venture capital
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venture capital
Venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. For startups without access to capital markets, venture capital is an essential source of money. Risk is typically high for investors, but the downside for the startup is that these venture capitalists usually get a say in company decisions. The Venture Capital Industry has four main players: (1)Entrepreneurs who need funding; (2)Investors who want high returns; (3)Investment bankers who need companies to sell; and the (4)Venture capitalists who make money for themselves by making a market for the other three.
Procedure for registration of venture capital in India
The Applicant for grant of registration of a (VC) Venture Capital Fund under SEBI (Venture Capital Funds) Regulations, 1996 should make an Application to SEBI in Form ‘A’ along with the Application fees of Rs.1,00,000 and requisite documents. Generally on receipt of Application, the applicant will receive a reply from SEBI within 21 working days. The time taken for registration however, it’s depends on applicant he/she how fast the requirements are complied by the applicant. An applicant shall have to fulfill in particular the following eligibility criteria for venture capital firm namely:
- Copy of Incorporation Certificate and Articles of Association in case the applicant is set up in the form of a Company (Reg.4(a))b).
- Copy of Investment Management Agreement (only if applicable).
- Memorandum of association as has its main objective, the carrying on of the activity of a venture capital fund;
- It is prohibited by its memorandum and articles of association from making an invitation to the public to subscribe to its securities;
- Its director or principal officer or employee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant;
- Its director, principal officer or employee has not at any time been convicted of any offence involving moral turpitude or any economic offence;
- It is a fit and proper person;
- The directors of its trustee company, if any, or a trustee has not at any time, been convicted of any offence involving moral turpitude or of any economic offence.
- Write up on the activities of the Investment Manager/Investment Advisor/AMC.
- Shareholding pattern along with the profile of the Directors.
- State whether the Investment Manager/Advisor/AMC is registered with SEBI, RBI or any other regulatory authority in any capacity, along with the details.
- Details of Key Personnel/Management Team. Also state whether they are also the employees of any SEBI registered entity. If so details.
- State whether, the applicant is registered with SEBI in any capacity or has applied for registration in any other capacity with SEBI.
- List of all the associates registered with SEBI along with their Registration No., Reg. 2(aa) of SEBI (Venture Capital Funds) Regulations, 1996 for the definition of the “associate company”.
What is investment strategy for venture capital registration?
Disclose in detail the investment strategy of the fund (Reg.12 (a)). Investment strategy should disclose the investment style or pattern, preferred sectors/industries for investment, proposed corpus, the class of investors, life cycle of the fund and any other information.
What are the declarations required to be submitted by the applicant?
1. An undertaking under Regulation 11(3) of SEBI (Venture Capital Funds) Regulations, 1996.
2. Undertaking under Third Schedule to SEBI (Venture Capital Funds) Regulations, 1996.
3. Declaration in respect of “Fit and Proper Person” criteria as per regulation 4 A of the SEBI (Venture Capital Funds) Regulation. 1996 and as specified under Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulation 2008
Procedure for grant of certificate
If the Board is satisfied that the applicant is eligible for the grant of certificate, it shall send intimation to the applicant.
On receipt of intimation, the applicant shall pay to the Board; the registration fee specified in Part A of the Second Schedule in the manner specified in Part B thereof.
The Board shall on receipt of the registration fee grant a certificate of registration in Form B.
Condition of certificate
The certificate granted under regulation 7 shall be inter alia, subject to the following conditions, namely:
- The venture capital fund shall abide by the provisions of the Act.
- The venture capital fund shall not carry on any other activity other than that of a venture capital fund.
- The venture capital fund shall forthwith inform the Board in writing if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any change in the information already submitted.
Investment conditions and restriction
- Minimum investment required in a Venture Capital Fund.
A venture capital fund may raise monies from any investor whether Indian, Foreign or non-resident Indian, by way of issue of units.
No venture capital fund set up as a company or any scheme of a venture capital fund set up as a trust shall accept any investment from any investor which is less than (5) five lakh rupees: Provided that nothing contained in sub-regulation (2) shall apply to investors who are (a) employees or the principal officer or directors of the venture capital fund, or directors of the trustee company or trustees where the venture capital fund has been established as a trust; 2 [(b) the employees of the fund manager or asset management company. All investment made or to be made by a venture capital fund shall be subject to the following conditions, namely:-
- Venture capital fund shall disclose the investment strategy at the time of application for registration.
- Venture capital fund shall not invest more than 25% corpus of the fund in one venture capital undertaking.
- Venture capital fund may invest in securities of foreign companies subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and the Board from time to time.
- Shall not invest in the associated companies.
- Venture Capital Company is prohibited from listing on stock Exchange. No venture capital fund shall be entitled to get its units listed on any recognized stock exchange till the expiry of three years from the date of the issuance of units by the venture capital fund.
- Grant of Certificate of Registration. Once all requirements including the Fit and Proper Person criteria have been complied with and on intimation from SEBI for payment of Registration fees of Rs.5,00,000 as per Second Schedule to Regulations, SEBI will grant the applicant, certification of registration as a SEBI Registered Venture Capital Fund.
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