Procedure for Registration of Venture Capital Funds

Narendra Kumar

21 Dec, 2020

NGO Registration of Venture Capital is regulated by SEBI (Venture Capital Funds) Regulations, 1996. Any Company or trust proposing to carry on an activity as a Venture Capitalist shall make an application to SEBI for grant of Certificate.

What are They?

Venture capital funds are investment funds that manage the money of investors who seek private equity stakes in startup and small- to medium-sized enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities. Venture capital funds are private equity investment vehicles that seek to invest in firms that have high-risk/high-return profiles, based on a company’s size, assets and various stages of economic development.

They are an early age investment with a long-term horizon. Many of these funds make small bets on a wide variety of young startups, believing that at least one will achieve high growth and reward the fund with a comparatively large payout at the end.

Examples: Nexus Venture Partners, Fidelity Growth Partners, Hellion Venture Partners etc

How to Apply?

An Application for grant of Certificate of Registration shall be made to Board in Form A which shall be accompanied by NON-REFUNDABLE FEE.

Board may in the interest of investors issue directions for transfer of records, documents or securities of disposal of investments relating to VC’s activities.

On receipt of the intimation, the applicant shall pay to the Board, Registration Fees as specified & thereafter the Board on receipt of Fees shall grant a Certificate of Registration in Form B.

Eligibility Criteria:

• If it’s a COMPANY:

MOA should reflect the activity of Venture Capital Fund.

Prohibited by its MOA & AOA from making an invitation to the public to subscribe to its securities.

Directors & Officers are not involved in any litigation connected with Securities Market.

Should be a Fit & Proper person.

• If it’s a TRUST:

The main object of the Trust is to carry on the activity as VC Fund.

The instrument of the NGO registration is in the form of Deed & has been duly registered under Indian Registration Act, 1908.

Directors are not involved in any litigation connected with Securities Market or been convicted of any offense involving moral turpitude.

Should be a fit & proper person.

• If it’s a BODY CORPORATE:

Set up under the laws of Central or State Legislature.

The applicant is permitted to carry on such activities.

The applicant is a fit & proper person.

Directors of the Trust are not involved in any litigation connected with Securities Market or been convicted of any offense involving moral turpitude.

Applicant has not been refused a Certificate by Board earlier.

Minimum Investment Criteria:

• A VC can raise funds from any investor whether Indian, Foreign or Non-Resident Indian.
• No VC Fund either company or trust shall accept any investment from any investor which is less than 5 lakhs rupees.
• The scheme launched shall have a commitment from the investors for the contribution of an amount of at least 5 Cr.

Investment Conditions:

• It shall disclose the investment strategy at the time of putting forth application.
• It shall not invest more than 25% corpus of the fund in one VC undertaking.
• It may invest in securities issued by Foreign Companies subject to RBI norms specified in this behalf.
• Shall not invest in associated companies.
• It shall disclose the duration of Life Cycle of the fund.
• No VCF shall be entitled to get its units listed till the expiry of 3 years from the date of issuance of units by VCF.
• It shall make investment in the following manner –
• At least 66.67% of investible funds shall be invested in unlisted Equity Shares.
• Not more than 33.33% of the investible funds may be invested by way of either of the following i.e. Subscription to IPO of a VC whose shares are proposed to be listed, Debt or Debt instruments of a VCF, preferential allotment of equity shares of listed company provided they have a lock-in period of 1 year, Equity shares of a financially weak or sick company who are listed or SPV created by VCF for the purpose of promoting investment.

*No VCF shall issue any documents inviting the public for subscription of its units. It may, however, receive monies through Private Placement of its units.

Documents to be filed with SEBI:

• Information Memorandum
• Copy of Placement Memorandum
• Copy of Contribution or subscription agreement
• Report of money actually collected from investors.

Board before ordering an inspection, shall not give less than 10 days’ notice to VCF. During the course of the inspection, the VC shall be bound to discharge its obligations.

The inspecting officer shall soon upon completing inspection submit an investigation or inspection report to the Board.

FEES:

• Application Fee: 1,00,000/-
• Registration Fee: 10,00,000/-