SEBI (Venture Capital Funds) Regulations,

8/6/2019 SEBI (Venture Capital Funds) Regulations,

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Group Members -yMr. Ayan Mukherjee

y

Ms. Anupriya Unnikrishnan NairyMr. Dickench Das

yMs. Namrata Ayar

yMs. Samidha PhadkeyMr. Lovesh Jain


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Meaning of Venture CapitalyVenture capital is long term risk capital to finance high technology projects which

involve risk, but at the same time has strongpotential for growth.

yVenture capitalists pool their resources

including managerial abilities to assist newentrepreneurs in the early years of theproject.


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VENTURE CAPITAL FUNDING

ySeed financeyStart up finance

y

Additional financingyEstablishment financing


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PRIVATE EQUITYy Private equity, is generally, an asset class consisting

of equity securities in operating companies that are not

publicly traded on a stock exchange.

y Among the most common investment strategies inprivate equity are: leveraged buyouts, venture capital,

growth capital, distressed investments and mezzaninecapital.


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PRIVATE EQUITY v/s VENTURE CAPITAL

y VCis a subset of a larger PE assets class.

y Historically, VC investors have provided high risk

equity capital to start up.y Due to increased competition, both PE andVC funds

have expanded their horizons to capture newopportunities.

y As venture capitalist tend to invest their money intoemerging technologies, it gives an opportunities to theexisting companies for their growth.


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CATEGORIZATION OF VENTURE FUNDS

y Incubators

y AngelInvestors

y Venture Capitalists

y Private Equity Players


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Venture Capital Investment in India

Drastic increase in the number of VC funds being registered in SEBI from1996-2000

8 funds during 1996-98 14 funds during 1999-2000

The need f r w s rec nized in the 7th five year planand the l ng terfiscal p licy f the G vernment f India.

Formation of TDICI Ltd.The first private Venture Capital sponsored

by CFC, ADB and CDC

It plays a vital r le in thedevel pment andgr wth f innovative

entrepreneurships

Developmental financial institutions likeIDBI, ICICI and State Financial Institutions

They promoted private sector entities usingdebt as an instrument of funding


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Growth in investment in Indias IT- softwareand servicesector

grown from US $150 millions in 1998 toover US $1200 millions in 2002.

The credit can be given to the settingup of a National VC Fund for the

Software & the IT Industry (NFSIT)

In 2 , financeministryannounces tax li eralization forfunds

In order to promote the VC funds andto increase job creation.

Expected to give a strong boost to theNRIs in the silicon valley.


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y It took effect from 4th december,1996

y Venture Capital Funds under the regulations means

A fund established in the form of a trust or a companyincluding a body corporate and registered under theregulations which-

Has a dedicated pool of capital, Raised in manner specified in the regulations, and

Invests in venture capital undertaking in accordance with theregulations.

SEBI (Venture Capital Funds)

Regulations, 1996


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Registration of Venture Capital Funds (VCF)oMake an application to the SEBIo If fails to make an application with in the period specified should cease to carry onany of its activity as a VCF.

Eligibility CriteriaRegistration as VCF should fulfill the following conditions

1. If applications is made by a company-2. If applications is made by a trust-3. If applications is made by a body corporate-4. The applicant has not been refused a certificate by SEBIor its certificate has not beencancelled or suspended under the Regulations 30.

Consideration of ApplicationoIf application is not complete in all respects, the same is liable to be rejected by SEBI.

o Before rejecting, the applicant should be given an opportunity to remove (with in 30 days)

the objections Indicated by SEBI.

oSEBI can extend such period by such further time not exceeding ninety days.


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Procedure for Grant of CertificateSEBIafter getting satisfied that the applicant is eligible for the grant of certificate shouldsend intimation to the applicant and after the receipt of intimation, the application should

pay the registration fee as specified.

Effect of Refusal to Grant Certificate

o Any applicant whose application has been rejected by SEBI cannot carry on any activity as

a VCF.

oSEBIIn the interest of the investors has the right to issue directions with regard to transferof records, documents or securities or disposal of investments relating to its activity as aVCF.o SEBIcan also appoint any person to take charges of that venture capitalist fund.


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Placement MemorandumBefore issuing any units / before making an offer inviting any subscription

VC

F shouldfile with SEBIa Placement Memorandum which shall give details of the terms subject towhich monies are proposed to be raised from the investors .

Details of the securities that are being offered Details of investments that are proposed to be made. Details of directors of the company Tax implications that are likely to apply to investors. Manner of subscription to the securities that are to be issued. Manner in which the benefits accruing to investors in the securities are to bedistributed. Details of the asset management company, if any, and of fees to be paid to such acompany.

Placement memorandum is to be issued for private circulation only after the expiry ofTwenty one days of its submission to SEBI.


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Investment ConditionsInvestment Conditions

NoVC

fund set up as a company or any scheme of a venture capital fundshall accept any investment from any investor which is less than five lakhrupees.

Venture capital fund shall have firm commitment from the investors forcontribution of an amount of at least five crore rupees.

Venture capital fund shall disclose the investment strategy at the time ofapplication for registration.

Venture capital fund shall not invest more than 25% corpus of the fund inone venture capital undertaking.

Investment type:-

Shall not invest in the associated companies.

At least 66.67% of the investible funds shall be invested in unlisted equityshares.

Not more than 33.33% of the investible funds may be invested in IPO or indebt instrument of a venture capital undertaking.


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RESTRICTIONS Prohibition on listing.

y No venture capital fund shall be entitled to get its units listed onany stock exchange till the expiry of three years.

Prohibition on inviting subscription from the public.

y No venture capital fund can issue any document oradvertisement inviting offers from the public for thesubscription or purchase of any of its units.

Restrictions on investment by VCF

y should not invest in the equity shares of any company orinstitution providing financial services.

y At least 80% of funds raised by the VCF should be invested inequity shares or related securities issued by a company whose

securities are not listed on any stock exchange.


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y Introduction:

An Investor incorporated and established outside India,which proposes to make investment in venture capital fund(s) or venture capital undertakings in India and isregistered under the regulations.

y Application for grant ofCertificate:

The applicant is required to make an application along withthe registration fee to SEBI for the purposes of seekingregistration.

SEBI (Foreign Venture Capital

Investors) Regulations, 2000


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y Eligibility Criteria: Applicants track record, financial soundness, professional

competence.

Approval from Reserve Bank ofIndia forInvestment in India Entity of Applicants (Investment company, Investment trust,

pension fund, university fund etc.)Applicant regulated by an appropriate foreign regulator or is an

income tax payer or having bankers certificate of its / its

promoters track records. Fit and proper person.

y Procedure for grant of Certificate: If Applicant is eligible, SEBIwill send intimation.

Applicant has to pay the registration fee. Then SEBIgrants a certificate of registration. SEBI has complete right to reject the application. Once rejected,

the applicant should not carry on any activity as a ForeignVenture CapitalInvestor.


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Conditions of Certificate:

The certificate to be granted to the foreign venture capital issubject to the condition that:

i. It should abide by the provisions of the Act and theseregulations.

ii. It should appoint a domestic custodian for purpose ofcustody of securities.

iii.I

t should enter into arrangement with a designated bankfor the purpose of operating a special non-resident rupeeor foreign currency account.


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Investment Criteria for a Foreign

Venture Capital Investor It should disclose to SEBI its investment strategy

It can invest its total funds commited in one venture capital fund.

It shall make investments as enumerated below:

o At least 66.67% of the investible fund should be invested in unilisted equityshares or equity linked instrument.

o Not more than 33.33% of the investible funds may be invested in IPO or in

debt instrument of a venture capital undertaking.


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POWERS OF SEBI Power to call for information fromVCF andFVCIWith respect to any matter relating to its activity. Should be furnished within the time specified by SEBI.

Inspectionand investigation

Appointment ofInspecting/ Investigating Officer. For inspection/ investigation of books of accounts, records, documents. Regarding complaints received from any investor / client. To ascertain compliance with SEBIAct, 1992 and rules and regulations made

thereunder.

Maintenanceof ooks and records yVCFand FVCI To be maintained for a period eight years.

Giving a true and fair picture of the state of affairs.

Notice before inspection / investigation. Not required before surprise inspection.


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Obligation of VCFand FVCI on inspection / investigation Every officer or any other associate in possession of relevant information pertaining to

theVCF / FVCI including AMCto produce such documents as may be required . Examination / Recording of statements of any director, officer or employee of theVCF / FVCI.

Submissionof report by Inspecting / InvestigatingOfficer and communicationof findings

Enquiry and/or Adjudication Show Cause Notice, Reply and reasonable opportunity of hearing to VCF / FVCI.

Action in case ofdefault warning suspension / cancellation of certificate of registrationmonetary penalty.

SEBI in the interest of investors and the securities market can issued suchdirections to theVCF / FVCI as is maydeal fit

Appeal in SAT.


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Questions?


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THANK YOU

SEBI (Venture Capital Funds) Regulations,

Documents

Transcript of SEBI (Venture Capital Funds) Regulations,