Registered Venture Capital Company: CMA Approval Requirements

Registered venture capital companies are, like credit rating agencies, an approval category under section 23(2) of the Capital Markets Act rather than a licence category. Registration under the Capital Markets (Registered Venture Capital Companies) Regulations, 2007 (Legal Notice 183 of 2007) gives a venture capital vehicle recognised status with the Capital Markets Authority (CMA), which matters for tax treatment, fundraising credibility and access to institutional investors who require CMA-registered structures. This article explains registered venture capital company approval in Kenya.

Eligibility Requirements

Regulation 3 of the 2007 Regulations lists what an applicant must already have in place. In summary, it must:

• be a company limited by shares, with the provision of risk capital to small and medium size businesses in Kenya as its principal object;
• have minimum paid-up share capital of one hundred million shillings and a minimum fund of one hundred million shillings;
• have audited financial statements for the three years before the application, the latest not older than six months (where applicable);
• have a demonstrable venture capital track record of at least three years, or one or more directors with such a record in managing venture capital funds;
• have engaged a fund manager licensed by the Authority;
• have a board on which at least one third of the directors are independent directors;
• have appointed an auditor who is a member of the Institute of Certified Public Accountants of Kenya and a secretary who is a member of the Institute of Certified Public Secretaries of Kenya.

The capital and fund-size thresholds are institutional-scale figures, so registration is rarely the right vehicle for an early-stage angel syndicate or a first-time manager without committed institutional capital. The track record test gives a newly incorporated vehicle a path to registration if its directors carry the relevant experience.

Documentation Requirements

Regulation 4 requires the application to be made in the prescribed form and on payment of the prescribed fee, with supporting documents. These include certified incorporation documents, constitutional documents with objects permitting the venture capital business, and a certified board resolution approving the application. The applicant must also submit a detailed investment policy for each fund covering:

• investment objectives and minimum and maximum investment amounts in any single enterprise;
• investment rules and process, including minimum commitment and investment periods, drawdown procedures and exposure limits;
• the preferred mode of divestiture and a clear diversification strategy;
• policies on fees and charges, and the risk factors specific to the targeted sectors.

Directors and key personnel should expect to provide CVs, fit and proper forms and evidence of good conduct, consistent with the standard applied across CMA-regulated categories.

The Fund Manager Dependency

A registered venture capital company cannot operate without a CMA-licensed fund manager already in place. The application must include the fund manager’s letter of acceptance of appointment, in the form in the Fourth Schedule, and the management agreement between the company and the fund manager containing the particulars required under regulation 10. This mirrors the online forex money manager category, where the licence depends on an existing relationship with another CMA-regulated entity.

Sequencing matters more here than in most CMA applications. Promoters sometimes assume they can register the vehicle first and sort out the fund manager afterwards; the Regulations do not permit that. A generic investment management agreement drafted without reference to regulation 10 is unlikely to satisfy the CMA on first submission, and much of the registration timeline is really the fund manager’s own regulatory timeline.

The Application Form

The prescribed application form goes further than most CMA forms in the personal disclosure it demands of shareholders, directors and the company secretary. Expect questions on prior receivership or bankruptcy, any denial or withdrawal of a licence or approval in any jurisdiction, regulatory or professional disciplinary action, criminal convictions and current investigations. Each person answers individually, not through a single company-level declaration, so collect these disclosures early.

Ongoing Obligations and Fees

Once registered, the company must pay the prescribed approval fees for itself and each of its funds, and each fund pays a prescribed annual fee. Under regulation 7, the company cannot change its shareholders, directors or fund manager unless it has received written confirmation that the Authority has no objection to the change. Build that approval step into any later restructuring or fundraising timetable.

In practice, registered venture capital company approval works best when the promoters treat the CMA as a partner in the process. Sharing a draft investment policy and the proposed fund manager arrangements informally before filing can surface problems early, and keeping the board, auditor and secretary appointments aligned with regulation 3 avoids avoidable queries. Clear records of the directors’ venture capital track record are especially useful where the company itself is newly incorporated.

How This Fits the Wider CMA Framework

Registered venture capital companies sit within the same section 23(2) approval regime as credit rating agencies, collective investment schemes and exchanges. For a broader view, see our guide to credit rating agency approval and our overview of Capital Markets Authority licensing in Kenya.