Proposed Rules Poised to Have Devastating Impact on Economic Growth and Innovation
WASHINGTON, DC--(Marketwire - September 21, 2010) - Venture capital association leaders from around the world today expressed strong concern regarding the proposed European Alternative Investment Fund Managers Directive (AIFMD) set to be voted on within the next month. The Global Venture Capital Congress, which gathered for its inaugural meeting last week at Hobart and William Smith Colleges in Geneva, New York, asserted that the legislation as it currently is written will irreparably harm small and medium sized enterprises (SMEs) by instituting burdensome regulations on the venture capital firms which invest in them. These regulations are intended to curb risks at large trading institutions but when applied to venture capital firms will have significant unintended consequences.
Of particular concern are rules that require the disclosure of highly sensitive portfolio company information by European venture investors. Other rules involve significant restrictions on non-European Union (EU) investors doing business in Europe. The result is likely to be a mass exodus of venture capital firms investing in European companies and raising money from European investors.
"On behalf of the global venture capital industry, we strongly believe that the unintended impact of the proposed AIFM Directive will be extremely damaging to venture capital and financing innovation across the world," said Uli Fricke, chairwoman of the European Private Equity and Venture Capital Association. "Venture capital relies on global fund sources in order to support local investment. Unwarranted restrictions on the free movement of capital would harm the financing of economic growth and innovation."
"Superimposing rules intended for large trading institutions on small venture capital firms would directly impact support for SMEs and other innovative companies in Europe and around the world," said Dr. Katherine Woodthorpe, chief executive of the Australian Venture Capital Association. "Such regulation would effectively negate all the past support the EU has given to this important ecosystem."
"Unlike banking regulation where decision-makers need to balance prudential concerns and capital preservation with encouraging SME lending, no such dilemma exists with respect to venture capital," said Richard Remillard, executive director of Canada's Venture Capital Association. "Venture capital investment creates jobs and companies -- and in no way results in any systemic financial risk."
"More than 90 percent of the venture capital firms in the emerging markets of Africa, Asia, Europe, Latin America and the Middle East look to investors in the EU as a critical source of funds," said Sarah Alexander, president and chief executive officer of the Emerging Markets Private Equity Association. "The requirements contained in the proposed AIFM legislation will create a considerable burden on these firms and compromise fundraising efforts in the EU, consequently choking off important sources of capital to the world's poorest countries. We hope the directive will be amended to allow fund managers to raise money in Europe under the existing regime which has been working for years."
The Global VC Congress is calling on European legislators to take the greatest care in the rule making process and to introduce a specific tailored regime exempting venture capital from unjustified and excessive regulatory burdens both at the fund and portfolio company level.
"During efforts for meaningful financial reform in the United States, Congress agreed that venture capital did not pose significant financial risk and passed an exemption for venture firms from additional regulation," said Mark Heesen, president of the U.S. National Venture Capital Association. "In doing so, U.S. legislators demonstrated much needed support for investment in emerging growth companies. We hope the EU will follow suit and protect the companies that are so critical to ongoing economic growth and innovation around the world."
Members of the Global Venture Capital Congress include:
Australian Private Equity and Venture Capital Association
Brazilian Association of Private Equity and Venture Capital
British Private Equity and Venture Capital Association
Canada's Venture Capital and Private Equity Association
Emerging Markets Private Equity Association
European Private Equity and Venture Capital Association
High Tech Industry Association (Israel)
Latin American Venture Capital Association
U.S. National Venture Capital Association
About the National Venture Capital Association
The National Venture Capital Association (NVCA) represents approximately 425 venture capital firms in the United States. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy and support entrepreneurial activity and innovation. According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the United States in 2008. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.