With just a month to go until the Alternative Investment Fund Managers directive is finalised, the Commission has recognised that stifling startup companies by regulating VCs would be inappropriate and potentially damaging.
The consultation reads: “AIFMD does not always appear to be the ideal instrument for the promotion of the cross-border activity of venture capital in the EU,” and continues by conceding: “It would seem disproportionate to require venture capital managers [to comply] with the strict AIFMD requirements in exchange of a passport.”
Instead, the Commission suggests that venture be treated differently to the private equity and hedge fund industries, which are facing onerous measures such as a “passport” system that will allow registered funds to market within other EU member states, capital adequacy and disclosure requirements, and also remuneration caps.
A lightweight version for VCs may be applied instead. This lighter approach may include voluntary registration, a simplified notification procedure, restrictions for retail investors and basic reporting obligations.
The about-turn will be welcome news for the industry, which has been fighting venture’s corner since the EU first announced the clampdown. The European Private Equity and Venture Capital Association has been one of the sector’s most vociferous proponents.
“We think it’s a great move and very appropriate to have a regime of proportionality for smaller funds,” Karsten Langer, the newly appointed chairman of EVCA, told sister title Real Deals.
However, private equity managers will be hoping the directive’s final text will be as lenient as possible for them too – and this latest concession will raise new hope.
”We suggest that it should not just apply to a narrow definition of venture capital. Growth capital funds provide equity for generational transitions and so on. Why would you want to hamper those? I think there’s an opportunity here to create a regime that allows us to continue to channel money into small and medium-sized businesses in ways that are not systemically risky,” added Langer.
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