Most thriving venture capital (VC) ecosystems promote risk-taking, arbitrage, and speculative activities - the very essence of VC activity. Regulation, i.e., corporate and security exchange rules, establishes the limits within which this activity is conducted to protect the public from prudential risk; however, it must be flexible enough to avoid stifling it. This balance is not easy to achieve in countries emerging out of systems dominated by government dirigisme. In post-socialist economies, such as Kazakhstan, regulators are often unfamiliar with operating within the boundaries of market exchanges; their policy "culture" tends to stress the need for "controlling market outcomes," which inherently undermines the freedom required by VC activity. The implicit assumption in this culture is that all that a healthy VC industry needs is "more control" implemented through "adequate laws" that prevent "market failures" arising from the "systemic risk" created by VC activity.

 

To this end, TIV was hired by the Asian Development Bank (ADB) to conduct exhaustive research and analysis of Kazakhstan’s venture capital (VC) and intellectual property (IP) legislation and lead ADB’s work program “Further Stimulation of Venture Financing, Including Improving Legislation.” Our team, which included renowned experts such as NLC’s President Ignacio De Leon, conducted an exhaustive analysis of VC and IP laws in the country and suggested areas of modification based on good global practices. The team of experts scrutinized underlying corporate and securities laws central to VC and IP monetization activity. Some fundamental laws, such as those pertaining to “margin of error,” corporate taxation, derivative financial instruments, foreign exchange, use of IP as collateral, crowdfunding, and bankruptcy, were a significant focus of our analysis. Related topics which impact VC activity, such as laws on data rights, e-transactions, and data localization, supplemented by lessons from countries such as Singapore, fell under the ambit of our research and informed our recommendations for Kazakhstan. Additionally, the role of the Astana International Finance Center (AIFC), which inspired the Dubai model in creating expedient procedures and a special taxation system as an incentive mechanism, also fell under the rubric of our comprehensive research.

 

As part of the engagement, TIV’s expert and team leader presented the team’s findings of the Analysis of Venture Capital (VC) and Intellectual Property (IP) Laws to the Ministry of Digital Development Innovation and Aerospace Industry (MDDIAI) of the Republic of Kazakhstan. Our recommendations are expected to spur changes in laws and the creation of financial instruments to bolster a small but growing VC industry. Regardless of the nature of the new political dispensation, the findings will help Kazakhstan move forward toward becoming an innovative private sector-driven economy.