May 31 European Union lawmakers approved a draft
law on Thursday making it easier to channel funds into start-up
companies from next year, inserting a safeguard the venture
capital industry fears will make the regime too expensive.
The European Parliament's economic affairs committee voted
in favour of the law which creates the first pan-EU "passport"
for venture capital (VC) funds, allowing them to market
themselves to potential investors across the 27-country bloc.
The sector is currently small, raising only about 4 billion
euros ($5 billion) annually because it is fragmented along
national lines. There are private placement rules in some
countries and none in others, making it harder to persuade
investors to step forward and build up funds of size.
Faced with an ailing economy, policymakers hope such funds
will help start ups grow into successful firms like internet
voice and video service Skype, which was backed by venture
capital in its early days.
"It gives an easier passport for venture capital funds to
operate across Europe," said Philippe Lamberts, the Belgian
Green Party lawmaker who is steering the measure through
EU states have joint say on the draft law and Thursday's
vote allows negotiations on a final text to start with the new
rules coming into force by July 2013.
They apply to funds below 500 million euros - those above
this threshold will be regulated by the EU's new alternative
investments rules which come into force at the same time.
Under the draft law investments will only be redeemable
after a specific period to prevent short-term, speculative bets.
The lawmakers also beefed up the law by requiring VC funds
to use a depository, an independent body entrusted with keeping
the fund's assets safe and noting how the money is being
invested and dividends being paid.
The European Private Equity and Venture Capital Association
(EVCA), an industry body, said if this requirement makes it into
the final law, it will increase costs significantly.
"If there is a depository requirement in the final text, the
law will become an empty box. There will be a regulation that
nobody will use. The burden compared with the advantages will be
just too high," said Erika Blanckaert, head of regulatory
affairs at EVCA.
EU states have not insisted that VC funds sign up a
depository in their version of the law.
After Wall Street's "Ponzi" scheme scandals like Madoff
which affected feeder funds in Luxembourg, the use of
depositories is seen by policymakers as helping to reinforce
supervision of funds.