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CORFO Announces Amendments to Its Venture Capital Financing Programs

Francisco Guzman, Carlos Alcalde, and Crescente Bernales

Summary

  • The Chilean Agency for Economic Development announced amendments to venture capital investment fund financing programs: Early Technological Stages Fund (FET), Early Stages Fund (FT), and Development and Growth Fund (FC). 
  • Changes aim to enhance the local venture capital ecosystem, increase private sector participation, and streamline access to investments in specific sectors or regions. 
  • Key amendments include a substantial increase in credit lines for each program. However, the credit line expansion is accompanied by a reduction in the CORFO debt/equity ratio.
CORFO Announces Amendments to Its Venture Capital Financing Programs
Igor Alecsander via Getty Images

On August 23, 2023, the Chilean Agency for Economic Development (Corporación de Fomento de la Producción - "CORFO") announced a series of amendments to its venture capital investment fund financing programs: Early Technological Stages Fund ("FET"), Early Stages Fund ("FT"), and Development and Growth Fund ("FC").

These amendments seek to promote the consolidation of the local venture capital ecosystem, increase the size of the Chilean industry with a greater participation of the private sector, facilitate access to these investments for companies in specific strategic sectors or geographic regions, and reinforce the value offered by fund managers to the startups in which they invest.

One of the most significant changes was the increase in the credit lines that CORFO approves for these funds. For the FET Program, the amount increased from up to USD 12,500,000 to up to USD 16,500,000 (approx.). For the FT Program, the amount increased from up to USD 14,500,000 to up to USD 20,750,000 (approx.). Finally, for the FC Program, the amount increased from up to USD 22,850,000 to up to USD 33,250,000 (approx.).

However, such increase in the credit lines comes hand in hand with a reduction of the CORFO debt/equity ratio for each of these programs. This means that the amount of these credit lines decreased from a maximum of 300% of the fund’s capital to a maximum of 200% of the fund’s capital for the FET Program (i.e. CORFO debt/equity ratio of 2:1), from a maximum of 200% of the fund’s capital to a maximum of 100% of the fund’s capital for the FT Program (i.e. CORFO debt/equity ratio of 1:1), and from a maximum of 100% of the fund’s capital to a maximum of 50% of the fund’s capital for the FC Program (i.e. CORFO debt/equity ratio of 0.5:1).

Another key change introduced by these amendments was the elimination of the thresholds that these programs had for the investment in domestic companies through foreign contributions (i.e., 20% of the approved credit line for the FET Program, and 35% of the approved credit line for the FT and FC Programs). By eliminating these thresholds, CORFO implicitly acknowledged the global nature of the venture capital industry, together with the internationalization processes in which Chilean startups are increasingly more involved (e.g., reorganizations, flips, stock swaps, etc.).

Also, with respect to the fund managers of these investment funds, a series of adjustments were introduced. As for their minimum net equity, they are now required to prove a minimum net equity of USD 100,000 (approx.), which is lower than the previous amount (which could reach up to USD 200,000 (approx.) or more) and only at the time of their application to the respective CORFO program (the previous regulation established permanent requirements). Additionally, fund managers are now required to commit to the acquisition of at least 2% of the total capital amount of the funds that they manage, in quotas that must be of a different series than those of the rest of the contributors, and that must be paid in the capital calls under the same conditions as the rest of the contributors.

Finally, in line with the requirements of Law No. 20,712 on the Administration of Third Party Funds and Individual Portfolios (the "Single Funds Law"), the minimum number of unrelated contributors required for these funds was increased from four to eight, and a limit was established on the percentage of participation for each of them, which cannot exceed a 20% of the quotas committed and/or paid to the fund.

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