SEC considers rule mandating VC fund managers to supervise portfolio companies

The SEC is working on new rules to require venture capital (VC) fund managers to play an active role in managing their portfolio companies. This proposal is part of broader changes in regulations for VC and private equity (PE) funds. Currently, VC firms are required to be general partners in their investments, but under the new draft rule, this responsibility would shift to the VC fund managers themselves....CONTINUE READING>>>

For example, while entities like the Norrsken Foundation may no longer need to serve as general partners, the fund managers of Norrsken Africa Seed Fund would now take on that role directly with their portfolio companies. However, law firm Udo-Udoma & Belo-Osagie warns that this change could add “operational complexities” by requiring fund managers to have the necessary skills to oversee business operations directly.

This proposal follows SEC’s earlier amendments to regulations for Collective Investment Schemes (CISs), which now identify VC and PE funds as CISs. This categorization may impose certain regulatory requirements that might not align with the unique needs of VC funds. It could also mean that VC funds must issue prospectuses to potential investors, detailing investment opportunities, team backgrounds, target companies, and other critical financial data. Additionally, CIS regulations may require funds to shift their annual fee calculation basis from net asset value (NAV) to total assets under management (AUM) for more accurate oversight.

For private equity, only funds exceeding a target size of N5 billion are required to register with the SEC. Smaller funds, under the threshold, need only a ‘no objection’ approval, mirroring similar U.S. regulations. This adjustment aims to lessen regulatory pressure on smaller funds, promoting more micro- and small-business-focused PE firms in Nigeria.

Another amendment requires PE fund managers to publish semi-annual financial reports for their investors, detailing investments, valuation changes, and any adjustments to investment strategies.