Venture Capital and Social Entrepreneurship Funds - Update

On September 14th the European Parliament voted to adopt a regulation amending the European venture capital funds (“EuVECA”) and the European social entrepreneurship funds (“EuSEF”) Regulations (the “New Regulation”).

In September 2015 the European Commission launched a consultation on the review of the EuVECA and EuSEF regulations with a view to improving the take-up of these funds. In its review in 2016 the Commission identified a number of obstacles to further growth and suggested measures to increase investment in these types of funds.

The adoption by the European Parliament of the New Regulation in September followed extensive discussions between the Commission, Parliament and Council. The revised rules will enter into force on the twentieth day following that of their publication in the Official Journal of the European Union.

The amendments to the EuVECA and EuSEF regime include:

  • Extending the scope of the regime to above threshold alternative investment fund managers under the alternative investment fund directive (“AIFMD”). Previously it was reserved to below threshold managers.
  • Clarifying the capital and own fund requirements.
  • Simplifying the registration process under AIFMD and these regimes.
  • Clarifying that fees and other charges may not be imposed by competent authorities of host Member States in relation to cross border marketing of such funds.

In addition, for the EuVECA regime, the New Regulation amends the definition of qualifying portfolio undertaking to allow EuVECAs to invest in undertakings employing up to 499 employees, as opposed to 250 employees, and in undertakings that are already listed on an SME growth market. The changes also allow for follow on investments in undertakings that do not meet the definition criteria at the time of such follow on investments but met them at the time of the first investment by the fund.