BRUSSELS (Reuters) - The European Commission proposed on Thursday measures to boost the size of the EU market for venture capital in a bid to diversify access to capital for smaller companies in Europe.
Venture capital funds invest in riskier, emerging firms that are usually shunned by banks and other more conservative investors. The industry is seen as important to foster innovation but remains a small player in Europe with a market of 5 billion euros (£4.2 billion), five times smaller than in the United States.
Small and medium companies in Europe receive 75 percent of their funding from banks, and have recently struggled to get capital as the banking sector faced higher capital requirements.
In an attempt to expand the venture capital market, the Commission, the EU executive arm, has proposed to allow larger funds to invest in riskier start-ups without facing higher requirements.
So far, only funds with assets under management up to 500 million euros could operate across the EU with the lower legal requirements granted to European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF). This threshold will be abolished.
The Commission also proposed to expand the assets in which venture capital funds can invest, to include smaller firms. Red tape and fees for venture capital managers will also be lowered.
The fund industry supported the Commission proposal. EU states and the European Parliament will have to approve the proposals before they can take effect.
Brussels is also planning to use the EU budget to create a venture capital fund of funds with a size of at least 500 million euros which could attract major investors.
The average size of European venture capital funds is 60 million euros, half the size of the US. The public contribution to the possible fund of funds is still to be defined.