BVI incubator fund: a guide for investors and fund managers

The BVI Incubator Fund is a small, streamlined investment fund option in the British Virgin Islands, perfect for new managers and startup investment strategies. It lets you launch a fund quickly and affordably to test an investment strategy and build a track record. This structure has a limited size and a short initial lifespan, providing a great way to prove your concept before moving to a more traditional, regulated fund. 

In this article, Leevyn Isabel, Commercial Director, and Raven Kelly, Client Director, tackle some of the most common questions about BVI Incubator Funds and explain how they stand out from other fund types.

1. What is a BVI Incubator Fund?

A BVI Incubator Fund is a special type of open-ended investment fund in the British Virgin Islands with a streamlined regulatory process. Launched in 2015 by the BVI Financial Services Commission, it’s designed to be fast and affordable to set up with minimal ongoing requirements. This structure allows a fund manager to “incubate” a strategy—building a track record or testing an investment approach—with a small number of investors for a limited period, all without the full regulatory burden of a standard fund license. Essentially, it’s a proof-of-concept fund for new managers, benefiting from a lighter regulatory touch in its early stages.

2. Who is the Incubator Fund for?

The Incubator Fund is ideal for emerging or startup fund managers and sponsors who want to launch a fund on a small scale, typically with friends, family, or initial seed investors. It's perfect for managers who need to keep costs and administrative work low while they test their investment strategy and build a performance history. For example, a new hedge fund manager with a unique trading strategy might use an Incubator Fund as a pilot for a year or two before opening it to a wider investor base.

3. What legal structures can be used?

A BVI Incubator Fund can be set up using standard BVI fund vehicles. The most common choice is a BVI Business Company (BC), which is a flexible corporate entity well-known to international investors and well-suited for an open-ended fund where investors can redeem shares. While regulations also allow for a limited partnership or a unit trust structure, the BVI BC is by far the most popular option due to its simplicity and global recognition.

4. How many investors can a BVI Incubator Fund have?

A BVI Incubator Fund is limited to a maximum of 20 investors. This is a strict cap set by regulations to keep the fund small and private. Once the fund reaches this limit, it can’t accept any more investors without changing to a different type of fund.

5. Are there investor requirements or minimum investments?

Yes. All investors in a BVI Incubator Fund must be sophisticated private investors. This means they're invited to invest—there's no public solicitation—and each one must make a minimum initial investment of US$20,000. This minimum subscription helps ensure investors have a certain level of commitment and resources. There's no formal net-worth test or professional certification required.

6. What's the maximum value for an Incubator Fund?

An Incubator Fund's net asset value (NAV) is capped at US$20 million at any time. If the fund's NAV exceeds this amount for more than two consecutive months, it's considered to have outgrown the incubator status. The fund must then either convert to a fully licensed fund or wind down. The regulations provide a short grace period for temporary fluctuations, but persistently staying above the US$20 million cap triggers the need for an upgrade.

7. How long can a BVI Incubator Fund operate?

An Incubator Fund is meant to be a temporary platform. It can operate for an initial period of two years from its launch. However, if more time is needed, the fund can apply for a one-time extension of up to 12 months, making the maximum lifespan three years. After this period, the fund can't continue as an Incubator Fund. It must either convert to another type of fund (like a Private, Professional, or Approved Fund) or stop operations. This time limit ensures the "incubation" period serves as a bridge to a more permanent structure for successful funds.

8. What documents are needed for investors?

A key benefit of the Incubator Fund is that it doesn't need a full-blown offering memorandum or prospectus. Instead, a short-form term sheet or disclosure statement is enough, if it includes certain key investor warnings. Specifically, every investor must get a written warning that clearly states:

• The fund is an Incubator Fund, not a fully regulated public fund.
• It has limits of 20 investors and US$20M in assets under management (AUM).
• It's only for invited sophisticated private investors.
• It's not subject to routine supervision by the BVI Financial Services Commission (FSC), and the investor protections for public funds don't apply.
• Investing may carry greater risk than a public fund.

9. What service providers are required?

The fund must have at least two directors (one of whom is an individual) and a BVI-authorised representative. The regulations do not require a licensed fund manager, custodian, auditor, or administrator. This flexibility significantly lowers costs, as the founders can handle these roles internally. However, a money laundering reporting officer (MLRO) function must be covered, often by one of the directors or an administrator, to ensure compliance with BVI Anti-Money Laundering laws.

10. Do Incubator Funds need a financial audit?

No, audits are not required. Instead, Incubator Funds must prepare and submit unaudited financial statements to the regulator within six months of each financial year-end.

11. How do you set one up, and how long does it take?

Setting up a BVI Incubator Fund is a straightforward and quick process. Once the documents are ready, a fund can be launched in a matter of days, without the weeks-long wait for a license approval.

12. What are the ongoing compliance requirements?

The fund has several ongoing obligations:

• Required personnel: Maintain at least two directors (one an individual) and a BVI-authorised representative.
• Periodic filings: File a semi-annual return with the FSC by January 31 and July 31 each year. This return includes key metrics like the number of investors, total investments, and current NAV. An annual compliance confirmation must also be filed by January 31, confirming the fund still meets the incubator criteria.
• Financial statements: Prepare and submit unaudited annual financial statements to the FSC within six months of the financial year-end.
• Notifications: Promptly notify the FSC of any material changes (within 14 days) or significant events, such as a suspension of redemptions or legal proceedings.

13. Are BVI Incubator Funds subject to BVI taxes?

No, BVI Incubator Funds are tax neutral. The British Virgin Islands does not impose any income tax, corporate tax, capital gains tax, or withholding tax on funds or their investors. There's also no stamp duty on share transfers for a BVI company and no exchange controls.

14. What kind of regulatory oversight do they have?

Oversight by the BVI FSC is intentionally light. The fund must be registered with the FSC and provide initial and periodic updates. However, unlike a Public Fund or a regulated fund in another jurisdiction, the FSC does not actively supervise the day-to-day operations or merits of an Incubator Fund on an ongoing basis.

How can Ocorian help?

The BVI Incubator Fund is a fast, cost-effective structure for emerging managers to launch and test investment strategies under a light regulatory framework. It offers speed to market, minimal compliance, and flexibility – but with strict limits on investor count, fund size, and duration.

Ocorian can assist with the full lifecycle of a BVI Incubator Fund: from setup and regulatory filings to authorised representative services, fund administration, and conversion planning. We ensure compliance, operational efficiency, and a smooth transition to permanent fund structures when required.