The UAE government established a new legal system for venture capital funds, as part of the projects dedicated to government accelerators launched by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.
The move aims to setting the controls and obligations governing the venture capital fund, rooted in a solid cooperation and partnership based model between the public and private sector, with an aim to expand the scope of funding innovation-based projects in the UAE.
this will help promote the competitiveness of small and medium-sized businesses in innovation and technology-based areas.
A venture capital fund is a special fund that invests in high-risk investments such as new technologies based projects and troubled projects, as well as in businesses with new and innovative ideas.
Under the new legal system, if the value of assets under management exceeds AED180 million, it is obligatory for the business to issue an annual report according to IFRS standards, appoint a risk management officer. The business exposure to risk should not exceed the fund’s net asset value.
Pursuant to Article [3] of the decision, the venture capital fund has 3 obligations. The first obligation is that the fund should invest not less than 70 per cent of its assets in one or more of the following fields:
1-Lending new or troubled projects or participating in these projects by not more than 30% (thirty per cent) of its assets.
2-Instruments issued by unlisted companies in the market.
3-Units of other venture capital not exceeding 10% (ten per cent) of its assets.
4-Lending businesses mentioned above by not more than 30% (thirty per cent) of its assets provided that the fund should be an investor in the same field of business.
The second obligation is that the fund’s investments should not exceed 30% (thirty per cent) of its assets in the investments that the Emirates Open public investment fund (Emirates UCITS) is allowed to invest in. In case of investing abroad, the fund should commit to the above mentioned obligations.
Article [4] of the decision stipulates further 3 obligations on the fund, including conducting regular evaluation of its assets and units at least one time per year, issuing an annual report that details the fund’s investments, activities, profits and losses, and the percentage of fund’s borrowing or collateral should not exceed its assets.
