The proposals would make it easier for VCs to raise funds for startups by standardising their legal status across the EU.
“In order to support the most promising startups, VC funds must become bigger and more diversified in their investments. Today’s proposals will help develop this emerging market,” says Internel Market Commissioner Michel Barnier, who is responsible for financial regulation.
Funds will be allowed to operate across the entire EU if they invest at least 70 per cent of their capital into SMEs that are closely held. Funds’ investments would need to take the form of either an ownership stake in the companies, or providing them with loss-absorbing debt.
“By introducing a single rulebook, VC funds will have the potential to attract more capital commitments and become bigger,” a statement from the Commission adds. “Bigger funds mean more capital for individual companies.”
Research by the Commission shows that a company with long-term venture capital investors is more successful than a company that needs to rely on short-term finance from banks. This is commonly attributed to the screening that VCs undertake before investing in a company.
Of course, before any of these measures come into force, the measures will need to be approved by EU governments and the European Parliament.