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In the present scenario, foreign investments are witnessing an exponential rise. One such kind of foreign investment is foreign venture capital investments. These are foreign investments in venture capital. India is a regulated economy however, to boost investment in venture capital, the Indian government has liberalized the regulatory regime pertaining to Foreign Venture Capital Investors (FVCI) from time to time. The Securities Exchange Board of India (SEBI) introduced the SEBI (Foreign Venture Capital Investor) Regulations, 2000 (SEBI (FVCI) Regulation, 2000) to provide the manner for registration of FVCI to avail benefits. In addition to the SEBI (FVCI) Regulation of 2000, the Reserve Bank of India also grants certain benefits to investment under FVCIs. Benefits by RBI were provided pursuant to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules)
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The process for obtaining FVCI registration has been simplified by introducing the online system for registration. The online system is available not just for registration but also for reporting and filing purposes. SEBI grants certificate of registration to an FVCI after assessing the application based on the applicant’s track record, professional competence and experience, financial soundness, general reputation, fairness and integrity, etc.
Registered FVCI can invest in an Indian Venture Capital Undertaking (IVCU) or Indian Venture Capital Fund (IVCF) or any schemes issued by IVCFs. IVCUs are unlisted companies that are incorporated in India and are engaged in permitted sectors under FVCI whereas IVCFs are funds that are established in the form of a company, trust or a body corporate registered with SEBI and has dedicated capital. In addition, the instruments in which FVCI can invest are as follows:
Investment in FVCIs is limited to certain sectors which are as follows:
FVCI can invest in the broadest category of instruments as a non-resident investor. Those instruments are as follows:
To encourage investments under FVCI in start-ups, the Indian government has introduced a set of SOPs for start-ups. Start-ups are defined as an entity that fulfill the following conditions:
If the entity fulfills the aforementioned condition then it will be referred to as a start-up for the purpose of investment under FVCI. An entity formed by splitting up or restructuring existing entities does not qualify as a start-up.
The continuous growth in the Indian economy makes India an attractive destination to invest in. The efforts made by the Indian Government in liberalizing the investment policy make India even more attractive to foreign investors. Investment under FVCI is permitted in most of the sectors except those providing non-banking financial services, and gold financing. The regulatory and legal environment for FVCI plays an enabling role thereby, making the overall environment for investment under FVCI in India conducive.
Read our Article: Foreign Investments in Category III Alternative Investment Funds
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