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European Venture Capital (EuVECA) and European Social Entrepreneurship (EuSEF) Fund regulations

Summary
Evaluation
Commission Proposal
Legal Act
Implementation

Overall state of play

Commission Proposal - Adopted on 14.07.2016, COM(2016)461
Legal Act – Adopted: Regulation (EU) 2017/1991 amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds, adopted on 10.11.2017;
Date to entry into application 01.03.2018.

State of play, main conclusions, outlook

The EuVECA and EuSEF Regulations introduced two optional labels - “European Venture Capital Fund” and a “European Social Entrepreneurship Fund” respectively for funds supporting young and innovative companies or enterprises with the intention of generating positive social impact. These regimes do not require EuSEF and EuVECA to be authorised or to appoint a depositary under certain thresholds (to spare them the regulatory costs associated with these requirements). They benefit from a cross-border marketing passport across the EU to collect capital from professional investors who are able to commit at least EUR 100,000.

These regulations aim to provide an alternative channel of financing for SMEs, including social businesses, so that they will be less dependent on banking sector constraints, thereby reducing the effect of banks declining credit applications. In 2016 the Commission put forward two proposals to amend the regulations. The 2017 amendments provide for a new review clause that includes a general survey of the market size and use of the labels, the distribution of EuSEF and EuVECA, the functioning of the rules and the obstacles identified for EuSEF and EuVECA uptake. These were adopted in 2017 and are expected to reduce unnecessary burdens and costs for managers willing to set-up EuVECA and EuSEF funds.

Key issues also include an assessment of whether the information requirements enable investors to take an informed investment decision, and whether the marketing to retail investors or the management passport should be allowed, and of the appropriateness of establishing a European label for ‘social enterprises’.

In 2019, both the EuVECA and the EuSEF regimes were subsequently amended by the cross-border distribution of investment funds legal package (Regulation (EU) 2019/1156).

As of December 2022, 462 EuVECA funds and 15 EuSEFs funds were registered, despite being in place for more than 8 years. The EuVECA and EuSEF segments have the potential to develop further.

The Commission sent a mandate to the European Securities and Markets Authority (ESMA) to provide technical input on how to improve the functioning of the two regimes.

Estimated savings and benefits

The amended EuVECA and EuSEF Regulations aim to reduce costs. Estimates suggested around EUR 40 500 of cost savings per year per EuVECA and EuSEF fund marketed in Member States and a total of EUR 32 million in five years in cost savings for all new EuVECA funds. The modified rules further unblock the flow of capital, with the aim to increase confidence in cross-border investments and to better functioning of the internal market.

State of Play:

Adopted, COM(2016)461, adopted by the Commission on 14.07. 2016

Which objective(s) does the Commission pursue?

The review of the EuVECA and EuSEF Regulations aimed at close alignment with the Capital Markets Union (CMU) objectives focusing on facilitating SME financing, diversifying sources of financing and strengthening cross-border capital flows. It also aimed at alignment with the first and second pillars of the Investment Plan which concentrate on ensuring additional EU funding to SMEs, equity financial instruments under the Programme for the Competitiveness of Enterprises and SMEs (COSME), as well as under Horizon 2020. The amendments were tabled to be consistent with other CMU actions, such as the Commission's Investment plan for Europe, to sponsor a pan-European venture capital fund of funds which would invest in a combination of early, later and expansion stage venture capital funds.

Estimated savings and benefits

The amendments have reduced unnecessary burdens and costs for managers willing to set up EuVECA and EuSEF funds by (i) removing limitations on larger fund managers to manage EuVECA and EuSEF funds and dual registration requirements, (ii) decreasing costs for EuVECA and EuSEF funds, (iii) broadening the range of eligible assets EuVECA funds may invest in.

The impact assessment estimated around EUR 40 500 of cost savings per year per EuVECA and EuSEF fund marketed in Member States and a total of EUR32 million in five years in cost savings for all new EuVECA funds.

State of Play:

Adopted on 25.10.2017
Regulation (EU) 2017/1991, Date of effect 01.03.2018

Outcome of legislative procedure

The main outcome are on the following aspects:

• Extended the range of managers

The Commission’s proposal to allow all managers authorised under the AIFM Directive (other than sub-threshold managers) to market and manage EuVECA and EuSEF funds has been adopted by the co-legislators.

• Eligible assets

The Commission’s proposal expanding the range of assets eligible for EuVECA investment beyond the current definition of SME has been adopted.

• Minimum Investment

The Commission’s proposal did not introduce any changes to the current minimum investment requirement for non-professional investors.

• Own funds

The Commission’s proposal entrusted ESMA with the development of draft regulatory technical standards specifying the methodologies for the determination of what constitutes sufficient own funds. The Council and the Parliament decided to set the requirements in the Regulation.

• ESMA role

The Commission’s proposal did not significantly modify the role of ESMA beyond requiring maintenance of a central database, publicly accessible on the internet, listing:

- all managers of EuVECA and EuSEF funds;

- all EuVECA and EuSEF funds;

- Member States in which those funds are marketed.

ESMA is empowered to organise and conduct peer reviews in order to strengthen the consistency of the registration processes carried out by competent authorities.

Estimated savings and benefits

The estimated savings and benefits do not differ from the ones set out in the Commission’s proposal as the co-legislators adopted the main elements proposed by the Commission.