Located in the heart of the European Union, Luxembourg has established itself as the number one European center for investment funds, second worldwide to the United States.
Also recognized as a leader in the banking and investment funds industry, Luxembourg has established itself as a private equity and venture capital center with winning features that have convinced several top private equity players to set up cross-border operations in the country.
What is venture capital?
Venture capital implies the direct or indirect contribution of funds to startups for the purposes of their launch, development, or introduction to the stock exchange.
Venture capital also refers to a type of financing investors provide to small businesses or startups with long-term growth potential. Venture capital is defined in the Luxembourg law on venture capital investment companies, dated 15 June 2004, as amended.
Importance of venture capital in Luxembourg
For small companies and startups, venture capital can be a significant source of money. It is a source of practical guidance, consultation, and expertise. It also offers an opportunity for expansion. Funding from a venture capital investment could give a business the best possible start on its high-growth journey.
Venture capital in Luxembourg has become increasingly prominent throughout the last decade. Presently, this type of investment is used to raise capital for several tech incubators that create products or services that can have local and global market value.
Venture capital funds represent circa 10 % of Luxembourg’s regulated and unregulated funds, and Circa €9 billion is invested in venture capital through Luxembourg funds.
Investment vehicles suitable for venture capital in Luxembourg
Luxembourg offers a category of structuring opportunities for venture capital investments, such as the investment company in risk capital (SICAR), the Reserved Alternative Investment Fund (RAIF), or any commercial company, specifically a limited partnership (SCS or SCSp) qualifying as an alternative investment fund. Additionally, Luxembourg commercial companies can also be set up as venture capital vehicles based on the European Regulation (EU) No. 345/2013(EuVECA).
Here is an overview of typical Luxembourg vehicles adapted for venture capital:
- SLP – Special limited partnerships (société en commandité spéciale): the SLP is developed to grant the parties involved the highest level of contractual freedom and structuring flexibility.
- SICAR ( société d’investissement en capital à risque): hese investment vehicles are designed precisely to suit the needs of venture capital investors. SICARs are supervised by the Luxembourg regulator (CSSF).
- RAIF (reserved alternative investment fund): RAIFs offer a non-regulated alternative investment fund platform that is not subject to the direct supervision of the CSSF and is managed by an authorized AIFM. RAIFs also offer a high level of investor protection.
- EuVECA: the Luxembourg European Venture Capital Fund (EUVECA) structure is subject to compliance with eligible asset diversification and additional rules outlined in related EU regulations. Those who want to open a fund in Luxembourg will have the potential of marketing the fund to other qualified investors established in the European Union (EU).
If you like to know more about how to select a suitable vehicle for venture capital in Luxembourg, let’s go ahead and contact your Damalion expert now.
