Potential of Venture Capital in the European UnionAuthor: Policy Department Economic and Scientific Policy, European Parliament
Date: February 2012
This study gives an overview of the situation of the VC industry in the EU, its
perspectives for and barriers to further development. In addition, suggestions
for policy initiatives that may help to diminish these barriers are provided.
More specifically, this study suggests that:
- Public policy initiatives should target larger VC funds or funds of funds. In addition,
these funds should be experienced and highly professional.
- In the short and medium term, public policy should focus on experienced international VC funds from overseas.
- In countries with less developed VC industries and ecosystems, public policy initiatives should focus on VCs with industry-specific experience.
- In countries with more developed VC industries and entrepreneurial ecosystems, public initiatives should support VCs with rather general experience.
- Public policy initiatives should support a greater involvement of large corporations in the European ecosystem.
- Policy makers should provide clarity about expected capital adequacy requirements.
- The European passport is an appropriate tool to reduce the complexity of cross-border VC fundraising. It should: allow for investors beyond the MiFID definitions, i.e. high net wealth individuals, family offices, and business angels; allow for investments other than SMEs; consider an exempt rule from AIFMD for funds holding the passport.
- The European passport could be used to clarify the EU definition of SME. It is also advisable to address the problem of linked enterprises.
- A pan-European fund structure should be a long-term goal, providing tax efficiency for all original investors.
- The public sector should initiate financial instruments that attract (crowd in) a greater amount of private finance and close the “equity gap” in investing in SMEs and in research and innovation.
- The public contribution should have clear objectives independent from political pressures and short-run goals.
- Public funding should ensure market conformity, efficient management and simple access for enterprises.
- Public funding programmes should take place on the country or EU level, not on a regional level.
- Public initiatives should aim at creating synergies between different instruments at different levels.
- Public policies should encourage (public and private) R&D investments.
- Public policy measures should support and stimulate the provision of support services (e.g., business incubators, technology transfer offices, coaching, mentoring, etc.)
- Bankruptcy laws should be amended to encourage serial entrepreneurship as well as first-time entrepreneurship.
- In the long term, policy measures should shape the educational and cultural system to become more supportive of risk-taking and an innovation-prone attitude.
- Policy measures should support entrepreneurial mobility, lower bureaucracy
requirements and diminish labour market rigidities.
- The EU may consider the provision of selective subsidies on a competitive basis on the EU level.
- When modernising EU public procurement policy, a reduction of hurdles for SMEs is reasonable.
- EU-wide patent costs should be reduced.
- In addition, policy measures should favour the creation of liquid exit markets for VC investments.
- EU should support the collection of reliable data (particularly on fundraising and public policy programmes) and related research.
Type of study: Consulting research
Relevant for: Limited partners, GP Venture capital, Fund of funds, Associate
Source: Policy Department Economic and Scientific Policy, European Parliament