  SPAIN,  SWEDEN, 
UNITED KINGDOM 

 
 
 
LSP 
Management 
Group B.V. 

Set 

Chrysalix 
Management 
B.V., 

Holland  Private 
B.V. 
Equity 
(trade 
name 
HPE  Growth 
Capital) 

ARX 
Partners B.V. 

Equity 

Life  Sciences  Partners 
V C.V. 

NETHERLAN
DS 

SET Fund II C.V. 

NETHERLAN
DS 

HPE  Institutional  Fund 
II        ---  (comprising 
HPE  Institutional  Fund 
II  C.V.  (master),  and 
HIF Feeder Fund II BV 
and  HIF  Feeder  Lux 
SCF (each a feeder)) 
Arx 
Coöperatief U.A. 

CEE 

IV 

NETHERLAN
DS 

NETHERLAN
DS 

Gilde 
Healthcare 
Partners B.V. 

FCPM 
Services B.V. 

III 

“Gilde  Healthcare  IV”   
(officially 
--- 
Cooperatieve 
Gilde 
Healthcare IV U.A.) 
Forbion  Capital  Fund 
III 

NETHERLAN
DS 

NETHERLAN
DS 

ALMA 
MUNDI 
VENTURES, 
SGEIC, S.A., 
Notion  Capital 
Managers LLP 

ALMA 
INNVIERTE 
FCRE 

MUNDI 
FUND 

SPAIN 

Notion Capital III LP 

UNITED 
KINGDOM 

Northedge 
Capital LLP 

Northedge  Capital 
Fund LP 

I 

UNITED 
KINGDOM 

ITALY, 

SWEDEN, 

AUSTRIA,  BELGIUM,  FINLAND,  FRANCE, 
LUXEMBOURG, 
IRELAND, 
NETHERLANDS, 
UNITED 
KINGDOM 
AUSTRIA,  BELGIUM,  CZECH  REPUBLIC, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
LUXEMBURG, 
PORTUGAL, 
POLAND, 
SLOVAKIA,  SLOVENIA,  SPAIN,  SWEDEN, 
UNITED KINGDOM 
DENMARK, 
BELGIUM, 
AUSTRIA, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  LUXEMBOURG,  SPAIN,  SWEDEN, 
UNITED KINGDOM 

POLAND, 

BELGIUM, 
FRANCE, 

AUSTRIA, 
DENMARK, 
FINLAND, 
GERMANY, 
CZECH 
LUXEMBOURG, 
REPUBLIC,  SLOVAKIA,  SWEDEN,  UNITED 
KINGDOM 
AUSTRIA, 
DENMARK, 
BELGIUM, 
GERMANY,  FINLAND,  FRANCE,  IRELAND, 
ITALY,  LUXEMBOURG,  MALTA,  SPAIN, 
SWEDEN, UNITED KINGDOM 
AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY, 
PORTUGAL, 
LUXEMBOURG, 
SPAIN, SWEDEN, UNITED KINGDOM 
FRANCE, GERMANY 

GIBRALTAR, 

AUSTRIA,  BELGIUM,  CYPRUS,  DENMARK, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
LUXEMBOURG, NETHERLANDS, SWEDEN 
AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
GREECE, 
GERMANY, 
HUNGARY,  ICELAND,  IRELAND,  ITALY, 
LUXEMBOURG, 
LATVIA, 
POLAND, 
MALTA, 
SLOVAK 
PORTUGAL, 
REPUBLIC, SLOVENIA, SPAIN, SWEDEN 
AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  LUXEMBOURG,  NETHERLANDS, 
SPAIN, SWEDEN 
UNITED KINGDOM 

NETHERLANDS, 
ROMANIA, 

LITHUANIA, 

DFJ  Esprit  Capital  IV 
LP 

UNITED 
KINGDOM 

Panoramic 
Fund 2 LP 

Growth 

UNITED 
KINGDOM 

Draper  Esprit 
(formerly 
LLP 
DFJ 
Esprit 
LLP) 
Panoramic 
Growth  Equity 
(Fund 
Management) 
LLP 
Panoramic 
Growth  Equity 
(Fund 

Panoramic  Enterprise 
Capital Fund 1 LP 

UNITED 
KINGDOM 

FRANCE, 
LUXEMBOURG, SWEDEN 

GERMANY, 

IRELAND, 

147 

 
 
 
 
 
Management) 
LLP 

Draper  Esprit 
LLP 

Draper  Esprit 
LLP 
Narec  Capital 
Limited 

Keen  Venture 
Partners LLP 
NBGI  Private 
Equity Limited 
ETF  Manager 
LLP 

Draper  Esprit  PLC    --- 
(formerly 
Ingleby 
(1994) PLC) 
DFJ  Esprit  Capital  IV 
LP 
Discovery 
Park 
Technology Investment 
LP 
Keen  Venture  Partners 
Fund L.P. 
NBG Technology Fund 
LP 
Environmental 
Technologies 
L.P. 

Fund 

UNITED 
KINGDOM 

UNITED 
KINGDOM 
UNITED 
KINGDOM 

UNITED 
KINGDOM 
UNITED 
KINGDOM 
UNITED 
KINGDOM 

ETF  Manager 
LLP 

Environmental 
Technologies 
Associates Fund L.P. 

UNITED 
KINGDOM 

ETF  Manager 
LLP 

Environmental 
Technologies  Fund  2 
L.P. 

UNITED 
KINGDOM 

Meridian 
Venture 
Partners LLP 
Azini  Capital 
Partners LLP 
Frog 
Ltd 

Capital 

Capella Ventures LP 

Azini 3a LP 

Frog  Capital  Fund  II 
LP 

UNITED 
KINGDOM 

UNITED 
KINGDOM 
UNITED 
KINGDOM 

Advent 
Sciences LLP 

Life 

Advent  Life  Sciences 
Fund 1 LP  

UNITED 
KINGDOM 

Advent 
Sciences LLP 

Life 

71 
Amadeus 
Capital  Partners 
Limited 

Venrex 
Investment 
Management 

Advent 
Sciences Fund 11 LP  

Life 

& 

UNITED 
KINGDOM 

Amadeus  IV  Growth 
Fund LP 

UNITED 
KINGDOM 

2014 EIS Fund 

UNITED 
KINGDOM 

148 

BELGIUM,  FINLAND,  FRANCE,  GERMANY, 
IRELAND, LUXEMBOURG, NETHERLANDS, 
SWEDEN 
UNITED KINGDOM 

GERMANY, 

FRANCE, 
HUNGARY, 
IRELAND, ITALY, LUXEMBOURG, MALTA, 
NETHERLANDS, SPAIN, SWEDEN 
LUXEMBOURG, NETHERLANDS 

FRANCE, GERMANY, POLAND 

AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  LUXEMBOURG,  NETHERLANDS, 
PORTUGAL, SPAIN, SWEDEN 
AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  LUXEMBOURG,  NETHERLANDS, 
PORTUGAL, SPAIN, SWEDEN 
AUSTRIA, 
DENMARK, 
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,  LUXEMBOURG,  NETHERLANDS, 
PORTUGAL, SPAIN, SWEDEN 
UNITED KINGDOM 

GERMANY, UNITED KINGDOM 

AUSTRIA, 
BULGARIA, 
BELGIUM, 
CROATIA,  CYPRUS,  CZECH  REPUBLIC, 
DENMARK,  ESTONIA,  FINLAND,  FRANCE, 
HUNGARY, 
GREECE, 
GERMANY, 
IRELAND, 
LITHUANIA, 
LATVIA, 
LUXEMBOURG,  NETHERLANDS,  POLAND, 
PORTUGAL, 
SLOVAKIA, 
ROMANIA, 
SLOVENIA,  SPAIN,  SWEDEN,  UNITED 
KINGDOM 
AUSTRIA, 
DENMARK,  
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,    LUXEMBOURG,  NETHERLANDS, 
SPAIN, SWEDEN, UNITED KINGDOM 
AUSTRIA, 
DENMARK,  
BELGIUM, 
FINLAND,  FRANCE,  GERMANY,  IRELAND, 
ITALY,    LUXEMBOURG,  NETHERLANDS, 
SPAIN, SWEDEN, UNITED KINGDOM 
ITALY, 
SWEDEN, 
FRANCE, 
NETHERLANDS, 
LUXEMBOURG, 
BELGIUM, 
GREECE,  SPAIN,  DENMARK,  GERMANY, 
PORTUGAL 
UNITED KINGDOM 

POLAND, 
IRELAND, 

FINLAND, 

 
 
 
Crane  Venture 
Partners LLP 
Venrex 
Investment 
Management 
LLP 
Venrex 
Investment 
Management 
LLP 
Venrex 
Investment 
Management 
LLP 
SDCL  EE  Co 
(UK) LLP  
Technology 
Venture 
Partners LLP 
Big Issue Invest 
Fund 
Management 
Ltd 
Hughes 
Armstrong 
Industries 
Limited 
DN 
(UK) LLP 

Capital 

Angels 
Unleashed 
Limited 

Management 
Company 

BonVenture 
Management 
GmbH 
BonVenture 
Management 
GmbH 
BonVenture 
Management 
GmbH 

LLP 

Felix 
Partners LLP 

Capital 

Felix  Capital  Fund  I 
L.P. 

UNITED 
KINGDOM 

GERMANY, 
NETHERLANDS, 
LUXEMBOURG, 
SPAIN, 
BELGIUM,  AUSTRIA,  FRANCE,  IRELAND, 
DENMARK 
UNITED KINGDOM 

SWEDEN, 

UNITED KINGDOM 

UNITED KINGDOM 

UNITED KINGDOM 

UNITED KINGDOM 

UNITED KINGDOM 

UNITED KINGDOM 

Crane I LP 

2014 LP Fund 

2012 EIS Fund 

Venrex VII 

UK  Energy  Efficiency 
Investments 2 L.P. 
TVP Venture Fund II 

Big  Issue  Invest  Social 
Enterprise 
Investment 
Fund II LP 

UNITED 
KINGDOM 
UNITED 
KINGDOM 

UNITED 
KINGDOM 

UNITED 
KINGDOM 

UNITED 
KINGDOM 
UNITED 
KINGDOM 

UNITED 
KINGDOM 

Hughes 
Limited Partnership 

Armstrong 

UNITED 
KINGDOM 

UNITED KINGDOM 

DN  Capital  -  Global 
Ventures  IV  Limited 
Partnership  
Angels 
ULimited 

Unleashed 

UNITED 
KINGDOM 

UNITED 
KINGDOM 

UNITED KINGDOM 

UNITED KINGDOM 

EUSEF 

Fund Name 

Home MS 

Host MS 

BonVenture  III  GmbH 
& Co. KG 

MRI-Pilotfonds GmbH 
& Co. KG 

BonVenture  II  GmbH 
& Co. KG 

GERMANY 

AUSTRIA, GERMANY 

GERMANY 

AUSTRIA, GERMANY 

GERMANY 

GERMANY 

149 

 
 
 
 
Phitrust 
Partenaires 

Phitrust Partenaires  

FRANCE 

FRANCE, 

GERMANY, 
BELGIUM, 
LUXEMBOURG,  NETHERLANDS,  UNITED 
KINGDOM 

150