New investment instruments are being created for venture funds in Azerbaijan, Head of Corporate Law Department of the Innovation and Digital Development Agency (IDDA), Turkan Hajiyeva, said during her speech on the topic "Development of the digital and innovation ecosystem in Azerbaijan: new legislative opportunities" organized within the framework of the educational session "Digital skills for the media", Trend's correspondent reports from the event. According to her, the legal basis for new financial instruments such as SAFE (Simple Agreement for Future Equity) and convertible securities has been formed for investing in startups in Azerbaijan. "After attracting funds from professional investors, these funds can be invested in startups through SAFE and convertible securities," Hajiyeva noted.
According to her, the SAFE mechanism facilitates investment, especially in startups, which are at an early stage and whose shares or stakes haven't yet been formed. "SAFE is a deal concluded in relation to property rights that will be acquired in the future. The startup may not have shares or stakes that it can give to the investor today.
In such a case, how can the investor secure his rights in return for the funds he has invested? For this purpose, the legal basis of SAFE agreements was formed within the framework of the amendments to the Civil Code," the official pointed out. Hajiyeva emphasized that this mechanism envisages granting the investor appropriate rights in the event that certain conditions occur between the investor and the startup in the future.
"When a certain conversion event occurs in the future, for example, when the startup reaches a certain stage of development or the commercialization of the product is ensured, the shares and other property rights that the investor will acquire in the future are secured in advance on the basis of a contract. This creates a legal basis for protecting the rights and interests of the investor in the event that the startup is successful and grows," she said. The head of the department noted that the previous legislation didn't have sufficiently clear mechanisms for regulating such relations.
"The main purpose of these legislative changes is to clarify the investor. The investor should know what rights he has in return for the funds he has invested and at what level and by what legal mechanisms these rights are protected," Hajiyeva stressed. According to her, within the framework of the new approach, a number of new legal institutions have also been formed regarding the corporate agreement, special transactions regulating relations between investors and shareholders, and emission rights.
"Instead of creating special economic zones, we have directly integrated the legal institutions necessary for this area into civil legislation. The corporate agreement, special agreements regulating relations between investors and shareholders, emission rights, and other mechanisms have been formed within this framework," she added. Hajiyeva also highlighted that venture funds can operate under two different regimes.
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