A guide to setting up a BVI incubator fund

In 2015, the British Virgin Islands passed the Securities and Investment Business Regulations. This provided for the creation of Incubator Funds, a much-needed option for starter investment, securities managers and smaller investors. In a market saturated with big, complicated, and often expensive to set up and participate in funds, the BVI Incubator fund was a success.

An incubator fund comprises up to 20 investors with a minimum investment of $20,000 and a market cap of $20 million. An incubator fund can only operate for a maximum of 36 months, after which it must either convert or close.

What are BVI incubator funds used for?

A BVI incubator fund is useful for securities and fund managers that want to keep startup costs low. They are also a great way for beginner managers to build a solid track record for themselves. These funds are cost-efficient, legal, recognized, and can also be used by a small group of closely connected investors.

For financial managers just starting their careers, an incubator fund is a sensible and fulfilling choice. But what about the benefits? There are quite a few.

The benefits include:

• A “lighter touch” approach to regulation from BVI authorities
• A welcoming business climate for venture capital managers and securities managers
• A good starting point for small fund managers or those wanting to build a track record
• Cost-efficient incorporation and ongoing maintenance fees
• No custodian requirements
• No need for an offering document
• Legislation synchronized with EU standards
• Flexible corporate structure
• A high level of corporate governance

Requirements for a BVI incubator fund

BVI has a lighter touch regarding regulation, but there are still various requirements you must adhere to. The requirements are minimal, and this also translates into lower ongoing costs.

Each BVI fund must have one administrator based in the BVI. There are no mandatory custodian requirements, and you don’t need to issue an Offering Document. Rather, investor warnings can be provided separately at the application stage.

Other requirements include:

• An annual fee of $1,000 must be paid by 31 March every year, in full to the Commission
• Maintaining a minimum of two directors at all times. One must always be an individual, but the other can be a company
• The Fund must notify the Commission of any changes to any of the information submitted at the application stage. This is limited to information that may have regulatory, legal, or material effects
• Financial statements should be filed annually but there is no need for an independent audit
• A return must be filed with the Commission twice a year

Application process

The process of setting up an Incubator Fund is straightforward. The application must be filed with the Financial Services Commission and accompanied by the constitutional documents, investment strategy, investor warning, and an application fee. As long as everything is in order, the incubator fund will become active just two days later.

At the application stage, you will submit a variety of documents. This includes the application form, instruction sheet, a Director Application, investor strategy, and an Offering document or investor warnings.

For each director, shareholder, or beneficial owner, you will need the following:

• Notarized copy of passport and proof of address, no older than three months
• Bank reference
• Professional reference
• Clean police conduct certificate
• An up to date CV
• Form A application

Ongoing obligations

Once the incubator fund is up and running, various ongoing obligations need to be taken care of.

Firstly, there is an annual fee due before 31 March each year. You also need to have a minimum of two directors at all times and update the Commission of any changes to this. Furthermore, it’s required to prepare and file annual financial statements and a bi-yearly return with the Commission. You must also maintain an Authorized Representative in BVI as well as an administrator.

These are minimal when compared to some other fund types in different jurisdictions. It is advisable to get these handled by a professional to ensure you don’t miss deadlines and are in line with the applicable legislation.

It is important to note that the lifespan of a BVI Incubator Fund is limited to two years. After this time has elapsed, it may be extended upon application for a further 12 months. After that time, it must either be closed or converted into an Approved Fund, Private Fund, or Professional Fund. Simply converting the fund is not a difficult process and can be completed by applying with the Commission.

Setting your Incubator Fund: Step-by-step

1. Find a corporate service provider that can set up the fund for you. They should also be able to provide an Authorized Representative in BVI and an administrator in line with the jurisdictional requirements
2. Discuss your options and be sure that a BVI Incubator Fund is right for you
3. Prepare the due diligence documents on each director or other stakeholder ensuring it is in-date and notarized
4. Prepare all documents relating to the structure and function of the fund, including investor strategy, offering documents, and information on the purpose and activity of the incubator fund
5. Complete all application forms required by the Commission
6. Submit all documents to the Commission
7. Pay the application fee
8. Wait for confirmation that the application was accepted
9. Go live two days later with your BVI Incubator Fund
10. Engage a corporate service provider to take care of all ongoing maintenance and obligations
11. After 23 months, decide whether you will wind the fund up or extend it for another 12 months
12. If you extend for another 12 months, you need to decide whether you will wind the fund up or convert it to another kind of BVI fund.

Why the British Virgin Islands?

You might be wondering why the BVI has become a popular location for investments, offshore companies, and bank accounts.

The British Virgin Island’s legal system is based on English law and is familiar to many business people, investors, and fund/securities managers. The jurisdiction also benefits from a tax-neutral environment while being compliant with international law and best practices.

As per this and the other benefits we mentioned earlier, BVI is an obvious choice for funds. But overall, the country is regarded as a democratic and politically stable country. There are no issues with territorial threats or internal tensions, and the economy is resilient. BVI has a long history of offshore business, particularly in the financial sector, so investors and managers can feel secure they are in good hands.

The authorities speak English and are accustomed to dealing with foreigners. This leads to increased confidence in the BVI as a jurisdiction, especially from investors.

The last word

Embarking on the world of investment funds doesn’t have to be difficult. Through the BVI Incubator Fund, beginner managers can gather experience and build their track record in a cost-efficient manner.