Venture Capital in India

GENESIS

The venture capital industry in India is still in as embryonic stage. With a view to promote innovation, enterprise and conversion of scientific technology, and knowledge-based into commercial production, it is very important to promote venture capital activity in India. Going by the recent success story in the area of information technology, India has a tremendous potential for growth of knowledge-based industries. This potential is not confined only to information technology, but is equally relevant in several other areas such as bio-technology, pharmaceuticals and drugs, agriculture, food processing, telecommunication, services, etc. Given the inherent strength of its skilled and cost competitive manpower, technology, research and entrepreneurship, and with the proper environment and policy support, India can achieve repaid and sustainable economic growth and competitive global strength.A flourishing venture capital industry in India will fill the gap between the capital requirements of technology knowledge-based startup enterprises and the funding available from traditional institutional lenders such as banks, etc. The gap exists because such startups are necessarily based on intangible assets such as human capital and technology-enabled mission. Very often, they use technology developed in university and government research laboratories that would otherwise not be converted to commercial use. However, from the viewpoint of a traditional banker, they have neither physical assets nor a low-risk business plan. Not surprisingly, companies such as Apple, Exodus, Hotmail and Yahoo, to mention a few of the many successful multinational venture capital funded companies, initially failed to get startup capital when they approached traditional lenders. However, they were able to obtain finance from independently managed venture capital funds that focus on equity or equity-linked investments in privately held, high-growth companies. In addition to finance, other services such as smart advice, hands-on management support and other skills that help the entrepreneurial vision to be converted to marketable products are also offered. CRITICAL FACTORS Following are the critical factors required for the success of the VC industry in India: 1. Framework: - The regulatory, tax and legal environment should play an enabling role in the success of VCFs. Internationally, venture funds have evolved in an atmosphere of structural flexibility, fiscal neutrality and operational adaptability. 2. Flexibility: - Resource rising, investment, management and exit should be as simple and flexible as needed and driven by global trends. 3. Institutional: - Venture capital should become an institutionalized industry that protects investors and investee firms, operating in an environment suitable for raising the large amounts of risk capital needed and for spurring innovation through startups of a wide range of high growth areas. 4. Global exposure :- In view of increasing global integration and mobility of capital, it is important that Indian venture capital funds as well as venture finance enterprises are able to have global exposure and investment opportunities.

reduced material consumption. an apex public special and development financial institution provides venture-financing facility to new entrepreneurs. a good record of performance and sound financial position are the prerequisites for assistance. the assistance being extended by the µseed capital scheme through State Industrial Development / Investment Corporation (SIDCs/SIICs).Assistance under the scheme is available for setting up new facilities. This is done through: y y Direct venture capital assistance Indirect venture capital assistance formulated for providing equity type assistance to new small and medium-scale units. Activities :y Setting up pilot plant/demonstration plant/prototype/software development based on laboratory process/detailed designs developed in-house or in any of the national/other laboratories y Assisting in technological innovations leading to substantial quality up gradation. food products and medical equipment. In the case of new units. electronics. Units in default of institutional/bank loans are not normally encouraged. cost reduction and improved competitiveness y Assisting in the adaptations/modifications to process or product which has been imparted in order to make it suitable for Indian operating conditions. as has successfully been done by countries such as the U. market promotion programmes and training programmes incidental to above 3. This is necessary for faster conversion of R&D and technological innovation into commercial products. 4.Venture capital funds assistance is provided to projects in diverse fields like chemicals.Infrastructure in the form of incubators and R&D. VENTURE CAPITAL FUNDS IN INDIA-A PROFILE The Industrial Development Bank of India (IDBI). and the special capital scheme through State Financial Corporation¶s (SFSs) Features The special features of IDBI¶s venture capital fund are detailed below: 1. surveys. carrying out trial runs and obtaining market acceptance for the process/product during the . Israel and Taiwan. Infrastructure: .The venture capital scheme targets all industrial entrepreneurs.5. Objectives :. .The venture capital scheme that was commenced in 1986 aimed at the following objectives : y Encouraging commercial application of indigenously developed technology y Adaption imported technology to wider domestic applications 2. Entrepreneurs :. need to be promoted using Government support and private management. biotechnology. software. The modifications may also include substitution of imported raw materials/components with indigenous materials y Undertaking studies. 5. existing as well as new units In the case of existing units. seed marketing. Nature of financing :. Stage of financing :. reduced energy consumption.S. the nature of innovation and its profit potential are considered.

Managerial support and monitoring :. 8. The period of repayment of the loan is fixed depending on the cash generation of the venture. The assistance is also available in the form of equity shares in the assisted company depending on the growth potential as assessed by IDBI.Venture capital assistance is provided mainly in the form of unsecured loans at concessional terms during the initial development period.. Government approvals and sanctions.development period. A complete application normally takes 2 to 3 months for processing. preparation of a technoeconomic feasibility report before the end of trail runs. building. 6.IDBI. Method of financing :. the royalty being payable during the currency of the loan. lump payments/royalties arising from the sale of technology. The degree of progress in the implementation of the projects is assessed by scrutinizing the periodic reports submitted by the venture company. 50 lakhs. salaries and wages. Project appraisal :. The IDBI may also refer the proposal to a group of experts.IDBI carries out appraisal of the proposed project before extending assistance under the Fund. It is incumbent of the part of the entrepreneur to submit to the IDBI a preliminary profile of the proposal giving the following details: y y y y y Brief details of the performance of the existing industrial concern Nature and the advantages of the proposed process/product Development content in the process Proposal for the scheme including nature of upscaling (e. Assistance is provided after taking into consideration the resource capability of the promoters for new projects and the availability of cash surplus in the case of an existing company. and discussions with the promoters. etc) Approximate cost of the venture A detailed application form is then filled in and submitted to the Technology Department for appraisal after examining the prima facie eligibility of the proposal. The new project is finally accepted by IDBI for assistance. In the case of a new company setting up the operations venture capital assistance is provided for the setting up of a commercial size plant. For this purpose. The minimum promoters¶ contribution is 10 percent of the total capital for ventures costing Rs. sale of technology. sharing with IDBI. In addition facility is also available for financing the cost of fixed assets (Land. the Fund required fulfillment of certain conditions such as the composition of the Board of Directors. etc. utilities and market development expenses). They include a monthly progress report. and 15 percent for ventures costing more than Rs. Royalty collections are made by IDBI at a mutally agreed rate on the sates of the product arising from the venture. 50 lakhs and less. 7. periodic visit to the unit. sale and purchase of assets. R&D team. payment of dividends. The project is then submitted to a Screening Committee for its recommendations. monitoring of the venture by the Evaluation Committee of IDBI. lab to pilot plant scale. plant and machinery) as well as operating expenditure (including cost of raw materials.g. . employs appropriate management support and monitoring mechanisms. following successful completion of trials at the pilot plant stage. for the purpose of ensuring the end use of the credit sanctioned to the ventures.

as agents of of IDBI.15 crores and where the gap in equity and requirement of seed capital assistance exceeds Rs. Minimum required Debt-Equity Ratio (DER) is 2:1 for medium sector project and 3:1 for SSI units. Providing consultancy services through TCOs also encourages entrepreneurial activities. besides fixing the cut-off date for enhancing the interest payable by the venture. the task of follow-up of the venture is entrusted to a few Technical Consultancy Organizations (TCOs). Maximum quantum of assistance shall be 10 percent of the project cost. 4. Seed capital assistance is not to exceed the promoter¶s own contribution to the project cost.Similarly. the SFCs provide equity assistance to eligible small scale units covered under the Credit Guarantee Scheme for smallscale industries. 7. With and idea of promoting closer interaction with the promoters of the venture at the local level. 10. 4 lakhs is to be financed by SFCs from special capital and anything in excess shall be met under this scheme. IDBI is in constant touch with about 500 industrial undertakings having R&D set-ups. Under the guidelines framed by IDBI for the use of the special capital. 2. etc. 15 lakhs. requisite guidance is provided to the entrepreneur. Seed Capital Scheme of IDBI Under this scheme. The remaining equity may be met by way of seed capital under the scheme. 6. Joint sector project with over 50 percent contribution to equity from the public sector partner is not eligible for seed capital. it also conducts seminars and industrial meets to educate entrepreneurs about its schemes. experienced or skilled new entrepreneurs. Based on the assessment. Special Capital Scheme of IDBI The scheme is operated through SFCs for small-scale industries. The main features of the scheme are as under: 1. Besides. 5. the physical progress achieved is evaluated by undertaking visit to and holding discussions with the units financed.5 lakhs. The scheme envisages meeting the risk capital requirements of the entrepreneurs. IDBI provides indirect assistance to small-scale units by way of equity. Time and cost overruns are besides monitored. Assistance under the scheme is provided from the special class of share capital contributed by the State Government and IDBI. Exit mechanism The usual exit route adopted by IDBI for its venture capital assistance is through promoter¶s buy-back and selling in the market. . In the case of SSI units. seed capital requirement up to Rs. 9.For promoting its scheme. The scheme caters to technically o professionally qualified. subject to a ceiling of Rs. Marketing :. SIDCs shall meet a part of the gap in equity where project cost exceeds Rs. 3. The scheme is operated through SIDC¶s and SFC¶s.

Eligibility Assistance is made available only for such projects where the promoters do not have sufficient resources to meet the normal level of contribution expected of them by the SFCs. out of Special Capital to meet the gap in the equity contribution is 20 percent of the project cost or Rs. promoters¶ contribution. The scheme provides assistance to: y Projects with commercial Research and Development. A moratorium upto 5 and 3 years for principal and interest payments respectively is allowed to help the entrepreneurs in the initial years. an essential requirement is that the new technology or product holds the promise of significant tangible benefits over the existing options. Projects. whichever is lower. there are subscriptions to cumulative redeemable preference shares.2 crores in the form of equity or conditional loan. where the initial investment may not exceed Rs. nature of project and assessment of business and profit potential. Assistance is also available for projects proposed to be located in backward areas. or a reasonable period after the original investment. The salient features of the venture capital scheme operated by ICICI are discussed below. The investment period ranges from five to eight years after the successful establishment of the venture.a. Exit ICICI exits itself through the sale of the equity holding either to the promoter or through a stock exchange ( the first option to buy equity at a mutually negotiated price would be that of the project promoter). Terms Special Capital Assistance is provided on soft terms to proprietary and partnership concerns at a nominal interest rate of 1 percent p. For private limited companies. Projects assisted In order to provide assistance. involving development of a new technology y Projects involving product implementation of an indigenously developed technology on a commercial scale y Projects involving implementation of an innovative technology imported/transferred from abroad Appraisal Financing decisions are based on factors such as new or existing company. VCF of ICICI Venture Capital Fund assistance was launched by ICICI in 1986. The normal debtequity ratio of 3:1 is expected by the SFCs in the case of small-scale units. the flexible charges and repayment period are appraised. desirable debt equity ratio. It aimed at encouraging new technocrats in the private sector in new fields of high technology with high inherent risk. . The maximum assistance that can be sanctioned. with preference being given to industrial units promoted by new entrepreneurs who may not have academic qualifications but possess some practical experience in the line of manufacture they intend to start.2 lakhs. and the expected financial returns are commensurate with the risks.Some of the features of the scheme are as follows: Sectors Assistance from this fund is available for projects being set up in the priority sectors.

The corporation was set up as a wholly owned subsidiary of IFCI in January. This fund . UTI. Assistance is provided from this Fund mainly in the form of equity. This was later converted into µRisk Capital and Technology Finance Corporation Ltd¶. conditional loans and equity.20 crores consisting of 20 lakh units of Rs. aided scheme. also manages a Venture Capital Unit SchemeVECAUS-III. b. the scheme having been specially designed to extend support to technological innovations.1988. and convertible debentures. a. supporting the infrastructure for advanced or complex technologies and setting up pilot plants and prototype manufacture The RCTC. to set up technological ventures with a potential for fast growth. The RCTC¶s support to the venture is in the form of substantial equity.Operation ICICI operates the venture capital fund through two of its subsidiary companies such as the Technology Development and Information Company of India Ltd. conventional loans. Infrastructure Leasing and Financial Services Ltd.S. The programme commenced with a grant of US$ 10 million from USAID.30 crore with participation from UTI. though loans are also given wherever necessary. The Technology Finance and Development Scheme provides assistance for technology development by way of different financial instruments i. PACT The Program for Application of Commercial Technology (PACT) is a U. with a view to render the required assistance for technical advancement to the industry. And a few companies in the Tata group. This was constituted by converting the erstwhile Risk Capital Foundations (a registered society) into a corporate body. as an arm of IFCI. VCF of IFCI The venture capital fund was started by IFCI with the name µRisk Capital Foundation¶.. Finance is provided under the scheme for commercializing innovative technologies. in addition to managing its own scheme. TDICI The Technology Development and Information Company of India Ltd (TDICI) was set up in 1988. and the Program for Application of Commercial Technology (PACT). RCTC operates schemes such as the Risk Capital Scheme. The company was established by ICICI in collaboration with UTI with a capital of Rs. 1991 which was started with a resource base of Rs. Following are the features of the venture capital financing operated by the corporation: y y Providing finance in the form of equity to ventures financed by conventional financial institutions to fill the gap in the promoters¶ contribution stipulated by such institutions Encouraging the development of technology. The Risk Capital and Technology Finance Corporation Ltd¶. 1988. 100 each. subscribed by ICICI and UTI in equal proportions. IFCI and the World Bank in equal proportions. conditional loans.e. which provides assistance to the promoter and/or to the promoted company for meeting a part of the promoters¶ contribution. Its equity capital is jointly held by IFCI. began to enlarge its activities and to take up financing of technology development and its commercialization in January. (TDICI). The Fund gas been administered by the ICICI since August 1986. and venture capital scheme.

and set up the CanBank Venture Capital Fund in 1989 with a corpus of Rs. Promoters¶ contribution will be in the range of 10 to 15 percent. SBI capital venture capital fund It was set up by SBI Capital Markets Ltd with a corpus of Rs. India investment fund This Fund was set up by the ANZ Grindlays Bank. a higher contribution could also be insisted. 10 crores. both Indian and foreign. who are advisors to the fund. (SICOM). Other Venture Funds In addition to the above. 3.3 and Rs. Assistance is provided to projects in other sectors too. A brief description of some of these venture funds is presented below: 1. The objective of the fund is to adopt an innovative approach to promote new capital issues. chemicals including drugs and pharmaceuticals and electronics. Based on the financial position of the entrepreneur. and its growth potential. The assistance from the fund will normally be in the form of equity. loan assistance is also considered. 5. Similarly. assistance is available in the form of equity as well as loan. APIDC-VCL This fund was set up by the Andhra Pradesh Industrial Development Corporation through its subsidiary µVenture Capital Ltd¶ in June. The fund finances the start-up cost of entrepreneurs. CanBank financial services ltd It is a subsidiary of Canara Bank. 1990.has been fully committed to various ventures and RCTC is planning to set up another fund structured on lines similar to VECAUS-III.10 crores. The thrust areas identified for investment include biotechnology. particularly in sluggish capital markets. 6. and keep to meet the need for new sources of finance to assist in the nation¶s economic expansion. This fund-raising initiative was sponsored by ANZ Grindlays. of which the remaining Rs. This was the first Indian private venture capital fund set up with an initial capital of Rs. The main objective of the fund is to achieve capital growth for its investors through participating in fast growing companies or high technology firms with a potential for fast growth.9 crores to the fund of Rs. 1990.5 crores. but in cases where loan facilities are not available on conventional terms from other financial institutions. The fund helps the promoters of new or existing businesses in sharing the risks and rewards of equity . 2. and also by many private entrepreneurs. The India Investment Fund has been subscribed mainly by Non-resident Indians to create the first private venture capital fund for India. 4. 4. As its main promoter. 13. 20th century venture capital fund This Fund was established with a corpus of Rs. The fund envisages to focus on sick industries and first generation entrepreneurs. 20 crores by the 20th Century Finance Co.1.5 crores respectively to the fund. APIDC subscribes Rs. SICOM venture capital fund The Fund was set up by the State Industrial and Investment Corporation of Maharashtra Ltd. venture capital funds were also started by a number of commercial banks. The Fund was established to provide early stage finance to first generation entrepreneurs and technocrats with concrete ideas and projects. which started operations in April. IDBI and Andhra Bank have committed Rs. Ltd. Attention is paid to the innovativeness of a project relating to the product and processes. It purchases new issues with the objective of unloading them at a later stage when the market picks up. out with a bigger corpus and wider participation. New ventures were financed through its ³Bought out deals´.10 crores.5 crores is subscribed by the World Bank.

floated in 1990. as also other sectors eligible to receive Non-resident Indian investment which can demonstrate considerable potential for capital growth. 10 crores. The GVFL¶s investment philosophy aims at providing finance for innovations in technology leading to an improvement in product quality and energy conservation. The assistance under the scheme would be available not only for establishing new projects but also for the purpose of rehabilitation of small viable sick units. the balance being held by international institutions.investment. 9.24 crores contributed by GIIC (with support from the World Bank). The fund has a resource base of Rs. IDBI and some private companies. Both these funds are close-ended and have been set up as offshore funds for US$7. as well as in urban areas with a population below 5 Lakhs. and India Investment Fund.. The Union Government makes a provision of Rs. started in 1990.5 millions and $15 million. While GIIC holds 40 percent of the equity capital of GVFL. Those seeking assistance under the scheme will be evaluated by the primary lending banks. including groups of such entrepreneurs who organize themselves as an industrial cooperative or in any other legal form are eligible for assistance. respectively. namely. The . These funds provide finance mainly by way of equity or convertible debentures. New entrepreneurs establishing industrial projects in the tiny or small-scale sector. India Investment Fund Ltd.1 crore. (GIIC) in association with Gujarat Lease Finance Corporation Ltd. (GVFL) The GVFL is a fund management company. Gujarat venture finance ltd. the rest of its capital has been contributed by the other three organizations. The Fund is aimed at providing seed capital assistance to small entrepreneurs in the rurul areas of the country. and Gujarat State Fertilizer Corporation Ltd. subject to banks being satisfied about the viability of the rehabilitation proposals. the Gujarat Alkalies and Chemicals Ltd. National equity fund This Fund was set up by the Central Government for small entrepreneurs in August 1988 with a corpus of Rs. launching a new product/process based on imported/indigenous know-how/technology and the commercialization of technology from the pilot plant stage. Non-resident Indians hold over 60 percent of both the funds..5 crores and IDBI provides a matching contribution. The maximum assistance made available to one venture is limited to Rs. It acts as a trustee manager of a venture fund called µGujarat Venture Capital Fund¶. Grindlays bank venture capital The Grinklays bank has promoted two funds. IDBI administers the scheme. The terms of assistance of the Fund are: y Debt-equity ratio of 3:1 y Minimum promoters¶ contribution at 10 percent of project cost y Nominal interest is 1 percent per annum which may be retained by the primary lending bank y Loan repayable over a maximum period of 7 years including an initial moratorium of up to 3 years No security (including collateral) need be provided by borrowers for the soft loan. 7. floated in 1987. with particular emphasis on developments which exploit new technology. The GVFL was promoted by Gujarat Industries Investment Corporation Ltd. 8. IDBI provides guidelines to banks for evaluation of entrepreneurs. to invest in a broad range of activities.

IDBI. Lazard credit capital venture fund (VCCVF) It was originally established in 1986 as Credit Capital Venture Fund Ltd.08%). two separate funds for Rs. formed under the Indian Trust Act. The Fund aims at being a value-adding partner of the entrepreneur to help realize the full potential of the ventures.10. (CCVF). Individual/corporate bodies have made the capital contribution. has floated VECAUS-I and II. it has been known as ILFS Venture Fund Corporation. It is entitled to a management fee and carries interest. Asian Development Bank (11. first and second stages. 50 lakh. The IVML has been entrusted with the management of the Indus Venture Capital Fund-I (IVCF). 10 crores each have been floated by the same group for financing information technology projects and autoancilliary projects. a Unit Trust. Indus venture management limited (IVML) Shri. Tax exemptions are available to such schemes. Examples include the Venture Capital Unit Schemes (VECAUSs) of the companies sponsored by UTI. the former Director of Unilever. Thomas. has floated the VECAUS-III. A brief description of the kind of structure adopted by the venture capital companies in India is presented below: Investment Company The Lazard Credit Capital Venture Finance Corporation Ltd (formerly Credit Capital Venture Finance Corporation Ltd. Commonwealth Development Corporation (11. . Its present capital base is Rs.56%). It provides finance to ventures with a high growth potential in the early. The funds follow a hands-off approach in nurturing the investment. It has also recently launched ten state funds of Rs. An asset management company manages the trust.8 crores contributed by Credit Capital Group (18. The Fund follows a hands-on approach Recently. a limited partnership type of organization is not allowed in India. 11. Ever since Infrastructure Leasing and Financial Services Ltd. Deutsche Bank. Such companies are extended tax concessions under the CBDT guidelines (1995). The maximum assistance to a venture is restricted to Rs. IFCI. International Finance Corporation (Washington) and a few other national/international organizations. Unit Trust The Indus Venture Fund is an example of a unit trust form of structure. Unlike in the USA. The Trust subscribes to their corpus in collaboration with other institutions/organizations.50%). TDICI Ltd.) and ILFS Venture Capital Company Ltd are examples of venture capital companies organized as investment companies.30%). promoted this Fund.56%) and the public (39. as a scheme of the Unit Trust of India (UTI) or as a division of a financial institution/bank. venture capital companies are floated as schemes of UTI. Bank of India (19.10 crore each. both at the initial stage and for expansion. the UTI-sponsored institution. Scheme of UTI Under this structure. 10. Accordingly. ORGANIZATIONS STRUCTURE Venture capital companies are structured on the lines of an investment company. (ILFS) acquired it in 1996. and another sponsored institution RCTC Ltd..fund¶s investment focus is on financing of young and mature ventures. T. Thomas & Associates.

if any. REGISTRATION OF VNETURE CAPITAL RUND (VCF) Main requirements under SEBI (Venture Capital Funds) Regulations. as the case may be. is not involved in any litigation connected with the securities ma4rket which may have an adverse bearing on . d. Set up It is set up or established under the laws of the Central or State Legislature. principal officer or employee has not at any time been convicted of any offence involving moral turpitude or any economic offence. 1908 (16 of 1908). etc According to SEBI venture capital regulations. b.Venture capital companies can also be set up as a division of a financial institution or a bank. venture capital funds can be structure either as a company under the Companies Act. Registered deed The instrument of trust is in the form of a deed and has been duly registered under the provisions of the Indian Registration Act. Where the application is made by a body corporate a. IFCI and banks such as Canara Bank. Conviction The directors or the trustees. Objective The main object of the trust is to carry on the activity of a venture capital fund. C. Where the application is made by a company a. c. B. Objective The main objective of the Memorandum of association is to carry on of the activity of a venture capital fund. ICICI. Prohibition It is prohibited by its memorandum and articles of association from making an invitation to the public to subscribe to its securities. 1996. 1882. Conviction It is necessary that its director. Permission The applicant is permitted to carry on the activities of a venture capital fund c. Conviction The directors of its trustee company. 1996 The following are the eligibility criteria for grant of a certificate of registration as per regulation 4 of SEBI (Venture Capital Funds) Regulations 1996. Grindlays bank. Litigation It is necessary that its director or principal officer of employee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant. been convicted of any offence involving moral turpitude or of any economic offence. 1956 or as a trust under the provisions of the Indian Trust Act. as the case may be. if any. d. The directors or the trustees. h. b. if any or a trustee has not at any time. Where the application is made by a trust a. of such body corporate. of any trustee should not be involved in any litigation connected with the securities market which may have as adverse bearing on the business of the applicant. Litigation The directors of its trustee company. of such body corporate have not been convicted of any offence involving moral turpitude or of any economic offence. A.Division of a financial institution/bank : . Examples in this category include venture capital scheme floated by institutions such as IDBI. c.

indicating the capacity in which they are Registered along with the SEBI Registration number 2. Additional Information The following additional information shall also be furnished : 1. Whether the applicant or any of its directors have been found guilty of fraud. or initiated any other action under the provisions of SEBI Act or lunched any prosecution for acts committed during their association Other Documents to be Submitted to SEBI Memorandum and Articles of Associatio9n of applicant company. permits the applicant to carry on venture capital fund activities. Executed copy of Investment Management Agreement. etc as the case may be. Suspended under Regulation 30 or cancelled under Regulation 31 and the applicant is a fit and proper person. Whether any of the directors or employees of the company or group/associate companies were ever associated with any organization as a director or an employee against whom SEBI had initiated action of suspension or cancellation of certificate of registration. which are registered/required to be registered with reserve Bank of India (RBI) as a Banking company. Details of registration of the company/associate/group companies. or Non Banking Finance Company or in any other capacity and address (es) of concerned branch office (s) of RBI 6. While applying. 1996 1. Disclosure of the investment strategy as required under Regulation 11 (a) of the SEBI (Venture Capital Funds ) Regulations. and the main objective of constitution in case of body corporate 2. APPLICATION FOR REGISTRATION An applicant should apply for registration in Form A prescribed under First Schedule of SEBI (Venture Capital Funds) Regulation 1996 along with the requisite fees. All documents should be enclosed as specified in the form. executed copy of trust deed if the fund is being set up as a trust. to expedite the registration process 8. have been convicted of an offence involving moral turpitude or have been found guilty of any economic offence 5. A complete list of the group/associate companies registered with SEBI. Whether the applicant or its group/associate companies are listed on any of the recognized stock exchange (s) in India. if applicable 3. by a regulatory agency in India or abroad 4. Details of disciplinary action taken By RBI against any o0f the group/associate companies 7. 3. it shall be ensured that the main object clause of the memorandum of the applicant company/trust deed. . Whether there have been any instances of violation of or non-adherence to any securities related regulations and whether any action has been taken against the applicant or any associate/group companies in this regard.the business of the applicant. Applicant can submit µno objection certificate¶ from RBI to get registered with SEBI.

Nature of business Whether the applicant is an investment company. in investment trust. c. Application for Registration The applicant must submit the application in Form A as specified in the First Schedule to SEBI (Foreign Venture Capital Investors) Regulation. investment partnership. Refusal and fitness The applicant has not been refused a certificate by the Board and the applicant is a fit and proper person. f. professional competence. charitable institution or any other entity incorporated outside India. b. Track record The applicant¶s track record. is an income tax payer. pension fund. Authorization Whether the applicant is authorized to invest in venture capital fund or carry on activity as a foreign venture capital investor. university fund. financial soundness. . general reputation of fairness and integrity.4. or whether the applicant is an asset management company. Regulation Whether the applicant is regulated by an appropriate foreign regulatory authority. 2000 along with requisite fees as prescribed under Second Schedule of the Regulation. The application and other documents as specified in Form A should be submitted in duplicated on set of documents is forwarded by SEBI to RBI for the purpose of approval for making an investment in India. experience. e. 2000 The following are the eligibility criteria for grant of a certificate of registration in accordance with Regulation 4 of SEBI (Foreign Venture Capital Investors) Regulation. submits a certificate from its banker a document of its promoter¶s track record where the applicant is neither a regulated entity nor an income tax payer. d. SEBI grants certification of registration to the applicant as a venture capital funds Registration of Foreign Venture Capital Investor (VCI) Main requirements under SEBI (Foreign Venture Capital Investors) Regulation. Approval Whether the applicant has been granted the necessary approval by RBI for making investments in India. investment management company or any other investment vehicle incorporated outside India. 2000 a. Undertaking that the venture capital fund will not make an investment in any area listed under Third Schedule to SEBI (Venture Capital Funds) Regulations. investment manager. endowment fund. While applying. it must be ensured that the objective of the memorandum of association/constitution document of the applicant company permits it to carry on venture capital fund activities. 1996 GRANT OF CERTIFICATE OF REGISTRATION Once all the above requirements have been complied with and requisite the fees as per Second Schedule Regulations has been paid. mutual fund. Copies of letters of commitment from investors in suppo9rty of the target amount proposed to be raised by the fund 5.

d. Copy of custodian agreement. entered into with a domestic custodian under Regulation 8 (b). a. Copy of Memorandum and Articles of Association/Constitution Document and Certified copy of Certificate or Incorporation. Whether the applicant or any of its directors have been found guilty of fraud or have been convicted of an offence involving moral turpitude or have been found guilty of any economic offence. b. by a regulatory agency in India or abroad. Confirmation that a designated bank in India has been appointed. Also. the following additional information shall be furnished: A complete list of your group/associate companies registered with SEBI. b. Certified copy of business license (if any). f. c. in any other capacity and address (es) of concerned branch office (s) of RBI. Disclose the investment strategy as required under Regulation 11 (a) of the SEBI (Foreign Venture Capital Investors) Regulation 2000. Copy of latest financial statements of the applicant or the promoters. Whether there have been any instances of violation of or non-adherence to any securities related regulations and whether any action has been taken against any of the associate/group companies in this regard. Details of registration of the company/associated/group companies. g. Declaration that the foreign venture capital investor will not make investment in any area listed under Third Schedule to SEBI (Foreign Venture Capital Investors) Regulation 2000. Details of disciplinary action taken by RBI against any of the group/associate companies. d. i. disclose the amount proposed to be invested in India. Profile of the Directors/Key personnel of the FVCI. Whether the promoter or its group/associate companies are listed on any or the recognized stock exchange (s) in India. Other Documents to be submitted to SEBI a. and also and the capacity in which they are registered and the SEBI Registration number. e.Additional Information While applying. which are registered/required to be registered with RBI as a Banking company or Non Banking Finance Company. . h. A brief write up on activities of the applicant and its group. c. of launched any prosecution for acts committed during their association. issued by the regulatory agency abroad. f. e. with which the applicant is registered. or initiated any other action under the provisions of SEBI Act. Whether any of the directors or employees of the company or the group/associate companies were ever associated with any organization as a director or an employee against whom SEBI had initiated action of suspension or cancellation of certificate of registration.

This had happened due to hands-on and hands-off venture capital funds encouraging ventures of technocrats and professionals. The fund aimed at encouraging the commercial application of indigenously developed technology and adapting imported technology. IDBI was the pioneer in the realm of venture capital business. Bibliography Financial Services & System by Dr. high return and high technology new ventures. A noteworthy role has been played by commercial banks in the venture capital industry. Venture capital. IDBI also operates a seed capital scheme for providing indirect assistance to SSI. They play a critical role as catalysts by providing capital and other support for new ventures. is beginning to have an impact on Indian¶s economic development.Conclusion Adequate and timely capital is sine quo-non for the effective development and growth of an economy.Guruswamy Management Financial Services by C.S.Ramesh Babu www.com . Venture capitalists play a significant role in the Indian financial market. thus generating employment. They contribute to the growth of the vast technical manpower in the country. Equally important is the role played by the private sector venture capital firms like Gujarat Venture Finance Limited. It launched its first VCF in the year 1986. The ICICI also has made a constituted by IFCI called µRisk Capital Foundation¶.google. etc. which is essentially a capital fund for financing high risk.

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