Draft Tanzania Private Equity and Venture Capital Regulations 2024

The draft Capital Markets and Securities (Private Equity and Venture Capital) Regulations 2024 will, if passed into law:

• apply to all private equity and venture capital business operating in the United Republic of Tanzania through issuance of equity and debt;
• regulate venture capital business;
• provide investor protection and public awareness on venture capital business in line with best practice;
• widen the scope of alternative financing through diversification of financial products; and
• enhance overall start up and innovation ecosystem to drive economic growth.

REQUIREMENTS FOR LICENSING A FUND MANAGER

No person shall act or be appointed as a fund manager for the purposes of a registered private equity or venture capital fund or any of its funds unless such person is duly licensed by the Capital Markets and Securities Authority.

An entity intending to carry out the business of fund management shall have a minimum paid up share capital as may be prescribed by the Authority; have a board of directors of which at least one third of the directors are independent directors; and have its principal object the provision of capital to small and medium size businesses in Tanzania.

Letter of no objection – The licensed fund manager shall not change its shareholders, directors or custodian unless it has received a written confirmation stating that the Authority has no objection to the proposed change.

Obligations of the Fund Manager – Notwithstanding the provisions of any fund management agreement, the fund manager shall have obligations as detailed in the Regulations.

APPROVAL OF VENTURE CAPITAL FUNDS

Furnish of information memorandum – A fund manager seeking to raise funds for venture capital activities shall furnish the information memorandum to potential investors containing details on the terms and conditions on which funds are to be raised.

Investments Allocation in Venture Capital Funds – A venture capital fund:

• shall invest in unlisted securities of start-ups, pre-seed, seed, emerging or early-stage companies mainly involved in new products, new services, technology or intellectual property right based activities or a new model;
• shall not invest more than 25% of the fund in listed securities;
• shall not invest more than 25% of the raised fund in a single non-listed security;
• may invest a maximum of 25% of unallocated fund in money market instruments; and
• may engage in leverage or borrowing subject to consent from the investors in the fund and subject to maximum limits prescribed in the constitutive documents.

Prohibition on offers to the public – The fund manager of a venture capital fund shall raise funds from sophisticated investors and shall not raise funds by way of offers to the public.

APPROVAL OF PRIVATE EQUITY FUNDS

A person shall not offer, operate or provide private equity activities in Tanzania unless the fund is authorised by the Authority.

Furnish of information memorandum – A fund manager seeking to raise funds for private equity activities shall furnish the information memorandum to potential investors containing details on the terms and conditions on which funds are to be raised.

Investments allocation in Private Equity Funds – A private equity fund:

• shall invest in unlisted securities of emerging or later-stage companies mainly involved in new products, new services, technology or intellectual property right based activities or a new model;
• shall invest at least 75% of the fund in non-listed securities;
• shall not invest more than 25% of the raised fund in a single non-listed security;
• may invest a maximum of 25% of unallocated No. 5 of 2006 fund in money market instruments; and
• may engage in leverage or borrowing subject to consent from the investors in the fund and subject to maximum limits prescribed in the constitutive documents;

Letter of no objection – The registered private equity fund shall not change its shareholders, directors or fund manager unless it has received a written confirmation stating that the Authority has no objection to the proposed change.

Prohibition on offers to the public Closing of the offer Valuation framework – The fund manager of a private equity shall raise funds from sophisticated investors and shall not raise funds by way of offers to the public.

VALUATION

A fund manager to a private equity or venture capital fund shall have a valuation framework in place to assess the value of investments in the fund.

Valuation methodology – A fund manager shall adopt a valuation methodology in line with international best practices for the purpose of evaluating investments in fund.

CONTINUOUS REPORTING OBLIGATIONS

Records to be maintained by Fund Manager – A fund manager shall keep books of account and maintain records that reflect the affairs of the funds under its management.

GENERAL PROVISIONS

Transition Provision – Any venture capital or private equity fund that operates prior to the commencement date of these Regulations shall, within twelve months of the commencement of these Regulations comply with these Regulations.

Sustainability requirements – A fund manager shall develop, implement, and maintain sustainability policy that outlines the commitment of the fund to integrating environmental, social, and governance factors into investment strategy;

Prohibition of activities – A fund manager shall not lend to, invest in, provide finance to, act as a guarantor to or otherwise be exposed to any of its directors, affiliate companies or companies in which any of its directors or their close relations hold a substantial interest; or establish, manage, or advise another fund with a different investment strategy, including but not limited to, a venture capital fund if managing a private equity fund, or a private equity fund if managing a venture capital fund, without the prior written consent of a majority in interest of the investors.

Verification of source of funds – A fund manager of a registered venture capital or private equity fund shall take all reasonable measures to verify the sources of funds and its investments ensuring that it is not used as a conduit for funds sourced from or to be applied to criminal or socially undesirable activities including but not limited to money laundering, proliferation of terrorism and corruption.

Sanctions – The Authority may reprimand, suspend or de-register venture capital company or private equity company where if, for instance, the registered venture capital company or registered private equity company ceases to meet the requirements for registration or fails to comply with the Act, the reports or information filed by the company or fund manager contain false or misleading information, the company fails to take corrective action for a breach as indicated by the Authority within the prescribed time, the Authority becomes aware of any facts or circumstances that, in its opinion, warrant deregistration in the public interest or if the board of directors of the registered company requests its deregistration in writing.

Please contact VELMA Law if you have any comments or questions.