POSITION PAPER: European venture and growth capital funds reform

TO

EUROPEAN COMMISSION, Directorate-General for

Financial Stability, Financial Services and Capital Markets

Union (DG FISMA)

To the attention of:

Mrs. Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investments Union

Mr. John Berrigan, Director-General, DG FISMA

POSITION PAPER

Subject: European venture and growth capital funds reform

From:

BULGARIAN ENTREPRENEURIAL ASSOCIATION (BESCO), registered in the Register of Non-Profit Legal Entities, EU Transparency Register No: 983676794468-21.

Dear Commissioner Albuquerque,

Dear Director-General Berrigan,

This paper presents the position of the Bulgarian Entrepreneurial Association (BESCO) in response to the European Commission’s Call for Evidence and public consultation on the European venture and growth capital funds reform.

The Bulgarian Entrepreneurial Association (BESCO) represents more than 950 companies from a wide range of industries. Our mission is to strengthen Bulgaria’s business environment by advancing effective public policies, fostering innovation, and supporting modern approaches to sustainable economic development. BESCO welcomes the opportunity to contribute to the European Commission’s consultation on the reform of European venture and growth capital funds.

As highlighted in the Call for Evidence, the European Union faces a significant investment gap that limits the ability of startups and scaleups to access late-stage capital, scale efficiently and compete globally. Addressing this gap is essential for strengthening Europe’s long-term competitiveness, technological leadership and economic resilience. Venture and growth capital policy should therefore be approached not merely as a financial services adjustment, but as a core competitiveness instrument within the framework of the Savings and Investment Union.

Why this reform matters for Bulgaria and Central & Eastern Europe

In Bulgaria and across Central and Eastern Europe, the startup ecosystem has developed rapidly over the past decade. However, the availability of large growth rounds remains limited. Many promising companies are forced to seek later-stage financing outside the EU or rely heavily on non-European investors.

This dynamic is not primarily due to a lack of innovation or entrepreneurial capacity. Rather, it reflects structural constraints in Europe’s venture and growth capital ecosystem, including fragmentation, scaling disincentives for fund managers and limited institutional participation.

For emerging ecosystems, access to deeper and more integrated EU capital markets is critical. Without it, scaleups remain structurally disadvantaged compared to competitors in the United States or Asia.

Scaling EU Venture Funds: Removing Structural Disincentives

The current regulatory framework creates structural thresholds that can discourage fund managers from scaling. As identified by the Commission, small and mid-size venture and growth capital managers face significant barriers to achieving sufficient scale.

Where regulatory obligations increase sharply once certain size thresholds are crossed, managers may rationally limit expansion, delay fundraising, or structure vehicles in more flexible jurisdictions. This limits capital concentration, weakens follow-on capacity and reduces the ability of EU funds to lead larger rounds.

A more proportionate, risk-based approach is therefore necessary.

Closed-ended venture funds investing in unlisted SMEs do not present the same systemic risks as other alternative investment strategies. Regulatory treatment should reflect their long term, illiquid and equity-focused nature.

The reform should therefore:

● Ensure proportional AIFMD obligations aligned with actual risk profile and

investment strategy.

● Remove cliff-edge regulatory transitions that discourage scaling.

● Facilitate the emergence of larger, pan-European venture platforms.

● Enable meaningful participation of institutional investors, including pension funds and insurers.

A structural reason behind the limited scale of European venture funds is the extremely low participation of pension funds in the asset class. Across Europe, pension fund allocation to venture capital typically ranges between 0.12% and 0.4% of total assets under management, compared to close to 2% in the United States. This gap represents a significant untapped source of long-term capital for innovation.

Strengthening the credibility and attractiveness of EU venture structures - including the EuVECA designation - could support a gradual increase in institutional participation. One possible avenue would be to encourage pension funds to maintain a modest minimum allocation to EuVECA funds (for example around 1%), reflecting the long-term strategic importance of innovation-driven growth for Europe’s future competitiveness.

Without deeper domestic capital pools, European scaleups will continue to depend on non-European investors at critical growth stages.

Keeping European Startups in Europe

A persistent share of high-growth European startups relocate holding structures or headquarters outside the Union during later funding stages. This relocation is rarely driven by talent or market access alone - it often reflects investor preference for familiar legal environments, uneven governance standards, and complexity in structuring large cross-border rounds within a fragmented system.

When relocation becomes part of the financing strategy rather than a business decision, Europe risks losing long-term innovation capacity, ecosystem spillovers and strategic economic value.

If the Union wants startups to scale from Europe, financing them here must be equally straightforward and credible.

This reform should therefore strengthen the reliability and predictability of Europe’s scaling environment, reduce fragmentation in cross-border fund operations and reinforce the credibility of EU-based venture structures. Raising large rounds within the EU must become the natural first option, not a second-best alternative.

Reducing Fundraising Frictions Across the Single Market

Fundraising timelines in Europe remain longer and less predictable than in competing ecosystems. This is often due not to lack of capital, but to operational and supervisory fragmentation.

Managers raising across multiple Member States continue to face divergent procedures, repeated onboarding requirements and inconsistent expectations. These frictions increase structuring costs and delay capital formation.

For startups, the impact is tangible: delayed hiring, smaller rounds and weaker global positioning. Harmonisation must therefore deliver practical simplification.

The reform should promote:

● Consistent supervisory approaches across Member States.

● Reduction of duplicative administrative procedures.

● Wider use of interoperable digital verification tools.

● Streamlined reporting requirements tailored to venture-specific risk profiles.

True Single Market effectiveness requires reducing friction, not layering complexity.

Reducing Geographical Fragmentation in Public Venture Programs

A further structural issue concerns the geographic restrictions often applied to publicly backed venture funds and funds-of-funds. In many member states, public capital is required to be invested predominantly or exclusively in domestic companies.

While intended to support national ecosystems, such restrictions can unintentionally lead to artificial market fragmentation, reduced portfolio diversification, lower return potential and difficulties in attracting private limited partners - particularly in emerging ecosystems such as Central and Eastern Europe. They may also constrain the scaling of the strongest regional funds.

Allowing publicly backed funds-of-funds greater cross-border flexibility - for example encouraging a meaningful share of investments within the broader European ecosystem - could strengthen diversification, improve performance, and support the development of integrated pan-European venture capital networks.

Preserving and Strengthening EuVECA’s Venture-Specific Identity

The EuVECA regime remains one of the few EU instruments specifically tailored to venture capital investment in innovative SMEs. Its value lies in that specialisation.

A stronger EuVECA framework could also serve as a trusted channel for long-term institutional capital. Today, European pension funds allocate only a very small fraction of their portfolios to venture capital despite managing trillions of euros in assets. Establishing EuVECA as a recognisable, credible and well-regulated vehicle for venture investment could help mobilise this capital and facilitate broader institutional participation across the Union.

As the Commission considers possible adjustments, including widening the scope of investable assets, it is important that EuVECA retains its clear venture focus and does not evolve into a generic alternative investment regime.

Rather than diluting its identity, the reform should clarify and simplify its operational framework, reinforce its attractiveness for cross-border fundraising and strengthen its role as a credible European passport for venture investors.

A strong and clearly defined EuVECA framework can become a cornerstone of the Savings and Investment Union and facilitate more integrated VC markets across the EU.

Mobilising Europe’s Private Capital Base

Mobilising private capital beyond traditional institutional investors represents another significant opportunity. Bank deposits across the European Union exceed €19 trillion, representing a substantial pool of largely idle savings. Redirecting even a small share of this capital toward productive long-term investments could materially strengthen Europe’s innovation financing capacity.

Potential policy approaches include:

● Improving regulatory clarity for investments in the venture and private equity

asset class

● Targeted tax incentives for long-term innovation investment and angel investors

● Predictable and stable capital gains frameworks

● Public-private co-investment mechanisms, including structures with asymmetric risk-return profiles

● Development of secondary markets to enhance liquidity for early investors

● Initiatives aimed at strengthening investment culture, including educational programmes and awareness campaigns

International experience demonstrates the effectiveness of such measures, including public-private co-investment schemes previously implemented in several European countries.

A Competitiveness-Oriented Reform

From a startup and scaleup perspective, the success of this reform will be judged by outcomes:

● Can larger growth rounds be raised within Europe?

● Do companies remain European as they scale?

● Does capital move faster and more predictably across borders?

By aligning regulatory design with the real risk profile of venture funds, removing scaling disincentives, strengthening EuVECA’s venture-specific nature and ensuring that harmonisation delivers genuine simplification, the Union can significantly enhance its capacity to finance innovation at scale within its own market. For Bulgaria and for Europe as a whole, this reform represents a defining opportunity to close the scale-up gap, reduce relocation pressures and transform European capital markets into a true engine of competitiveness and technological sovereignty.

Respectfully,

Alexander Nutsov

Executive Director

Bulgarian Entrepreneurial Association (BESCO)