The Regulation of European Venture Capital Funds (‘Euvecas’)

Abstract

Venture capital provides 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. In addition, venture capital funds provide undertakings with valuable expertise and knowledge, business contacts, brand equity and strategic advice. By providing finance and advice to those undertakings, venture capital funds stimulate economic growth, contribute to the creation of jobs and capital mobilization, foster the establishment and expansion of innovative undertakings, increase their investment in research and development and foster entrepreneurship, innovation and competitiveness. To that end, the EuVECAR as an optional specialist regime available to alternative investment fund managers (‘AIFMs’) registered or authorized under the AIFMD was adopted. AIFMs managing qualifying venture capital funds (‘EuVECA’) can optionally opt into using the ‘EuVECA’ label for these funds and market them to professional, and certain high net-worth investors through the EU under the EuVECA marketing passport. The EuVECAR establishes uniform rules, so that a clear demarcation line can be drawn between a qualifying venture capital fund and alternative investment funds (‘AIFs’) that engage in other, less specialized, investment strategies, which the EuVECAR is not seeking to promote. The EuVECAR establishes a uniform regulatory framework on the nature of EuVECAs, in particular on qualifying portfolio undertakings into which the qualifying venture capital funds are to be permitted to invest, and the investment instruments to be used. The EuVECAR is an optional regime. Where AIFMs do not wish to use the designation ‘EuVECA’ then the EuVECAR does not apply. In those cases, AIFMs may continue to base themselves upon labels under existing national rules and general EU law applies. This contribution discusses the EuVECAR legal framework. To that end, Section 2 discusses the EuVECAR’s scope, including the relationship between Full AIFMs managing EuVECAs that are subject to the AIFMD and the ‘EuVECAR regime’ for Small AIFMs managing EuVECAs. Section 3 focuses on the EuVECAR and the relationship between ‘intermediary’, ‘product’ and ‘marketing/sales regulation’. These are elaborated in more detail in Section 4 (‘manager regulation’), Section 5 (‘depositary regulation’), and Section 6 (‘marketing & sales regulation’). Section 7 explains the registration regime for both Full/Small AIFMs intending to manage EuVECAs and the ‘product’ EuVECA itself and Section 8 concludes.