Venture Capital Fund Compliance: Regulatory and Legal Aspects

Corporate Clients, Fund-raising, Venture Capital

Venture Capital (VC) Fund Managers must ensure robust internal processes and full adherence to legal and regulatory frameworks during and after fund incorporation. Below is a concise overview of key compliance requirements.

License and registration with the Financial Supervision Commission

VC Fund Managers operating under the supervision of the Financial Supervision Commission (FSC) in Bulgaria must determine whether registration or licensing applies: 

• Licensing: A license is required if the VC Fund Manager directly or indirectly manages alternative investment funds (AIFs), with aggregate assets exceeding €100 million (including leverage), or €500 million (without leverage and with a five-year lock-up period from initial investment) 
• Registration: A registration is required if the VC Fund Manager manages AIF whose assets do not exceed the thresholds appointed above. In this case an application for entry in the register of the Financial Supervision Commission shall be filed.

Legal Framework 

Key regulations include:

• EU Legislation: Delegated Regulation № 694/2014 and Directive 2011/61/EU (AIFMD);
• National Legislation:  Act of the Activities of Collective Investment Schemes and Other Collective Investment Undertakings in Bulgaria.

VC Fund Managers must align operations with the above regulations to maintain legal integrity. 

Anti-Money Laundering (AML) and Risk Management

VC Fund Managers must:

1. Conduct rigorous Know Your Clients (KYC) and Know Your Business (KYB) checks on investors to prevent money laundering and financial crime.
2. Assess portfolio companies for reputational risks, connections to Politically Exposed Persons (PEPs) and transactional integrity.
3. Perform ongoing monitoring to ensure risk profiles remain consistent post-investment.

Internal Governance

VC Fund Managers are required to adopt and enforce internal policies covering:

• Investment strategy
• Risk assessment
• AML measures, internal control and conflict-of-interest prevention
• Accounting, remuneration and safe keeping of information
• Asset valuation
• Human and technical resources
• Compliance with the EU Whistleblowing Directive and secure document management

Reporting Obligations

VC Fund Managers need to:

• Provide Limited Partners (LPs) and regulators with regular, accurate reports on fund performance, financial statements, investment pipelines and key metrics (e.g. investment dates, amounts and pre/post-money valuations)
• Submit monthly annual reporting to FSC, ESMA and the Bulgarian National Bank
• Meet additional reporting obligations for institutional investors, such as the Fund of Funds

NBLO’s Expertise in VC Legal Advisory

With substantial experience advising UK, EU and Bulgarian venture capital funds and start-ups, NBLO is committed to guide clients through the complex VC investment landscape. Our team offers customised legal solutions to help funds and start-ups achieve their objectives and maximise investment potential. 

For more information or tailored advice, please contact us.