“What is an SME?” asks VC industry

The European Private Equity & Venture Capital Association (EVCA) has called for an urgent clarification of the EU’s definition of SMEs, as the Commission readies a new light-touch regime for venture capital in a last-minute legislative about-turn.

With a new proposal for regulating venture funds on the table, the EVCA has now stressed the need to make clear what types of funds will qualify.

One concern is that if SMEs owned by funds managed by the same general partner (GP) were aggregated, they may lose their SME status, subjecting that GP to onerous measures. 

In June, European lawmakers decided that controversial single market regulation, detailed in the unfolding AIFM directive, was likely to hamper venture capital investments and therefore economic growth. 

Among other restrictions, private equity funds are facing capital adequacy and disclosure requirements, as well as remuneration caps.

But it appears the Commission has conceded that venture funds should only be subject to voluntary registration under a regime that requires very basic reporting obligations.

Karsten Langer, chairman of the European Private Equity & Venture Capital Association, welcomed the consultation paper, saying: “In the face of sovereign debt crises, fears of financial market risk and stock market volatility, it is encouraging to see the European Commission focusing on a positive agenda that will help drive growth and prosperity in Europe over the long term. Namely facilitating access to finance for SMEs.”

But EVCA has criticised the paper’s definitions, not only for SMEs but also venture capital. In its full response the industry body said the document’s definitions of the asst class are “not up to date” and do not leave room for diversified investment strategies. 

“Small funds may invest in a number of different stages of venture or enterprise capital and a number of differently sized companies,” reads EVCA’s response, before adding that current definitions “do not necessarily reflect individual strategies that funds may pursue”.

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