The European Venture Capital Association (EVCA) has vowed to fight on against the Alternative Investment Fund Managers (AIFM) Directive, which could prove disastrous for venture investors.

Last night, the JURI committee passed amendments to the controversial AIFM Directive. However, changes to the draft legislation fell short of those hoped for by the private equity community, which feels the EU is placing unnecessary constraints on the industry.

A second vote by the EU's ECON committee, due on 10 May, is the next major milestone for the legislation and EVCA is hopeful some of the most damaging rules could still be amended.

Javier Echarri, secretary general of EVCA, said the directive will prove particularly problematic for early-stage investments, and could stifle innovation in Europe.

"JURI's failure to exempt private equity and venture capital funds from requirements designed for hedge fund trading risks would, if adopted, have a ruinous effect on the financing market for European innovation and SMEs. A venture capital fund investing in early-stage businesses would face major outlay for entirely useless advisory services such as independent evaluation and depositary."

Therefore, this knee-jerk policy will be particularly damaging for early-stage investments, as the additional costs involved in the proposed advisory requirements would not scale with the size of a deal.

Additonally, if the directive is passed in its current form, it seems inevitable there will be less money available at the lower end of the market. This could put Europe at a competitive disadvantage with the US and the emerging Far East, particularly at a time when innovative industries, such as cleantech, require growth funding.

Speaking to unquote" today, EVCA highlighted the contradiction between the EU's own stated goals to foster innovation, and the punitive measures in the proposed legislation.

"While the EU is giving out incentives to SMEs with one hand, it is taking away with the other by potentially limiting fundraising options. We hope the ECON committee can further carve out some of these advisory rules when it votes on the directive next month."