Member Article

The Chilean Agency for Economic Development (Corporación de Fomento de la Producción - "CORFO") has 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").

The most significant changes approved by CORFO are listed below, distinguishing between amendments common to all programs and those specific to each one.

Amendments common to all programs

• Credit line amounts and leverage ratio
  Under FET Program:
  - The credit line amounts under the FET Program are increased, from amounts ranging previously from USD 4,150,000 to USD 12,500,000 (approximately) to amounts ranging from USD 6,250,000 to USD 16,500,000 (approximately).
  - The maximum amount of the credit lines is reduced from 300% to 200% of the capital contributions paid or committed to the fund. Therefore, the CORFO debt/Equity ratio that the fund may require is modified from a maximum of 3:1 to 2:1.
  - The amount that the fund is entitled to increase the credit line through an increase in the CORFO debt/Equity ratio is modified, establishing as maximum limit a CORFO debt/Equity ratio of 3:1 (previously 3.9:1).
  Under the FT Program:
  - The credit line amounts under the FT Program are increased, from amounts ranging previously from USD 4,150,000 to USD 14,500,000 (approximately) to amounts ranging from USD 6,250,000 to USD 20,750,000 (approximately).
  - The maximum amount of the credit lines is reduced from 200% to 100% of the capital contributions paid or committed to the fund. Therefore, the CORFO debt/Equity ratio that the fund may require is modified from a maximum of 2:1 to 1:1.
  - The amount that the fund is entitled to increase the credit line through an increase in the CORFO debt/Equity ratio is modified, establishing as maximum limit a CORFO debt/Equity ratio of 2:1 (previously 3:1).
  Under the FC Program:
  - The credit line amounts under the FC Program are increased, from amounts ranging previously between USD 4,150,000 and USD 22,850,000 (approximately), to new amounts ranging from USD 6,250,000 to USD 33,250,000 (approximately).
  - The maximum amount of the credit lines is reduced from 100% to 50% of the capital contributions paid or committed to the fund. Therefore, the CORFO debt/Equity ratio that the fund may require is modified from a maximum of 1:1 to 0.5:1.
  - The amount that the fund is entitled to increase the credit line through an increase in the CORFO debt/Equity ratio is modified, establishing as maximum limit a CORFO debt/Equity ratio of 1:1 (previously 1.5:1).
• Investment in local companies via foreign contributions and internationalization
  - The maximum amount of investment under this modality, which previously consisted of 20% of the credit line approved under the FET Program and 35% under the FT Program and the FC Program, has been eliminated.
• Credit conditions
  - The maximum term for repayment, in a single installment, of the loans granted under the credit line is increased from twelve to fifteen years (or the term of the fund, if shorter).
  - It is expressly stated that in cases where the liquidation proceeds of the fund are insufficient to fully repay the debt to CORFO, CORFO must exercise appropriate collection actions.
• Sanctions for non-compliance
  - The transgression of the obligations established in the fund's bylaws is included as an event of non-compliance, which entitles CORFO to apply a fine to the fund manager of up to 1% of the principal owed, notwithstanding the legal actions that may be pursued.
• Requirements and background of the fund managers
  -  The requirement regarding the minimum net worth required of the fund managers is modified. The minimum net worth required now refers only to the moment of application to CORFO. According to the new wording, the fund managers must demonstrate a minimum net worth of USD 100,000 (approximately) at the time of application.
  - Exceptionally, the fund managers are allowed to comply with a minimum net worth of USD 40,000 (approximately), under certain circumstances, in which case they are required to provide a guarantee in favor of CORFO, equivalent to 2% of the approved credit line (instead of 1%).
  - A new requirement is included for the fund managers, which must commit to the acquisition of at least 2% of the total capital amounts of the fund. These shares must be of a different series from those of the rest of the contributors not related to the fund manager, and must be paid under the same conditions as the rest of the contributors in the capital calls.
• Requirements and background of the funds
  - In line with Law No. 20,712 on Management of Third-Party Funds and Individual Portfolios (the "Funds Law"), the minimum number of unrelated contributors required to the funds has increased from four to eight, and a limit is established on the percentage of participation of each contributor, which may not exceed 20% of the shares committed and/or paid to the fund.
• Requirements of the funds bylaws
  - In the event that the term of the fund is extended, the total amount of the approved credit line is eliminated from the calculation of the remuneration or commission to be charged by the fund manager, and only the contributions to the fund effectively committed must be considered, provided that the term for their payment has not expired.

Specific amendments

• FET Program
  In the case of the FET Program, CORFO approved, among others, the following specific amendment:
  Exemption from the payment of additional interest
  - The fund is exempted from the payment of additional interest (10-year BCU rate plus 5% annually), replacing it with a 10-year BCU rate, in cases where the purpose of the fund is to invest in productive or strategic economic areas, in geographic territories or in a group of legal entities or individuals that, in all cases, have been defined as a priority by CORFO.
• FT Program and FC Program
  In the case of the FT Program and the FC Program, CORFO approved, among others, the following specific amendments:
  • Investments in foreign companies without CORFO leverage
    - The minimum subscribed capital that the funds must have to make this type of investments is increased from USD 7,250,000 to USD 20,750,000 (approximately) in the case of the FT Program, and from USD 22,850,000 to USD 66,500,000 (approximately) in the case of the FC Program.
  • Exemption from the payment of additional interest
    - These funds are exempted from the payment of additional interest (10-year BCU rate plus 2% per year for credits expressed in Unidades de Fomento) in the cases in which these funds are intended to invest in productive or strategic economic areas, in geographic territories or in a group of legal entities or individuals that, in all cases, have been defined as a priority by CORFO.

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