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The European Private Equity and Venture Capital Association (EVCA)

represents, promotes and protects the interests of the European private equity and venture capital industry. With over 1,200 members in Europe, EVCA's role includes representing the interests of the industry to regulators and standard setters; developing professional standards; providing industry research; professional development and forums, facilitating interaction between its members and key industry participants including institutional investors, entrepreneurs, policymakers and academics.

EVCA defines venture capital as a subset of private equity investments made for the launch, early development, or expansion of a business. Figure 2.1.1 illustrates the successive phases of a business from its genesis and as it grows until it is floated on a stock market and becomes a fully fledged publicly owned (quoted) company.

Venture capital differs from traditional financing sources in that venture capital typically:

Focuses on young, high-growth companies; Invests equity capital, rather than debt; Takes higher risks in exchange for potential higher returns; Has a longer investment horizon than traditional financing; Actively monitors portfolio companies via board participation, strategic marketing, governance, and capital structure.

Venture capital is also an active rather than passive form of financing

These investors seek to add value, in addition to capital, to the companies in which they invest in an effort to help them grow and achieve a greater return on the investment. This requires active involvement; almost all venture capitalists will, at a minimum, want a seat on the board of directors. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. A good investor will be considering potential exit strategies from the time the investment is first presented and investigated.

Angel Investors or Business angels

are high net worth individual investors who seek high returns through private investments in startup companies. Private investors generally are a diverse and dispersed population who made their wealth through a variety of sources. But the typical business angels are often former entrepreneurs or executives who cashed out and retired early from ventures that they started and grew into successful businesses.

European VC industry is relatively small with its 50 billion of capital under management Compared to other sectors of the European investment funds industry, venture capital remains a niche sector. As figure 2.2.1 demonstrates, the venture capital sector in Europe is small compared to the broader sector of private equity. Within the broad range of private equity investors, venture capitalists account for between 10% and 15%, depending on the chosen year of reference. As at the end of 2010 there were about 1,500 private equity managers headquartered in the European Union.

Figure 2.2.1. Private equity and venture capital fundraising and investments (2003-2010)

On global frame, situation concerning venture capital investment is presented in figure 2.2.2.

The European market is smaller than the American one

dedicating insufficient funds toward the financing of innovative start-up industries. While the United States, in the period from 2003-2010, raised approximately 131 billion into venture capital funds, European venture capital funds only managed to raise 28 billion in this period. In addition, between 1990 and 2005, US funds average investment per company amounted to around 4 million, while the European average remained at 2 million throughout this period. Europe needs to improve its venture capital market by creating incentives to invest and by improving regulation.

Overall investment values in 2010, the ratio of private equity investment value to GDP in the CEE region was 0.119%, only 38% of the Europe-wide average of 0.314%. In 2009, the CEE figure had been exceptionally 30% above the European average. The lower comparative investment to GDP level seen in the CEE region in 2010 is more representative of the historical trend and indicates the continuing potential in the CEE region for further private equity development.

Private equity investments as a percentage of GDP for Europe, CEE and selected European countries, 2010

Republic of Moldova is at the stage of designing a mechanism of funding with venture capital

When the private sectors development is impeded by a reduced access to finances and a low level of absorption of innovations and technological transfer it is necessary the development of the legal framework on venture capital which might become a critical catalyst for innovation-based expansion of private sector . Since the possibility of financing projects is still mostly bank-oriented, Moldova should alter the law regulation that puts legal constraints to domestic investors such as pension funds, insurance companies and other investment funds to take part in private equity or venture capital financing.

In order to improve the framework conditions for venture capital funds and to progress towards a European venture capital market have to act to improve, as follows:

the functioning of capital market Define the regulatory framework for venture capital Improving the regulatory framework Establishing of institutional investors such as pensions funds, insurance funds etc. Reducing tax obstacles. Mutual recognition of venture capital funds