In Azerbaijan, it will become mandatory for venture capital funds to specify in their charters or founding documents that at least 70% of their raised funds must be invested in objectives outlined by the Law on Investment Funds. The remaining capital may be allocated to other financial instruments for liquidity management purposes.
According to the Operative Information Center-OMM, this requirement is part of a draft law amending existing legislation, which was discussed today at a meeting of the Milli Majlis (National Assembly) Committee on Economic Policy, Industry, and Entrepreneurship.
Under the proposed regulations, venture capital funds will operate either as "freely reporting" or "licensed" entities. These funds may be established as limited liability companies, closed joint-stock companies, limited partnerships, or closed-ended investment funds, and they are prohibited from engaging in other types of entrepreneurial activities.
The legislation stipulates that venture capital funds must invest raised capital exclusively in innovative projects. These projects must be carried out by micro, small, or medium-sized enterprises involved in the development, production, or improvement of digital technologies and innovative products. Eligible entities include those holding a "Startup" certificate in Azerbaijan, or registration certificates from technology parks, business incubators, or industrial and free economic zones.
The draft law also introduces specific borrowing restrictions based on the fund's operational regime:
- Freely reporting venture capital funds may only borrow to meet short-term liquidity needs, such as financing investments or covering operational expenses. Total debt obligations cannot exceed 30% of the fund's total capital commitments, and individual loans must not exceed a 12-month term.
- Licensed venture capital funds are permitted to borrow amounts not exceeding 10% of their assets, with a repayment period of no more than three months.
The Central Bank of Azerbaijan (CBA) will determine the minimum authorized capital requirements and formation procedures for licensed venture capital funds. Furthermore, the register of shareholders will be maintained by the central depository, and funds will be required to calculate the volume of managed assets at least annually, following procedures established by the CBA.
Venture capital funds are permitted to invest both within Azerbaijan and abroad, provided they comply with the Law on Currency Regulation. Provisions regarding the extension of a fund's operational term, the replacement of managers, or the establishment of successor funds are to be governed by the fund's charter and investment declaration, in accordance with the requirements of this law.
