Venture Capital Domicile Report by VC Lab

Overview

Launching a venture capital fund can be challenging due to the complexity of the factors to consider, which often creates a high barrier to entry for emerging fund managers. In particular, fund structuring and determining where to domicile the fund can be confusing, costly, and time consuming due to the lack of forthcoming information available. This report aims to provide some guidance regarding potential fund domiciles for venture capital funds. The jurisdictions included here are not exhaustive, however they include commonly used and established fund domiciles. 

Below are the factors that are frequently considered when determining where to domicile a fund:

• Tax Optimization
  • Where are your investors located?
  • Where do you intend to invest?
• Cost
  • What are the set up and formation costs?
  • What are the annual maintenance costs?
• Timing
  • How long does it take for formation?
  • How long does setting up bank accounts and other fund support activities take?
• Fund Marketing Regulations
  • Do you need registration or licenses to market the fund and how long to these take to get?
  • What are the requirements about who you can market to and how many investors can you have in a fund?

Popular Domiciles by Region

A first time fund manager will likely have limited resources (both time and money) to devote to determining where to domicile their fund. While fund formation costs can be paid from fund expenses, engaging legal counsel or a tax advisor can be costly and so most fund managers have some sensitivity when it comes to the cost of seeking fund structuring advice. In addition, the time to form a fund differs across jurisdictions as some jurisdictions have more onerous filing requirements. There are some service providers that can handle fund formation on behalf of a fund manager, however these services often come at a hefty price.

Broadly, fund managers should consider the regulatory regimes that apply to the fund because this will inform how a fund manager can engage potential investors and approach fundraising activities. Fund managers should also be aware of compliance requirements related to securities laws and any ongoing compliance requirements for the fund or its affiliates. Some jurisdictions also have physical presence requirements that fund managers should be aware of before proceeding with forming their fund. 

Perhaps the most important factor to consider is tax treatment. Fund managers should be optimizing for tax efficiency for the fund and its investors. This can be a sticking point for potential investors, so fund managers should consider where the fund’s potential investors are located, where the fund will be investing, and whether there are any applicable tax treaties that make a certain jurisdiction an attractive option for the fund’s investors.

It is important to note as well that fund managers may structure their fund entirely in one jurisdiction or they may take a “hybrid approach” in which the fund entity, the general partner entity, and the management company are formed in different jurisdictions. Taking a hybrid approach may be more tax efficient for the fund manager.   

There are some valuable resources online that can be helpful, particularly free templates or guides published by law firms or the official venture capital association of a jurisdiction. For example, the National Venture Capital Association in the US publishes helpful guidance and template documents on their website. The breakdowns linked to below include links to the relevant venture capital associations, if any. 

More Domicile Analysis

For more information on fund domiciles, including details and analysis below:

• Venture Capital Domicile Report
• Fund Domicile in Delaware, United States
• Fund Domicile in Ontario, Canada
• Fund Domicile in Singapore
• Fund Domicile in Hong Kong
• Fund Domicile in Caymans
• Fund Domicile in Mauritius
• Fund Domicile in the Netherlands
• Fund Domicile in Luxembourg
• Fund Domicile in Estonia
• Fund Domicile in the United Kingdom