Euro venture capitalists face big blocks to investment
European venture capital firms face "complex and costly" obstacles to investing their funds outside their home countries and do not benefit from a real internal market, according to the European Commission.
The EC has just begun seeking submissions on plans to change rules to enable venture capital firms to more easily raise funds across member states without having to secure authorisation in each individual country.
It added that while some large venture capital funds were operating across EU borders, they had to channel investments through "complex and costly parallel vehicles" in other countries.
The European Council first signalled in February that it wanted changes made to ease investment opportunities for venture capital funds.
The commission has now said that it wants to reduce tax barriers to the "greatest extent possible", as many funds have complained that double taxation issues have hindered their ability to access other markets.
"In this way, venture capital funds would benefit from economies of scale and specialised sectoral expertise would emerge," the commission said.
"This situation would have positive consequences. Firstly, there would be more and bigger venture capital funds able to provide capital to a greater number of SMEs [small and medium enterprises].
"Secondly, competition between funds would be promoted. Thirdly, there could be higher portfolio diversification and better returns for investors."
The commission said the annual amount invested by European venture capital funds in SMEs before the financial crisis amounted to between €6bn and €7bn.
The latest figures for 2009 and 2010 indicated investments of between €3bn and €4bn, it added, noting reduced funding had seen fewer firms benefit.
In 2007, about 3,000 SMEs in the EU received venture capital funding, compared with 2,500 in 2010, the commission said.