Venture Capital Company

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Venture Capital Company

Venture capital (VC) is a type of Private Equity (PE). A form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake, in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful.

The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as information technology (IT), social media, or biotechnology. The typical venture capital investment occurs after an initial “seed funding” round. The first round of institutional venture capital to fund growth is called the Series “A” round. Venture capitalists provide this financing in the interest of generating a return through an eventual “exit” event, such as the company selling shares to the public for the first time in an Initial public offering (IPO) or doing a merger and acquisition (also known as a “trade sale”) of the company.

In addition to angel investing, equity crowd funding and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering.

In exchange for the high risk that venture capitalists assume by investing in smaller and early-stage companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the companies’ ownership (and consequently value).

Start-ups like Uber, Airbnb, Flipkart, Review-Adda, Xiaomi&DidiChuxing are highly valued startups, where venture capitalists contribute more than financing to these early-stage firms; they also often provide strategic advice to the firm’s executives on its business model and marketing strategies.

Venture capital is also a way in which the private and public sectors can construct an institution that systematically creates business networks for the new firms and industries, so that they can progress and develop. This institution helps identify promising new firms and provide them with finance, technical expertise, mentoring, marketing “know-how”, and business models. Once integrated into the business network, these firms are more likely to succeed, as they become “nodes” in the search networks for designing and building products in their domain. However, venture capitalists’ decisions are often biased, exhibiting for instance overconfidence and illusion of control, much like entrepreneurial decisions in general.

Procedure for registering Venture Capital in India

  • The Applicant for grant of registration as a Venture Capital Fund under SEBI (Venture Capital Funds) Regulations, 1996 should make an Application to SEBI in “Form-A” along with all the necessary documents.
  • Generally, on receipt of Application, the applicant will receive a reply from SEBI within 21 working days. The time taken for registration however, depends on how fast the requirements are complied with by the applicant.
  • The applicant is advised to go through the SEBI (Venture Capital Funds) Regulations, 1996 for checking the eligibility criteria and such other details which may help expedite the registration process.
  • As an integral part of the registration process, the applicant will submit.
  • The Venture capitalists engage in the areas where there is high growth potential in terms of profits.
  • In exchange for equity these investments are made in the growing startups, where the venture capitalists have ownership stake.
  • These companies take risk of finance in order to generate the outcome which is successful enough for the growing startups. Startups are evaluated by the venture capitalists on the basis of innovative technology, business model, strategies, and urge of being successful.
  • These companies focus on specific sectors which are running successfully and which have acquired the marketplace. The equity stake in the business depends upon the growth and profitability of the business; therefore venture capitalists are very selective in deciding where to invest.
  • A proper evaluation of the company, in which the finance needs to be invested is done by way of well-developed business model, potential for rapid growth, impressive management team and the present scenario prevailing. Ventures are interested in companies with high growth potential as such opportunities are capable of providing financial returns and also exit after the specified time frame.

Required documents for the registration process:

  • Form A along with the Application fees of Rs.1,00,000 and documents;
  • Copy of Memorandum and Articles of Association in case the applicant is set up in the form of a Company [Reg. 4(a)] or;
  • Copy of Registered Trust Deed in case the applicant is set up in the form of a trust [Reg. 4(b)] or;
  • Copy of Main objective of constitution in case the applicant is set up in the form of a body corporate. (Reg. 4(c);
  • Copy of Investment Management Agreement (only if applicable);
  • Apart from the above documents/declarations as required under the Form A;
  • The applicant will also be required to submit the details/information as under:-
    • Details of the Sponsor/Settlor;
    • Details of the Trustees/Trustee Company.
    • Details of the Investment Manager/Investment Advisor/Asset Management Company (AMC);
    • Investment Strategy.
    • Declarations to be submitted by the applicant;
    • Application which is incomplete or without the necessary documents/ information/declarations would not be accepted and would be treated as not filed.
    • Applications involving policy decisions or other considerations, might get delayed in processing and in getting registration approvals;
  • Documents/annexures submitted along with the application need to be numbered and duly signed.
  • In case of an Authorized signatory, please submit an authorization letter from the Directors of the Fund.
  • The application in “Form-A” along with all the necessary information as enumerated above will be addressed to “The DGM, Division of Funds-Venture Capital, Investment Management Department, and forwarded to our T&A Division, SEBI Plot No. C4-A, “G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051.”
  • Such applications will be submitted along with the demand draft of Rs.1,00,000 towards application fees paid in favour of “SEBI, Mumbai”