EU Commission seeks to boost investment in SMEs
New initiative aims to address the EU’s competitive disadvantage compared to the US
On July 14, the EU executive put forward a proposal aiming to boost Europe’s venture capital market. The move ties in with the broader plans of building a Capital Markets Union to facilitate access to finance for SMEs.
This change, unveiled by Jonathan Hill during his final press conference as the EU’s financial services Commissioner, seeks to amend the regulations that guide the European Venture Capital Funds (EuVECA) and the European Social Entrepreneurship Funds (EuSEF), originally established in 2013. The idea behind the step is spurring investment and diversifying the sources of funding available to SMEs that struggle to secure a bank loan. The Commission’s focus on strengthening capital markets is a result of the overreliance of European companies on banks for finance.
The draft legislation, which has to be agreed by the Council and the European Parliament, introduces three main changes to the funds that were put in place to support young and innovative companies. The changes would expand the number of managers eligible to market and manage the funds, increase the scope of companies that the money can be invested in, and make the registration and cross-border marketing of these funds easier and cheaper.
The Commission argues that many entrepreneurs take their businesses to the US due to the existing market barriers and the difficulty faced by unlisted companies in attracting funding in Europe. “If we want Europe to remain competitive, if we aspire to be a centre for innovation, if we want to encourage entrepreneurship not export it, we have to change this”, the former Commissioner commented. The US venture capital market is five times bigger than the EU’s, which has resulted in an estimated €90 billion of lost investment in Europe over the past 5 years.
The proposal is part of the self-proclaimed agenda of the Juncker Commission to reinforce what has been sluggish growth on the continent. Investors and fund managers welcomed the changes as a push to boost the European economy.