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The UAE announces legal system for venture capital funds

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

The move comes as part of the projects of the first batch of government accelerators launched earlier by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to expedite the process of achieving the National Agenda goals.

“Approving the controls and obligations governing the venture capital fund is the fruit of a strong cooperation and partnership between the public and private sector, aiming to expand the scopes of funding innovation-based projects in the UAE, Sultan Bin Saeed Al Mansouri, Minister of Economy said.

He added that this decision is a step in the right direction. It will further promote the competitiveness of small and medium-sized businesses as well as the national business especially in innovation and technology-based areas.

In the world of investment, venture capital is prominent and innovative measure used to fund leading projects and businesses and provide success factors especially in the establishment phases. This will, undoubtedly, reflect positively on the UAE march towards entrenching the concepts of innovations and knowledge and will help achieve the governmental goal of placing the UAE among the top ten countries in the world of innovation by 2021, Al Mansouri concluded

A venture capital fund is defined as a special fund that invests in the highly risky investments like new projects, technologies and troubled projects, as well as in businesses with new and innovative ideas especially in technological fields.

The legal system involves necessary controls and obligations governing the venture capital fund. It also aims to facilitate the work of innovators and attract venture capital funds to the country so as to bolster the UAE’s innovation enablers and strengthen its position in the international innovation index ranking.

According to the new system, if the value of assets under management exceeds Dh180 million, it is obligatory for a business to issue an annual report according to the IFRS standards, appoint a risk management officer, and its exposure to the risk should not exceed the fund’s net asset value.

However, in the event that the value of assets under management does not exceed Dh180 million, it obligatory for a business to draft annual report summary. Its exposure to risk still should not exceed the fund’s net asset value.

The venture capital fund, according to article No. 3 of the decision, has three obligations. The fund should invest not less than 70 per cent of its assets in one or more of the following domains:

1-Lending new or troubled projects by not more than 30 per cent of its assets (or participating in these projects).

2-Equity instruments issued by unlisted companies in the market or other instruments issued by those companies or subsidiaries.

3-Units of other venture capital funds provided that investments should not exceed 10 per cent of its assets.

4-Lending businesses mentioned above by not more than 30 per cent of its assets provided that the fund should be an investor in the business of that instruments.

The second obligation is that the fund’s investments should not exceed 30 per cent of its assets in the investments that the Open public investment fund (Emirates UCITS) is allowed to invest in. In case of investing abroad, the fund should committee to the above mentioned obligations.

The article No. 4 lists another three obligations the fund should commit to including conducting regular evaluation to the fund’s assets and units (at least one time a year), issuing an annual report that involves the fund’s investments, activities, loses and profits and the percentage of fund’s borrowing or collaterals should not exceed its assets.

The signing ceremony was attended by Ohoud Bint Khalfan Al Roumi — Minister of State for Happiness and Director General of the Prime Minister’s Office. It was signed by Obaid Saif Hamad Al Za’abi, Acting Chief Executive Officer of the Securities and Commodities Authority (SCA), in the presence of Abdullah Sultan Alfan Al Shamsi Board, Member and Assistant undersecretary for Industrial Affairs Ministry of Economy, and Huda Al Hashemi, assistant to the director-general for Strategy and Innovation.

Source: The UAE announces legal system for venture capital funds | GulfNews.com

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