The growth of India is appealing to foreign capital in increasing amounts. Foreign venture capital investor is being routed not only through stock markets but it is also being infused directly into companies. Venture capitalists who are looking to invest in India, here is the detailed process.
What do you mean by the term Foreign Venture Capital Investor?
Foreign Venture Capital Investor means an investor incorporated and established outside India whose main objective is to make an investment in Venture Capital Fund(s) or Venture Capital Undertaking(s) in India. The investor shall be registered with SEBI under SEBI (Foreign Venture Capital Investors) Regulations, 2000;
In the above definition what the term Indian venture capital undertaking and Venture capital fund meant:
- Indian venture capital undertaking means a company incorporated in India, whose shares are not listed on a recognized stock exchange; and shall not be engaged in an activity under the negative list specified by SEBI; and
- Venture capital fund means a fund established in the form of a trust, a company which includes a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in venture capital Undertakings in accordance with the said Regulations.
A foreign Venture capitalist has two ways to invest directly in India which are:
- Foreign Direct Investment (FDI)
- Venture Capital (VC).
A venture capitalist would, of course, choose the route that is most profitable and hustle free. Here is the legal procedural applied to Foreign Venture Capital.
Procedure for registration of Foreign Venture Capital Investor:
- The applicants shall have soundtrack record, professional competence, financial soundness, experience, the reputation of fairness and integrity.
- The applicant should have granted necessary approval by the Reserve Bank of India for making investments in India.
- The investing entity should be incorporated outside India as an investment company, investment trust, investment partnership, pension fund, mutual fund, endowment fund, university fund, charitable institution.
- The applicant should be an asset management company, investment manager or investment management company or any other investment vehicle incorporated outside India.
- The applicant should be authorized to invest in venture capital fund.
- The applicant should be regulated by an appropriate foreign regulatory authority, shall be an income taxpayer.
- If the applicant is neither a regulated entity nor an income taxpayer than shall submit a certificate from the banker of its or its promoters.
- The applicant should not be refused by the Board.
- The applicant should be a fit and proper person.
Allowed sector for Investment:
A SEBI registered Foreign Venture Capital Investor may purchase in followings:
- securities issued by a start-up
- Units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF.
- Securities, issued by an Indian company engaged in any sector below mentioned whose securities are not listed on a recognized stock exchange at the time of issue of the said securities.
- IT-related to hardware and software development
- Seed research and development
- Research and development of new chemical entities in the pharmaceutical sector
- Dairy industry
- Poultry industry
- Production of biofuels
- Hotel-cum-convention centers with a seating capacity of more than three thousand.
- Infrastructure sector.
A venture capital investment has two advantages vis-à-vis an FDI investment:
- Exemption from Pricing Guidelines of RBI.
- Exemption from Lock-in if Venture Capital is not a promoter.
Application for Registration:
- The applicant shall make an application in Form A along with the application fees as specified.
- The following should be ensured while submitting Form A:
- Details about the sponsor/group to which the applicant belongs:
The applicant should disclose the details pertaining to the sponsor or the group to which it belongs. Also disclose the experience, approximate funds being managed by the sponsor/group, the registration particulars with any regulatory agency abroad, along with website details, if any, etc.
- Details about designated bank branch and Custodian:
The applicant shall appoint a designated bank and a SEBI registered Custodian. Also, enclose a copy of Letter from the Custodian in support.
- Other Documents as prescribed in Form A:
- Copy of certificate of registration with the home
- Copy of income tax return filed in the home country.
- Copy of banker’s certificate fair track record of the applicant.
List of Supporting Documents:
Apart from the above, the applicant has to submit the following documents/ details/declarations in support of registration.
- Contact Person details along with the name, address, contact no. and email ID
- Details of all the directors along with the name, address, proof of identity, proof of address, contact no and email ID.
- Copy of Memorandum and Articles of Association/Constitution Document of the applicant. Please ensure that the main objects permit the applicant to carry on the activity of venture capital.
- Structure Diagram of the Applicant.
- The applicant or any of its directors shall not be refused a certificate by the SEBI Board.
- State whether the applicant is registered with SEBI or any other regulatory authority in any capacity in India or has filed for registration with SEBI in any other capacity
- Detail of Directors/Key personnel of the FVCI. Which shall include educational qualifications, past experiences, etc.
- Disclose the investment strategy as required by Regulation. Which should disclose the sectors for investment and the approximate amount proposed to be invested in India along with the Lifecycle of the Fund.
- Declaration stating that the foreign venture capital investor (FVCI) shall not make an investment in any area listed in the Third Schedule to SEBI (Foreign Venture Capital Investors) Regulations, 2000
- Declaration of “Fit and Proper Person” criteria as per regulation.
Grant of Certificate of Registration:
On compliance of above requirements including the Fit and Proper Person Regulations, 2004 and necessary approvals have been granted by RBI, SEBI will issue a letter stating the same and on payment of requisite fees as per Second Schedule to Regulations, SEBI will grant a certificate of registration in Form B as a Foreign Venture Capital Investor.
Procedure where the certificate is not granted:
- On considering an application, if the Board is of the opinion that a certificate should not be granted, it may reject the application after giving the applicant a reasonable opportunity of being heard.
- The rejection of the application shall be communicated by the Board to the applicant.
- An applicant whose registration is rejected shall not carry on any activity as a Foreign Venture Capital Investor.
Conditions to comply after receiving the certificate:
The certificate granted to the foreign venture capital (FVC) is subject to the following conditions:
- Shall always abide by the provisions of the Act.
- Shall appoint a domestic custodian for the purpose of custody of securities
- Shall enter into an arrangement with a designated bank for the purpose of operating a special non-resident rupee or foreign currency account.
- Shall immediately 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.