Why Luxembourg for a Venture Capital Fund?
Luxembourg is a leading investment fund centre used by venture capital managers, entrepreneurs, family offices, pension funds, and institutional LPs to structure scalable, cross-border vehicles. It offers a predictable legal framework, a sophisticated service-provider ecosystem (administrators, AIFMs, depositaries, auditors, legal and tax advisors), and efficient routes for EU marketing. For VC, this translates into faster time-to-market, credible governance, and investor familiarity with GP/LP terms.
Practically, domiciling your fund in Luxembourg lets you leverage the EU notification “passport” for distribution, align your fund type with your investor base, and choose between tax-transparent and tax-opaque setups to optimise after-fee, after-tax returns. The jurisdiction’s depth in private markets makes it especially fit for seed, Series A–C, and growth strategies, including sector-focused funds (deep tech, fintech, climate, healthcare, software, and frontier technologies).
Selecting the Right Fund Vehicle in Luxembourg
Luxembourg offers multiple fund types that can be tailored to VC. Core choices include RAIF, SICAR, SIF, EuVECA and ELTIF 2.0. Your final selection depends on target investors (professional vs broader), speed-to-launch, strategy fit (risk-capital orientation), and distribution plan.
- SLP (Special Limited Partnership): to attract investors, test their appetite before scaling to the RAIF or other type of investment fund
- RAIF (Reserved Alternative Investment Fund): launched quickly under an external AIFM; popular for PE/VC because it avoids direct regulator authorisation while preserving AIFMD governance.
- SICAR (risk-capital dedicated): designed for investments in risk capital; ideal for classic VC/PE deployments where “risk-capital” qualification is central.
- SIF (Specialised Investment Fund): broad, flexible framework for professional investors; works for multi-strategy VC or hybrid PE/credit/secondaries alongside VC sleeves.
- EuVECA: EU label for qualifying venture capital funds, enabling cross-border marketing to eligible investors under a harmonised badge.
- ELTIF 2.0: modernised regime allowing long-term strategies with improved distribution features, potentially widening your LP universe.
In parallel, you will choose a legal form (e.g., SCSp special limited partnership) to mirror international GP/LP economics, waterfall mechanics, carried interest, and co-investment rights.
Key Steps to Launch a Luxembourg VC Fund
Damalion supports international fund sponsors to launch their Venture capital fund in Luxembourg from A to Z:
- Define the mandate and LP fit: stage, sector, geography, ticket size, reserves, ESG/impact approach, and target LP classes (FOs, UHNW, insurers, pensions, funds-of-funds).
- Pick the fund type + legal form: match SLP/RAIF/SICAR/SIF/EuVECA/ELTIF to investor eligibility, reporting burden, speed, and marketing plan; commonly pair with an SCSp to replicate global limited partnership terms.
- Design the economics: commitment period, management fee step-downs, preferred return/hurdle (if any), carry %, GP commitment, clawback, recycling rules, key-man, and ESG side-letter playbook.
- Appoint the team: AIFM (if required), central admin, depositary (if applicable), auditor, legal and tax; establish risk, valuation, and conflicts policies aligned with AIFMD.
- Draft documentation: LPA/limited partnership agreement (if SCSp/SCS), offering memorandum/PPM, subscription docs, side-letter framework, SFDR disclosures, KIDs where relevant.
- Regulatory path: for RAIF, ensure an external AIFM is in place; for other supervised vehicles, plan for CSSF interactions; prepare pre-marketing/marketing notifications in target EU states.
- Fund operations: capital call/distribution mechanics, NAV timetable, valuation policy (IFRS/Lux GAAP as applicable), board/GP governance calendar, audit cycle.
- Investor relations: data room readiness, reporting templates (quarterly letters, KPIs, DPI/TVPI/RVPI), SFDR product classification and periodic statements.
- Launch and first close: align anchor LPs, set first-close threshold, commence deal execution under investment restrictions; document co-investment protocol.
- Scale-up & compliance: monitor AIFMD thresholds, Annex IV reporting (if applicable), ESG disclosures, and tax substance; prepare for second/rolling closes and successor fund planning.
What Makes It Attractive for Family Offices, Pensions, and PE Sponsors
- Institutional credibility: familiar legal plumbing and investor protections within a stable EU setting.
- Tax engineering flexibility: ability to select transparent/opaque layers, manage withholding frictions, and structure carry efficiently (subject to advice).
- Distribution reach: streamlined EU notifications and label options (EuVECA/ELTIF) to support diversified LP bases.
- Service depth: abundant experts for administration, custody, audit, valuation, and governance, supporting scale and regulatory hygiene.
Frequently Asked Questions
What are the main Luxembourg vehicles used for VC?
RAIF, SICAR, SIF, EuVECA, and ELTIF 2.0 are frequently used, often paired with an SCSp legal form to mirror international GP/LP terms.
Which structure is fastest to bring to market?
RAIF is typically faster because it does not require direct prior authorisation when an external AIFM is appointed and the framework conditions are met.
When is SICAR preferred over RAIF?
When the strategy is clearly “risk-capital” and you want a fund expressly dedicated to such investments; confirm alignment with risk-capital definitions.
What does an SCSp add to the setup?
It enables familiar limited partnership governance, flexible capital accounts, carried interest waterfalls, and international investor expectations.
Can I market across the EU?
Yes, subject to the chosen regime and notifications. EuVECA and AIFMD passporting frameworks facilitate cross-border marketing to eligible investors.
Is an external AIFM mandatory?
For RAIF and many AIF structures, an external AIFM is appointed to assume portfolio/risk management and regulatory responsibilities.
Can retail investors access these funds?
Most vehicles target professional/qualifying investors. ELTIF 2.0 may broaden access under specific conditions; verify eligibility rules per market.
How are management fees and carry structured?
Customary VC practice applies: management fee on commitments or invested cost, tiered step-downs, and carried interest subject to hurdle and clawback.
How is valuation handled?
Valuation policies typically follow fair-value principles with periodic NAVs; administrators and auditors test processes for consistency and governance.
What reporting do LPs receive?
Quarterly letters with KPIs (TVPI (Total Value to Paid-In) = DPI (Distributions to Paid-In) + RVPI (Residual Value to Paid-In)), capital account statements, audited annuals, and regulatory annexes as applicable (e.g., SFDR).
What about SFDR classification?
Funds may be Article 6, 8, or 9 depending on sustainability features and disclosures; ensure alignment between marketing and portfolio practices.
How long does formation take?
Timeline varies by vehicle and readiness of documents/providers; RAIF pathways can substantially compress time to first close.
Are co-investments feasible?
Yes. Establish a policy covering allocation, fee/carry sharing, timing, and information rights to maintain fairness and speed.
Can non-EU LPs invest?
Yes. Luxembourg funds are commonly designed for global LPs; assess tax, regulatory, and AML/KYC considerations early.
Do I need substance in Luxembourg?
Expect governance substance consistent with the structure: AIFM, boards, decision records, and agreements that reflect actual oversight and risk management.
What are common risk controls?
Investment restrictions, conflict-management policy, valuation oversight, key-person clauses, and limits on leverage and concentration.
How are distributions managed?
Pro-rata distributions per the LPA waterfall, with recall rights/recycling as agreed; DPI focus increases post-harvest phase.
What drives total cost of ownership?
Legal setup, AIFM/admin fees, depositary (if applicable), audit, tax, regulatory filings, and governance cadence; scale improves cost ratios.
Can I run a multi-strategy platform?
Yes. SIF/RAIF umbrellas can host multiple sub-funds (e.g., early-stage, growth, opportunity) under a unified governance spine.
What is the first step to get started?
Define the mandate, choose the vehicle/legal form, appoint providers, and prepare the LPA/PPM and marketing files for anchor LP engagement.
Luxembourg provides a proven, investor-friendly toolkit for venture capital funds. By selecting the right vehicle (RAIF, SICAR, SIF, EuVECA, ELTIF) and legal form (often SCSp), appointing experienced providers, and aligning governance, disclosures, and economics with LP expectations, managers can accelerate time-to-first-close and scale responsibly across the EU and globally.
Damalion supports entrepreneurs, investors, and family offices with compliant incorporation, banking coordination, and legal/tax alignment.
10 Major Banks in Luxembourg
- Spuerkeess (BCEE) – state savings bank; retail & corporate banking.
- BGL BNP Paribas – universal bank; retail, corporate & wealth management.
- Banque Internationale à Luxembourg (BIL) – retail, corporate & private banking.
- Banque de Luxembourg – private banking & wealth management.
- ING Luxembourg – personal, private & wholesale banking.
- Banque Raiffeisen – cooperative bank; extensive branch network.
- Société Générale Luxembourg – multi-specialist bank since 1893.
- HSBC Luxembourg – corporate, securities services & private banking.
- UBS Europe SE, Luxembourg Branch – wealth management & asset services.
- Deutsche Bank Luxembourg – cross-border & wealth management services.
10 Best Things to Do in Luxembourg (City)
Maximize a tight schedule with official, easy-to-reach highlights. Jump to map
- Bock Casemates – UNESCO-listed underground tunnels & views.
- Grand Ducal Palace (Tours) – summer guided visits of the palace.
- Notre-Dame Cathedral – late-Gothic cathedral & national shrine.
- MUDAM – contemporary art museum in Kirchberg.
- Musée Dräi Eechelen – fortress museum in Fort Thüngen.
- Philharmonie Luxembourg – world-class concert hall; tours & events.
- Pfaffenthal Panoramic Elevator – free glass lift with skyline views.
- Adolphe Bridge – iconic arch bridge with lower-deck walkway.
- Chemin de la Corniche & Old Quarters – “Europe’s most beautiful balcony.”
- Luxembourg City Tourist Office – book guided tours & experiences.
10 Best Hotels in Luxembourg (City)
- Le Royal Hotels & Resorts – 5★ Superior, central boulevard Royal.
- Sofitel Luxembourg Le Grand Ducal – skyline views over Pétrusse valley.
- Sofitel Luxembourg Europe – 5★ in Kirchberg, near EU institutions.
- Hotel Le Place d’Armes – Relais & Châteaux by the main square.
- Meliá Luxembourg – modern design by Mudam & Philharmonie.
- Mama Shelter Luxembourg – playful, design-led stay with rooftop.
- Park Inn by Radisson Luxembourg City – by the Gare & Old Town.
- Novotel Luxembourg Centre – walkable to Grund & Corniche.
- NH Luxembourg (Airport) – convenient for early flights.
- Alvisse Parc Hotel – 4★S resort-style hotel with pools & spa.
