First VCT Prepares for Underwriting

Rouyesh Lotus, Iran’s first venture capital trust to get listed, will open for underwriting on Iran Fara Bourse on Monday, says Lotus Parsian Investment Bank’s chief executive.

Iran’s dip into the world of private equity is accelerating, as the public is allowed to buy investment units in venture capital trusts, which in turn invest in small tech companies and foster them.

Venture capital funds are a pillar of modern finance. They raise capital from wealthy investors and invest in risky startups. Later, they sell their equity in ventures that succeed.

However, VCTs, a British innovation, raise their money from investors through capital markets with less restriction on investors.

In the UK, £458 million were invested into VCTs in the 2015/16 tax year, according to figures compiled by the Association of Investment Companies.

A venture capital trust is designed for individual investors to gain access to investments via the capital markets. Its mandate is to seek out potential venture capital investments in small unlisted firms to generate higher than average risk-adjusted returns for its investors.

Lotus Parsian’s CEO Ali Teymouri Shandi said Rouyesh Lotus will be the first of its kind to offer its investment units to the public, the initial phase of which will take about a week from Dec. 19 to 25.

Teymouri hopes to raise 105 billion rials ($2.6 million at market exchange rates) for Rouyesh Lotus during the underwriting period from investors on IFB and 350 billion rials in the next six months.

The VCT will invest in healthcare, biotechnology and financial technology.

Rouyesh Lotus has strong ties with Royan Institute, which is one of the fund’s principal investors, and will fund research for cures to blood and breast cancer, diabetes, arthritis and deep wounds and burns, according to Securities and Exchange News Agency.

Royan Institute is dedicated to biomedical, translational and clinical researches.

  VCT Regulations

VCT regulations were finalized by SEO in August, according to which, IFB will create a separate board to list them. The new regulations and procedures have been designed to garner more support for Iran’s small base of startups. It is part of a government objective to expand “knowledge-based economy” with the ultimate goal of diversifying the Iranian economy away from oil.

Based on regulatory requirements by the Securities and Exchange Organization, the VCT has to keep 30% of its investment capital in cash. This will help the fund’s liquidity and ability to take advantage of opportunities but is likely to diminish its returns.

According to IFB CEO Amir Hamouni, a group of four called the “Venture Capital Review Committee” has been formed to review applications for setting up VCTs.

The group will have three voting members. The head of the committee will be appointed by SEO. IFB’s board will appoint the second member. The IFB will also pick a Venture Capital specialist as the third member who is also approved by the SEO. An IFB executive will be chosen as the fourth member of the committee, and will act as the committee’s secretary.

As is evident from the makeup of this committee, SEO intends to keep it under its full control just like it treats TSE and IFB.