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Venture capitalists urge legislators to protect SMEs from AIFM Directive

Venture capital association leaders from around the world have expressed strong concern regarding the proposed European Alternative Investment Fund Managers Directive 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, said the legislation as it currently is written will irreparably harm small and medium sized enterprises 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 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."

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.

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