It is hoped that changes to the stock market guidelines in the European Union will encourage start-ups to tap public markets for funds instead of using bank finance or investment from venture capital (VC) firms.
Soon, European firms will only have to issue a prospectus if they are raising more than £351,000 (€500,000), compared with €100,000 before, under new rules to be introduced as part of the EC’s Capital Markets Union action plan.
A prospectus is the detailed legal document compiled for investors and these can be costly and time-consuming for a small firm to produce. However, under the new rules, they will become shorter and clearer and there will be a simplified version for businesses already listed that want to raise further funds.
Ministers hope that the move will cut fees and paperwork for start-ups and inspire them to float rather than using bank financing or investment from VCs. According to Lord Hill, the EU commissioner spearheading the Capital Markets Union action plan, the changes will “free up the system”, making it quicker and cheaper.
This overhaul of the ‘prospectus directive’ is the first of a raft of changes to be unveiled by the EC, which hopes to adopt a more US-style approach to encouraging fast-growing start-ups. Indeed, Lord Hill is talking of a “Silicon Valley-style ecosystem” in Europe. Other proposals include creating a pool of funds to encourage more traditional institutional investors to back early-stage businesses.
As a spokesman for Invest Europe, the European organisation representing private equity and venture capital said, prospectuses should not act as a barrier for start-ups wanting to access the public markets. He added that the new regulation will help many more European businesses present themselves to potential investors.