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Starting a fund can feel like venturing into a maze without a map, especially if you have chosen Germany as your jurisdiction. When you approach a new topic for the first time, a good first step is usually turning to a reliable old friend - Google. However, in the case of starting a fund, what you will encounter at best are vague answers that do not quite address the precise process, the parties that need to be involved and the jobs-to-be-done.
After more or less successfully doing your own research, the natural next step is to consult professionals: here you most likely turn to prestigious law firms. But, more often than not, after the initial calls you end up more confused than before. On top of that, you will face 5-to-7-digit costs and seemingly endless months of setup time.
Do not let disillusionment set in; we have walked this path and are here to guide you through each step. Let us navigate this journey together, beginning with the foundational steps.
The first thing you need to consider (and we cannot stress this enough): Venture Capital is a regulated market. In a bid to bring stability and clarity to the financial landscape after the financial crisis in the late 2000s, the European Commission introduced the Alternative Investment Fund Managers Directive. The AIFMD aims to set clear standards for fund managers across member states of the EU. Germany, known for its “precision and regulatory diligence”, responded to this directive with the establishment of the KAGB (Kapitalanlagegesetzbuch).
If you have set your sights on the Venture Capital arena in Germany, understanding the KAGB is paramount. On the bright side, you also have a structure for funds that gives you a clear framework. Let us unpack these elements that are regulated by the KAGB:
Below is a simplified summary of how those elements intertwine:
Once your entities are incorporated - at least for the GmbHs - you need to pay in share capital to register them in the commercial register. To be able to pay in share capital you need bank accounts for your entities. However, in most cases, you can only get a bank account when your entity is registered - which brings us back to square one.
To resolve this Catch-22, look out for business banks that allow you to open up a bank account while your GmbH is still in incorporation. Otherwise, this can be a major blocker for applying for your license as an AIFM (see 4. License below) since your ManCo needs to be registered beforehand. Searching for a bank on the fly adds unnecessary time to the process, so make sure to check early enough how to get a bank account. Reach out to us in case you have doubts as we are working with preferred banking partners who can help you out with this.
At this stage, you will be neck-deep in legal documentation. This includes:
This list is not exhaustive - please note that depending on your setup and LP base, more documents may be required. We will cover this in more detail in a future blog post - if you cannot wait, feel free to contact us. Together with our legal partners, we can support you with your entire legal framework to get you off the ground!
Once the ManCo is registered and you have the first version of your LPA, it is time to apply for an AIFM license with the local authorities - in Germany the BaFin. This is usually done by a law firm that prepares the respective application and submits it to the BaFin.
In Germany, there are two main types of fund licenses:
The type of license you secure will indicate the kinds of investors you can cater to. Public funds are available to the general public and have stricter regulations, especially for protecting investors, because they cater to both professional and everyday investors. On the other hand, Spezialfonds are designed for (semi-)professional investors which typically means that they have fewer regulatory requirements than public funds.
Within the category of special funds, there are AIFs and “Spezial AIFs”. The main difference between those two is essentially that Spezial AIFs can only manage up to 100 million euros in assets if they use financial leverage and up to 500 million euros without leverage. It is important to note that all funds under the ManCo are included in this calculation. For example, if under the same ManCo, Fund 1 is EUR 100 million, Fund 2 is EUR 200 million and Fund 3 will be EUR 300 million, then at this point at the latest, you will move into the standard AIF, which comes with more stringent regulations and auditing requirements.
Below is a simplified decision tree:
The license is essential for operating as a fund manager and governs the management and marketing of funds. This process can take months, although, with the right guidance and well-prepared documentation, you could be looking at a mere two weeks from application to completion (for Spezial AIFs).
Before the license is granted, you are limited to pre-marketing activities, but once approved, the fundraising world is your oyster - within the bounds of your obtained license, of course!
You might now be pondering the sections you can tackle yourself and those requiring external assistance. For phases 1, 3, and 4, enlisting a law firm to craft the necessary documents and applications is essential. Yet, coming prepared will substantially cut down both time and costs. Your path to launching a successful fund begins here, and we cannot wait to be a part of your story!
Looking to launch your fund? Connect with us at sales@bunch.capital or visit our website. We are here to empower you!
Disclaimer: The content presented herein is solely for informational and discussion purposes only. It is not intended to serve as legal, tax or financial advice or as an endorsement of any investment strategy. bunch does not provide legal, tax or financial advice. Readers should not base their investment decisions on the content presented herein or any other bunch-generated content alone and should seek appropriate professional advice. Nothing contained herein shall constitute or imply an offer to sell, purchase or enter into any transaction in respect of securities. The content contained herein is subject to change without notice. While we aim to present accurate and up-to-date information as part of bunch’s content, we undertake no obligation to update our content from time to time
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