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Access to finance

Venture capital

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At present, there is no integrated European venture capital market - the regulatory situation varies widely from country to country and the market is fragmented along national lines. The EU is seeking to unify the venture capital market in order to provide innovative small businesses with easier access to financing. To achieve this, it is promoting cross-border venture capital investments.

Strictly defined, venture capital is a subset of private equity. Venture capital is thus professional equity co-invested with the entrepreneur to fund an early-stage (seed and start-up) or expansion venture. Offsetting the high risk the investor takes is the expectation of a higher than average return on the investment.

If cross-border investment in seed capital and the early stages of firms were unimpeded, venture capital funds could use their knowledge of the different sectors of industry and invest in a wider geographical area. This would reduce their costs and further develop their specialised sectoral expertise.

Larger, more efficient funds could increase their returns and raise more money, and more easily diversify their portfolios, making it easier for innovative enterprises to obtain funding and grow.

Different national, administrative, regulatory and tax rules make cross-border investment difficult. When a fund tries to invest in several EU countries, it usually has to set up additional management companies or administrative entities in those countries. This is both costly and time-consuming, and so feasible only for larger funds.

The EU wants to help innovative SMEs access venture capital, so cross-border investment should be made easier. The EU and its member countries have therefore joined forces to eliminate obstacles to cross-border investments. In 2006-2010, the Commission exchanged with Member States and industry experts views on how to achieve mutual recognition of national frameworks as an initial step in the short term. With its recent Communications on Europe 2020 Strategy, Small Business Act, Innovation Union and most importantly Single Market Act, the Commission committed itself to adoption of new rules, ensuring that by 2012 venture capital funds established in any Member State can invest freely throughout the EU. Member States were also invited to remove tax obstacles so that tax treatment in different jurisdictions would not lead to double taxation and hamper cross-border flows.

State of play

  • Commission proposal for a Regulation on European Venture Capital Funds (7 December 2011): the proposal sets out a new “European Venture Capital Fund” label and includes new measures to allow venture capital fund managers to market their funds across the EU and grow while using a single set of rules
  • Single Market Act (April 2011): the Commission presented in 2011 necessary legislative proposals for the implementation of identified priority measures to relaunch the single market by the end of 2012. One of the key actions was legislation designed to make it easier for venture capital funds established in any Member State to raise capital freely in any other Member States, without obstacles or additional requirements. The Commission presented its proposal on 7 December 2011.
  • European Council (February 2011) concluded that every effort should be pursued to lift remaining legal and administrative obstacles to the cross-border operation of venture capital. The Commission was invited to present its proposal by the end of 2011.
  • Innovation Union (October 2010): by 2012, the Commission will ensure that venture capital funds established in any Member State can function and invest freely in the EU (by adopting a new legislative regime) and it will endeavor to eliminate any tax treatment unfavourable to cross-border activities.
  • Commission summary report on ‘Cross-border venture capital in the EU’ (December 2009): the Commission issued a report on the policy work carried out together with national and industry experts from 2005 to 2009 on removing obstacles to cross-border venture capital. While there is a consensus among the Member States on promoting mutual recognition of national frameworks, no significant measures have been taken yet that would make fundraising and investing across borders easier.
  • European Parliament resolution (September 2008): the European Parliament recommended a harmonised EU-wide framework for venture capital and private equity, in particular to ensure cross-border access to such capital for SMEs.
  • Conclusions of the Competitiveness Council (May 2008) [176 KB] : the Council invited Member States to make progress towards a mutual recognition of national frameworks for venture capital funds. The Council also invited the Commission and Member States to work together in overcoming obstacles to cross-border venture capital investments.
    Further to this, the Council (December 2008) [223 KB] renewed its call on the Commission and the Member States to reduce the present fragmentation of the venture-capital market by facilitating cross-border investments.
  • Commission Communication 'Removing obstacles to cross-border investments by venture capital funds' (December 2007): the Commission proposed a broad partnership with and between EU countries, working towards mutual recognition of the national frameworks for venture capital funds.


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