Azerbaijan is set to expand its legal framework for investment funds to include venture capital, marking a significant step toward fostering a more robust startup ecosystem. The Milli Majlis (National Assembly) Committee on Economic Policy, Industries, and Entrepreneurship recently discussed draft amendments to the Law on Investment Funds, which aim to regulate and stimulate venture capital activities in the country.
According to the Operative Information Center-OMM, the proposed legislation defines a venture capital fund as an investment vehicle established to pool capital from professional investors for the purpose of profit generation. These funds are characterized by their exclusive focus on investment activities, the pooling of capital for shared returns, and a structure where founders do not jointly participate in daily investment decision-making.
The draft law introduces clear criteria for "professional" and "accredited" investors. An accredited investor is defined as an individual or legal entity with the financial experience to understand investment risks or the financial capacity to absorb potential losses. Criteria include individuals with an annual income exceeding 150,000 manats over the past two years, or those with net financial assets (excluding primary residence) valued at over 500,000 manats. Legal entities must possess net assets exceeding 5 million manats to qualify.
The legislation distinguishes between two types of funds: "freely reporting" venture capital funds, which do not require a license but must be registered with the Central Bank of Azerbaijan (CBA), and "licensed" venture capital funds, which operate under a specific CBA license. The law also mandates that any entity wishing to use the term "venture capital fund" in its name must obtain prior approval from the Central Bank.
This legislative initiative is part of Azerbaijan's broader strategy to diversify its economy and support the burgeoning innovation sector. By creating a transparent and regulated environment for venture capital, the government aims to attract both domestic and international capital, providing startups with the necessary funding to scale their operations and compete in the global market.
