By Andrew Frost, Lawson Conner
The EU’s European venture capital funds (EuVECA) regime and European social entrepreneurship funds (EuSEF), has been revamped recently to make it more attractive to genuine VC firms.
The EuVECA regulation allows venture capitalists to market their funds to investors across the EU through a voluntary EU-wide passport without having to meet all the demands of the AIFM Directive.
The recent amendments to this regime makes it both more accessible and better suited to support genuine VC investments. Under the previous regime, many VC firms fell below the threshold and so did not take up the passporting. This threshold has now been reduced. But at the same time, they have strengthened the requirements for qualifying, in that 70% of investments must go into SME equity. This aims to make the regime as attractive as possible to genuine VC firms. For those firms looking to take advantage of European investment opportunities before Brexit happens, the EuVECA regime looks promising.
According to Invest Europe, venture capital fund raising grew to a post-crisis record of €6.4 billion in 2016. These VC funds collectively invested €4.3 billion in over 3,000 companies. Taking advantage of the EuVECA designation will allow UK VC funds to tap into a huge pool of institutional capital.
The designation will be particularly of interest to those VC firms that had relied on funding from the EIB’s European Investment Fund (EIF). According to Helen Parsonage, a partner at law firm Osborne Clarke in Bristol, in the years leading up to Brexit, the European Investment Fund (EIF) funded up to 70-75% of UK-based VC funds. But since the UK invoked Article 50, the EIF has reduced its participation in new UK VC funds, leaving a funding hole for UK VC firms. Paradoxically, the EuVECA regime, could help replace this lost funding source.
Lawson Conner, the investment manager platform, has become of the first UK platforms to gain a EuVECA designation, from the European Securities and Markets Authority (ESMA). This designation means that UK venture capital funds that use its platform, can now have unfettered access to European-based investors.
VC firms such as firstminute Capital are already taking advantage of the new regime by marketing their new $85 million VC seed fund to European investors. Firstminute Capital, a new $85 million VC seed fund founded in London by Brent Hoberman and Spencer Crawley has appointed Lawson Conner to be its designated EuVECA partner.
"We are extremely excited to be one of the very first UK platforms to win a EuVECA designation," says Andrew Frost, Director, Investment Management Solutions at Lawson Conner in London. "We can now help those VC funds that want to market their funds to European investors meet all the necessary compliance obligations, without having to do it in house."
Director, Investment Management Solutions
You can read the other articles from Ipes' Private Equity update (edition 25) at the following links:
The rise of conflicting interests faced by PE managers and investors
Ipes makes a senior appointment in Jersey