More SMEs could benefit from venture capitalist funding under EU plans agreed on by law makers

The proposals, if finalised, could also allow a larger number of asset management firms to manage the funds, known as European Venture Capital Funds (EuVECA).

Representatives from the EU's Council of Ministers, which is made up of officials from the governments of the countries that make up the EU, and the European Parliament reached an agreement on plans to update a 2013 EU regulation on European venture capital funds on Tuesday. The law makers also agreed to amend a similar regulation on European social entrepreneurship funds (Eusef).

Current regulations contain restrictions on which asset managers can manage venture capital funds designated as EuVECA and govern which businesses those funds can be invested in.

At the moment EuVECA funds cannot be invested in businesses that have more than 250 employees or which either have an annual turnover of more than €50 million or an annual balance sheet exceeding €43m. Amongst the other restrictions that also apply, businesses that trade on a regulated market or on a multilateral trading facility are also ineligible for EuVECA funding.

However, under the reforms agreed by the Council and Parliament, businesses with up to 499 employees will be eligible for investment by EuVECA funds in future, as will SMEs listed on SME growth markets, according to statements issued by the Council and the European Commission.

Current regulations also generally prohibit asset managers from operating EuVECA funds if they already manage assets worth more than €100m. However, that threshold is set to be removed under the new rules agreed upon. In future, fund managers of any size will be able to manage EuVECA funds, the Council said.

The new EuVECA and Eusef regulations have still to be formally approved by the Council of Ministers and European Parliament. The new rules will come into effect three months after the legislation comes into force.

EU commissioner for financial services, Valdis Dombrovskis, said: "Today's agreement removes another barrier to venture investment at EU level. The reforms we have agreed – expanding investment possibilities for funds, broadening the range of eligible managers and simplifying administration – will help investor capital reach the SMEs that need it."

Andrew McMillan of Pinsent Masons, the law firm behind Out-Law.com, who specialises in corporate transactions in the technology market, recently highlighted the challenge that technology 'scale-up' businesses face in raising capital to realise their growth potential.