On 14 July, the European Commission proposed an overhaul of EU rules to boost funding for venture capital and social enterprises. The proposal follows a public consultation, launched at the end of 2015, through which the Commission hoped to find out what was standing in the way of the creation of European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF). Here is a snapshot of what the main issues at stake are.

What did the consultation reveal?

The main issue that emerged from the consultation was the fact that at the moment, only fund managers with less than € 500 million of assets under management can offer these two funds. Most stakeholders, both fund managers and national financial regulators alike, agreed that larger fund managers should also be able to offer these funds.

What exactly are these funds?

EuVECA are funds that invest in small businesses that do not have access to finance from stock markets. Opening up other avenues of financing for these kinds of start-ups and innovative SMEs is particularly important because banks are typically in a less strong position to provide this type of financing, requiring as they do highly capital-intensive and specialised ongoing analysis and support. EuSEF funds, meanwhile, invest in enterprises that have addressing social objectives as their primary corporate aim. These enterprises often receive public support, but private investment remains vital to their growth. However specialised investment funds that invest in social entrepreneurs are rare and not large enough.

How popular have these funds been?

EuVECA and EuSEF are voluntary, so their take-up depends on stakeholder interest. So far, 70 EuVECA and four EuSEF funds have been notified to the European Securities and Markets Authority. So there is room for improvement, in particular when it comes to EuSEFs.

What is the Commission proposing?

The Commission is proposing to extend the range of fund managers eligible to market and manage EuVECA and EuSEF funds to include larger fund managers. It also wants to broaden the range of companies that EuVECA funds can invest in and decrease costs by explicitly prohibiting marketing fees levied by host Member States and simplifying the registration processes. Small businesses are a major motor for jobs and growth, so the ultimate objective of the proposal is to increase the amount of non-bank capital invested in venture capital and social enterprises by making it easier and more attractive for private investors to invest in small and growing companies across the EU.

How does the proposal fit into the 'bigger picture'?

Making it possible for small businesses to get the funding they need to grow is at the heart of the Capital Markets Union. So this proposal represents an integral part of the Commission's work in this area.  The proposal is also directly linked to the EU's Investment Plan for Europe, which sets out a comprehensive strategy for tackling the lack of finance that is hampering Europe's potential to grow economically and create more jobs.

Read more on European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF)