As one of the main drivers of the European economy, innovation, job creation and economic growth, venture capital (VC) has been on the agenda of European policy makers for some time. Despite the COVID-19 pandemic and ensuing disruption in 2020, there remains a cautious optimism vis-à-vis the recovery of the PE/VC ecosystem (e.g. market has stalled but has not been materially affected, increased experience and maturity of the industry, high levels of dry power and the readiness of public policy intervention).
As VC funds in Europe remain relatively small-sized, managing EUR56 million on average (compared to EUR156 million in the US), keeping set-up fees and ongoing costs at a low level is critical. The possibility to market VC products across the EU without bearing excessive legal, regulatory and/or administrative burdens is another key parameter for venture capital managers when choosing where to locate their funds.
Luxembourg continues to offer a wide range of fund structuring options, which accommodate such needs and help connect VC fund managers to investors with a view to efficiently deploying capital into target investments.
Limited partnerships with a registered AIFM: a launch pad with economies of scale
VC managers may consider setting up their fund in the form of an unregulated Luxembourg special limited partnership (SCSp) or a common limited partnership (SCS). Funds organised in the form of one of these partnerships will generally qualify as alternative investment funds (AIF) within the meaning of the Luxembourg Law of 12 July 2013 on alternative investment fund managers (the AIFM Law) and will thus be required to appoint an alternative investment fund manager (AIFM). They may, under certain conditions (as set out in Article 3 of the AIFM Law), opt for a light regime by appointing a “registered AIFM”. This registered AIFM would normally be the general partner of the SCS/SCSp, as opposed to an “authorised” AIFM which would be subject to the obligations under the AIFM Law and the CSSF’s supervision. AIFs managed by registered AIFMs do not fall within the full scope of the AIFM Law and are, inter alia, not required to appoint a depositary, thus considerably reducing the annual ongoing costs. Furthermore, there is only a simple registration process with the CSSF and limited reporting requirements for a registered AIFM.
The SCSp and SCS are highly flexible regimes with a great level of contractual freedom. There are no investment restrictions and no investor eligibility requirements (except for marketing purposes under the AIFM Law). The only drawback is that the EU marketing passport is not available for registered AIFMs. Therefore, they may only market under the relevant national private placement regimes and/or rely on the reverse solicitation.
Should they need the EU marketing passport, two options may be further envisaged: the “EuVECA label” or renting a “white-label” fund.
EuVECA label: the gateway to EU marketing for qualifying managers
The Regulation No 345/2013 on European Venture Capital Funds (EuVECA Regulation) has created a simplified EU regime enabling certain registered AIFMs managing portfolios of “qualifying venture capital funds”, to market their product across Europe without the costs of full compliance and the regulatory burden of the AIFM Law. As of today, 23 EuVECA funds are domiciled in Luxembourg with 8 EuVECA managers being authorised in Luxembourg. Recent amendments to the EuVECA Regulation have been made to encourage a wider adoption of the EuVECA label, and new initiatives are being taken to ensure the availability of the EuVECA label under reasonable conditions.
White-label: renting a compartment with EU marketing passport
Service providers in Luxembourg offer so-called white-label vehicles, whereby fund managers can “rent” a compartment within an existing fund (usually a RAIF). This solution allows VC fund managers (in particular first-time fund managers) to get access to the EU marketing passport and rapidly focus on the fundraising process, in a quick, cost-efficient and affordable way.
As a truly international globally integrated fund domicile, Luxembourg emerges as a prime jurisdiction for venture capital funds, offering several attractive and innovative structuring tools in a venture capital-friendly legal ecosystem.
 Source: Invest Europe
 Source: European Investment Fund Research and Market Analysis, Working Paper 2020/64 “The market sentiment in European Private Equity and Venture Capital: Impact of COVID-19), accessible via https://www.eif.org/news_centre/publications/EIF_Working_Paper_2020_64.htm
 Source: European Commission, “VentureEU: €2.1 billion to boost venture capital investment in Europe’s innovative start-ups”, accessible via https://ec.europa.eu/commission/presscorner/detail/en/IP_18_2763
 Source: European Securities and Markets Authority – Register and central database of managers of EuVECA funds