Venture Capital Funds in Bulgaria: A Legal Overview

Licences, Corporate Clients, Fund-raising, Venture Capital

Bulgaria has emerged as a leading hub for venture capital (VC) activity in Southeast Europe (SEE). Against the backdrop of sustained economic growth in SEE, many international and local investors are drawn to Bulgaria’s increasingly dynamic venture ecosystem.

Nature of VC Funds

In European legal parlance, VC funds are classified as alternative investment funds (AIFs) and are different from the broader category of “Collective Investment Undertakings” (UCITS). Their main aim is to invest pooled capital according to a specific investment policy for the benefit of their investors, historically referred to as limited partners (LPs), with a direct correspondence between profit distribution and the share of investments and without forming investment portfolios of individual investors.

Partners in the Venture Capital Funds

What are referred to mostly for historic reasons as the General Partners (GPs) and the Limited Partners (LPs) are at the core of every venture capital fund.

General Partners (GPs)

The Fund Manager, typically operating through its board of directors, is responsible for sourcing, evaluating and approving investment opportunities. In  a limited partnership structure, the Fund Manager is often also an unlimited liability partner. The GP executes the fund’s strategy, oversees investment decisions and mentors portfolio companies with compensation generally linked to performance. 

Limited Partners (LPs)

LPs typically institutional investors such as pension funds, university endowments, insurance companies, and high-net-worth individuals, commit capital to the fund without participating in the management or adoption of decisions. Their role is passive,relying on the GPs’s expertise.

LPs typically commit their capital to the VC Fund for typically about 10 years.. LPs are not engaged in daily operations but are entitled to regular performance updates and can influence investment strategy.

A significant part of a VC fund’s operations involves planning and executing exit strategies, which include public offerings, acquisitions, or private sales. Successful exits are crucial as they return capital to LPs and generate profits for the firm and its investors.

Supporting Team

• Investment managers – Responsible for sourcing deals, conducting initial evaluations and supporting due diligence processes. Their role is crucial in the initial filtering of potential investments.
• Investment committee – Comprising the managing partner, investment managers and external consultants, the committee assesses potential risks, returns and strategic alignment with the funds’s objectives. This committee takes the final investment decision on whether to proceed with an investment after all due diligence has been completed.
• Legal – Manages all legal aspects related to transactions and ensures compliance with investment regulations.
• Financial – Oversees accounting, fund management, and monitors the financial health of the investments and the fund itself.

Legal Vehicles and Structuring

Bulgarian legislation does not prescribe a specific legal form of a venture capital fund or its fund manager. Commonly, the fund is established as a limited partnership (командитно дружество), while the fund manager often takes the form of a limited liability company (LLC). Other legal forms, such as limited partnership with shares, joint-stock companies or purely contractual funds are also possible.

Limited Partnership

1. A limited partnership is formed by agreement between two or more persons or entities to carry on business under a common name; 
2. At least one  partner  assumes unlimited liability (and if more than one, then  jointly and severally) for the liabilities of the partnership, while the other partners (limited partners) bear liability only up to the amount of their agreed capital  contribution.

Limited Partnership with Shares 

1. Functions similarly to the public liability company (also known as a joint-stock company). 

Joint-Stock Company

1. A corporate entity with capital divided into shares, offering limited liability to shareholders.
2. Can facilitate structured ownership and protect investors through different share classes specifying privileged rights.

NBLO’s Expertise in VC Legal Advisory

With substantial experience advising UK and EU venture capital funds and start-ups, NBLO is committed to support and offer tailored legal solutions to help funds and start-ups achieve their objectives and maximise investment potential. Whether you’re seeking guidance on compliance or securing funding, we’re here to support you.

For more information or advice, please contact our team at [email protected] or use the contact form on our website.