DISCLAIMER: This post was last modified on 3 October 2024. Some information in this article may not be updated.

The European Union established the European Venture Capital Fund or EuVECA fund regulation to foster growth and innovation for small and medium-sized enterprises (SMEs). According to the World Economic Forum, the region comprises 99.8% SMEs, driving economic growth and providing 100 million jobs.  

By creating a standardised regulatory framework, venture capital funds can attract more capital commitments. With this, the framework safeguards investor interests, facilitates cross-border investment and offers potential tax benefits in certain EU countries. As a result, the EuVECA fund contributes to the overall economic development of the European Union.    

In this article, we’ll provide a quick guide discussing the fund qualifications of EuVECA regulation. 

What are the key features of the EuVECA fund? 

EuVECA is a voluntary regulation that facilitates the marketing and management of funds across the EU. Adopten in 2013, it helps diversify investment strategies, focusing on IT, biotechnology and healthcare sectors. Specifically, ‘qualifying venture capital funds’ must be: 

• At least 70% in qualifying investments – The fund must primarily invest in assets that align with EuVECA’s goals of supporting early-stage and innovative companies. 
• Limited non-qualifying investments – The fund can invest up to 30% of its capital in assets other than qualifying investments. Hence, this flexibility is limited to ensure that the fund’s primary focus remains on supporting innovative companies. 
• Established within the EU—The EuVECA fund must be established within the territory of a European Union member state.  

What are qualifying investments under EuVECA? 

EuVECA funds are required to invest primarily in qualifying investments to maintain their status. While EuVECA funds can diversify their portfolios with non-qualifying assets, this is limited to 30% of their total investments. Here are the ‘qualifying investments’ under the regime: 

• Equity or quasi-equity – Investments in the ownership or equity of a qualifying portfolio undertaking.  
• Loans – Secured or unsecured loans to qualifying portfolio undertakings, up to 30% of total capital.  
• Shares – Shares of a qualifying portfolio undertaking acquired from existing shareholders.  
• Other EuVECA funds – Investments in other EuVECA funds, limited to 10% of total capital. 

Who can apply as managers for the EuVECA fund? 

Authorised managers under the Alternative Investment Fund Manager (AIFM) Directive can apply to become EuVECA fund managers. In addition, the EuVECA fund regulation outlines standardised requirements for EuVECA fund managers.  

• The managers must not have Assets under Management (AuM) exceeding €100 million for non-professional investors.  
• They must have an initial capital of €50,000 for EuVECA funds.  
• They must have their own funds amounting to 1/8 of the previous year’s fixed overheads. 
• Managers must inform clients about non-qualifying investments.  
• Competent authorities must make fund reports available to relevant authorities and ESMA.  
• They must notify authorities of material changes and can appeal decisions within two months. 

Fund managers must adhere to these strict, ethical and regulatory standards, act with due care, prioritise investor interests and remain accountable for delegated functions. Additionally, fund managers may also delegate functions to third-party entities. 

Is EuVECA affected by other EU regulations or directives? 

EuVECA fund managers must comply with the AIFMD’s comprehensive regulatory framework. The framework establishes rules and standards for alternative investment funds like EuVECA, covering investor protection, fund management, marketing and capital requirements.

Essentially, both regimes offer qualifying fund managers a passport to market their funds across EU member states. EuVECA fund managers must also adhere to some pre-marketing requirements under the AIMF. A key difference is the smaller capital requirements for EuVECA fund managers. It provides a streamlined regulatory framework for smaller funds, allowing them to raise capital and invest in a broader range of companies without the full burden of AIFMD compliance.  

Managing EuVECA funds with Bolder Group 

In today’s competitive landscape, the EuVECA fund regime allows for a good investment vehicle for SMEs. However, managing funds might become complex since it is affected by other EU regulatory frameworks and extensive compliance requirements. Partnering with an expert on cross-jurisdiction compliance can help navigate these complexities. 

Bolder Group can help EuVECA fund managers navigate administrative burdens and ensure operational efficiency. Our team of experts across EU jurisdictions provides tailored services, including fund administration, fund structuring and regulatory compliance.  

Contact Bolder Group today to help you navigate EuVECA fund regulations.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

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